10–13-09: The West Vir­ginia Supreme Court addressed the enforce­abil­i­ty of employ­ment arbi­tra­tion agree­ments in State ex rel. Clites v. Clawges, 224 W. Va. 299, 685 S.E.2d 693 (2009) (opin­ion at Find­law’s web site). This Clites deci­sion is dis­cussed in my chart of West Vir­ginia Supreme Court deci­sions.

Clites Goes to Work for TeleTech and Signs an Arbitration Agreement

The plain­tiff, Jill Clites, went to work for TeleTech in Octo­ber 2004 as a Cus­tomer Ser­vice Rep­re­sen­ta­tive. Dur­ing new employ­ee ori­en­ta­tion, Clites met with a human resources rep­re­sen­ta­tive for about 90 to 120 min­utes, dur­ing which time Clites reviewed and signed a large num­ber of doc­u­ments relat­ed to the ori­en­ta­tion. In the record before the West Vir­ginia Supreme Court, there were dis­putes over whether indi­vid­ual doc­u­ments were dis­cussed with Clites and whether she was required to sing all the doc­u­ments dur­ing the ori­en­ta­tion ses­sion, but it appears that dur­ing that ses­sion Clites signed an arbi­tra­tion agree­ment which TeleTech required of most or all new employees.

Clites remained employed at TeleTech until July 12, 2007, when she was ter­mi­nat­ed. She then filed suit for sex­u­al harass­ment and retal­i­a­tion. Clites alleged she com­plained about the sex­u­al harass­ment, that TeleTech failed to take appro­pri­ate cor­rec­tive action, and that TeleTech retal­i­at­ed against her for the com­plaint by fir­ing her.

Clites Files Suit In West Virginia Circuit Court

Clites filed suit in West Vir­ginia Cir­cuit Court in Mor­gan­town. TeleTech then invoked the arbi­tra­tion agree­ment by fil­ing a motion to dis­miss the law­suit and by fil­ing a sep­a­rate law­suit in fed­er­al court argu­ing that Clites waived her rights to a jury tri­al by sign­ing the arbi­tra­tion agree­ment. In essence, TeleTech argued that Clites gave up her rights to file suit and to a jury tri­al by sign­ing the arbi­tra­tion agree­ment, and that her only rem­e­dy was to file an arbi­tra­tion pro­ceed­ing (with the Amer­i­can Arbi­tra­tion Asso­ci­a­tion) pur­suant to the arbi­tra­tion agreement.

Judge Rus­sell Clawges ruled that the arbi­tra­tion agree­ment was a “con­tract of adhe­sion”, which sim­ply means that it was a “stan­dard­ized form, con­tain­ing no indi­vid­ual terms, offered [by the employ­er] on essen­tial­ly a take it or leave it basis.” Con­tracts of adhe­sion are usu­al­ly described as con­tracts offered by the sub­stan­tial­ly more pow­er­ful par­ty in a trans­ac­tion as allow­ing for now negotiation–offered on a “take it or leave it” basis. Courts some­times but not always scru­ti­nize “adhe­sion con­tracts” more care­ful­ly, espe­cial­ly where they do in fact reflect sub­stan­tial dis­par­i­ties in nego­ti­a­tion power.

Judge Clawges did not auto­mat­i­cal­ly con­clude that the arbi­tra­tion agree­ment was there­fore not enforce­able. He looked at the more con­tro­ver­sial terms: requir­ing arbi­tra­tion to take place in Den­ver, Col­orado (instead of near the place of employ­ment, Mor­gan­town, West Vir­ginia), and requir­ing the par­ties to pay their own expens­es incurred in the arbi­tra­tion (which would make the arbi­tra­tion pro­ceed­ing sig­nif­i­cant more expen­sive for the plain­tiff, com­pared to the cost of fil­ing suit in West Vir­ginia Cir­cuit Court). Those terms would make arbi­tra­tion sig­nif­i­cant­ly more bur­den­some and expen­sive for the plain­tiff, com­pared to fil­ing suit and seek­ing a jury tri­al. Those results would have made it sig­nif­i­cant­ly more like­ly that a Court would decide the arbi­tra­tion con­tract to be “uncon­scionable”, which would make it unenforceable.

TeleTech, to address these more bur­den­some terms of the arbi­tra­tion agree­ment, stip­u­lat­ed (agreed) before Judge Clawges that the loca­tion of the arbi­tra­tion would be Mor­gan­town and that TeleTech would pay for all arbi­tra­tion costs which would exceed what Clites would have had to pay to file suit in West Vir­ginia Cir­cuit Court.

Judge Clawges, based on the TeleTech stip­u­la­tion, con­clud­ed that the arbi­tra­tion agree­ment was not uncon­scionable, and there con­clud­ed it was enforceable.

Clites then appealed to the West Vir­ginia Supreme Court.

