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December 13, 2014 Practice Points

District Court Enforces Arbitration Clause in Employment Contract

By Mitchell Marinello

A district court in Tennessee has enforced an arbitration clause in an employment contract despite the former employee’s claim that it was an unenforceable contract of adhesion.

In Kyles v. TRG Customer Solutions, Inc., 2014 WL 6908969 (M.D. Tenn. Dec. 5, 2014), Kyles filed an action alleging that TRG, his former employer, violated his rights under the Family and Medical Leave Act and the Tennessee Human Rights Act. TRG moved to stay or dismiss the action based on an arbitration agreement between the parties. In his response, Kyles argued that the arbitration agreement was an unenforceable contract of adhesion.

Tennessee law defines adhesion contracts as contracts presented on a “take it or leave it” basis that do not provide the weaker party a realistic opportunity to bargain and where the weaker party can obtain the desired service (here, employment) only by agreeing to the contract as presented to him. Kyles submitted an affidavit attesting to the difficulty he had had in obtaining a job and explaining in detail the many places to which he had applied for a job without success before being hired by TRG. He contended that, if he had not signed the arbitration agreement, he likely would not have been able to find suitable work elsewhere, and that he had no choice but to sign the agreement with its arbitration clause in the form that TRG presented it. The court found Kyles’ testimony to be specific enough to show that he likely would not have found alternate suitable employment had he not signed the arbitration agreement that TRG required.

The court then analyzed whether the arbitration agreement was unconscionable. The court noted that the agreement was mutual in that it required both parties to submit their claims to arbitration and gave both parties the right to bring certain types of claims in a court of law. For example, any claims that Kyles had for workers’ compensation or unemployment benefits were not covered by the arbitration clause. The court also noted that the agreement gave Kyles sufficient notice that it contained an arbitration provision. The court further found that there was consideration for the arbitration agreement. Consideration was present both in the fact that TRG hired Kyles and because both parties promised to arbitrate rather than litigate certain categories of future claims.

The upshot was that the arbitration agreement was found to be valid and enforceable.

Keywords: alternative dispute resolution, litigation, adhesion, unconscionable, choice, mutual, consideration

Mitchell L. Marinello is with Novack and Macey LLP in Chicago, Illinois.

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Mitchell Marinello – December 13, 2014