Enforcement Of “Customized” Arbitration Agreements

Oct 2 2018

One benefit of arbitration is that parties of equal bargaining power can provide for a method of settling disputes which is alternative to the court system.  A negotiated arbitration agreement, which allows parties to resolve disputes quickly and at reduced cost, can dispense with many procedures which apply in court.  An expedited, more informal process can allow businesses who have commercial disputes to continue doing business together, or can allow construction projects to proceed while specific questions are being resolved.  In general, the theory is that a relationship can be preserved if the dispute resolution process is sensible for both parties.  Equal negotiating power, in general, insures an outcome which is sensible, as neither party can impose unreasonable terms or conditions on the other.

Arbitration in the employment and consumer sectors of our economy, however, is different.  Most employees (with the exception of highly-compensated executives) do not have much power to negotiate the terms and conditions of employment.  Consumers buying products have no negotiating power.  The theory in these areas is that employees and consumers can “vote with their feet” by refusing to accept the job or refusing to buy the product.

In the real world, however, consumers won’t find out about an “arbitration agreement” until they have opened the box and (perhaps) read the manual enclosed in it.  Since most consumers believe that the product is going to work, it is the rare one indeed that will return it just to protest an arbitration provision.

In the real world, however, the employee who has successfully interviewed for an interesting job may have been the one who was selected over 100 other applicants, in a tough job market.  That employee also believes that the future will be fine at the workplace.  Almost no one would quit a job, before it even starts, in protest that arbitration is the method the new employer has chosen to resolve disputes, which may never arise.

Because the “vote with your feet” concept is unrealistic in these venues, manufacturers and employers have, in some instances, tried to “customize” the arbitration process to their benefit only.  One method which has had mixed results is to shorten the statute of limitations.

Ten or fifteen years ago, a few employers successfully inserted six-month limitations periods in arbitration agreements.  In a race discrimination case brought in 1992 under Section 1981 in the 7th Circuit, for example, the court upheld a six-month statute of limitations.  At that time, however, it was not settled that the section 1981 statute of limitations was four years, so there was a reasonable argument that six months approximated the most analogous state limitations period.  In general, many courts in those years saw the issue as whether the shorter statute of limitations was unreasonable or oppressive, giving undue advantage to one party.

Not content with shortening a limitations period to six months, more recently some companies have provided that all claims must be made within as short a time period as 30 days.  These attempts have not succeeded.  In particular, courts have been offended that a private employer has sought to modify statutory limitations periods which are part and parcel of public policies against discrimination or other employee-protective statutes.  Since 2000, various attempts to shorten the statute of limitations have failed, whether the shortened period was 30 days, 90 days, six months or even one year.

Of course, one can search forever for the case in which a company has allowed a longer statute of limitations for claims.  To my knowledge, no such case exists.  Fooling with the statute of limitations is always one-sided, and is always meant to benefit the drafter.  A statute of limitations is part and parcel of a right itself.  “Customizing” it should always be unconscionable, and never enforceable, when the contract is of the “take it or leave it” variety.

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Joseph D. Garrison

Advocating for Employees
since 1977

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