The Federal Arbitration Act Does Not Preclude Review

The first issue for the Supreme Court was whether the Fed­er­al Arbi­tra­tion Act, 9 U.S.C. § 1 et seq. (“FAA”), pre­clud­ed any scruti­ny at all over the arbi­tra­tion agree­ment in ques­tion. The Unit­ed States Supreme Court has held that the “FAA” estab­lished the pol­i­cy of favor­ing arbi­tra­tion of dis­putes. Moses H. Cone Memo­r­i­al Hos­pi­tal v. Mer­cury Con­struc­tion Cor­po­ra­tion, 460 U.S. 1, 24 (1983). The US Supreme Court also held that the FAA pre­empts state laws which “under­cut” the enforce­abil­i­ty of arbi­tra­tion agree­ments. South­land Cor­po­ra­tion v. Keat­ing, 465 U.S. 1, 11 (1984); Per­ry v. Thomas, 482 U.S. 483 (1987). This rule also applies to claims specif­i­cal­ly cre­at­ed by state leg­is­la­tures, such as the dis­crim­i­na­tion claims under the West Vir­ginia Human Rights Act. Mit­subishi Motors Cor­po­ra­tion v. Sol­er Chrysler-Ply­mouth, Inc., 473 U.S. 614, 628 (1985).

While the West Vir­ginia Supreme Court in Clites rec­og­nized the fact that the FAA pre­empts state laws which would under­cut the enforce­abil­i­ty of arbi­tra­tion agree­ment, it held that the “issue of whether an arbi­tra­tion agree­ment is a valid con­tract if a mat­ter of state con­tract law” and is “capa­ble of state judi­cial review.”

The Arbitration Agreement In Issue Was Not Unconscionable

So the West Vir­ginia Supreme Court pro­ceed­ed to review TeleTech’s arbi­tra­tion agree­ment to deter­mine whether it was enforce­able under West Vir­ginia law.

The stan­dard for review­ing arbi­tra­tion agree­ments was set out by the West Vir­ginia Supreme Court as fol­lows: An arbi­tra­tion clause is “pre­sumed” to be “bar­gained for” and is pre­sumed to intend that the arbi­tra­tion pro­ceed­ing is the “exclu­sive means of resolv­ing dis­putes aris­ing under the con­tract”. How­ev­er, where a par­ty alleges that the arbi­tra­tion agree­ment was “uncon­scionable or was thrust upon him because he was unwary and tak­en advan­tage of, or that the con­tract was one of adhe­sion”, then the ques­tion is whether the arbi­tra­tion agree­ment was “bar­gained for and valid”, and that ques­tion is a “mat­ter of law for the court to deter­mine by ref­er­ence to the entire con­tract, the nature of the con­tract­ing par­ties, and the nature of the under­tak­ings cov­ered by the con­tract.” (quot­ing Board of Edu­ca­tion of the Coun­ty of Berke­ley v. W. Harley Miller, Inc., 160 W. Va. 473, 236 S.E.2d 439 (1977) (Syl­labus Point 3).

The West Vir­ginia Supreme Court, like Judge Clawges at tri­al, con­clud­ed TeleTech’s arbi­tra­tion agree­ment was a “con­tract of adhe­sion”. But that did not “nec­es­sar­i­ly means that it is invalid, and to deter­mine its valid­i­ty we look to oth­er factors”

The next step was to deter­mine “whether the Agree­ment is uncon­scionable or was thrust upon [the plain­tiff] because [she] was unwary and tak­en advan­tage of.” An analy­sis of uncon­scionabil­i­ty “must focus on the rel­a­tive posi­tions of the par­ties, the ade­qua­cy of the bar­gain­ing posi­tion, the mean­ing­ful alter­na­tives avail­able to the plain­tiff, and the exis­tence of unfair terms in the con­tract.” (quot­ing Art’s Flower Shop, Inc. v. Chesa­peake and Potomac Tele­phone Com­pa­ny of West Vir­ginia, Inc., 186 W. Va. 613, 413 S.E.2d 670 (1991)).

The Supreme Court then focused on the fact that TeleTech’s human resources employ­ee had a meet­ing of sub­stan­tial length (90 to 120 min­utes) with Clites, and Clites was required, like all oth­er new employ­ees, to sign an arbi­tra­tion agree­ment. Fur­ther­more, appar­ent­ly because of TeleTech’s stip­u­la­tion, the arbi­tra­tion agree­ment required arbi­tra­tion in Mor­gan­town instead of Den­ver, and TeleTech agreed to pay the costs of arbi­tra­tion beyond the costs of fil­ing suit in Cir­cuit Court.

The Court there­fore held that TeleTech’s arbi­tra­tion agree­ment was not uncon­scionable and was there­fore enforce­able. The result of the deci­sion is there­fore that Clites will be required to pur­sue her claim before the Amer­i­can Arbi­tra­tion Asso­ci­a­tion, and will not be allowed to pro­ceed to a jury tri­al in West Vir­ginia Cir­cuit Court.

Importance Of The Clites Decision

The first impor­tant aspect of the Clites deci­sion is that the rea­son­able­ness of an arbi­tra­tion agree­ment should be exam­ined in terms of the agree­ment itself plus any stip­u­la­tions (agree­ments) by the employ­er that might soft­en the bur­den­some effects on the employee/plaintiff. The fact that TeleTech’s arbi­tra­tion agree­ment required the arbi­tra­tion to take place in Den­ver, and required the employ­ee to bear the sub­stan­tial­ly high­er cost of arbi­tra­tion, would like­ly have cre­at­ed prob­lems for the enforce­abil­i­ty of the agree­ment. But TeleTech’s stip­u­la­tions essen­tial­ly removed those issues.

There­fore, employ­ers faced with trou­bling terms in an arbi­tra­tion agree­ment, from the stand­point of enforc­ing it in court, may stip­u­late after the employ­ee files suit to mod­i­fy the arbi­tra­tion agree­ment to make it more like­ly to pass judi­cial scruti­ny con­cern­ing its enforceability.

The sec­ond impor­tant aspect of Clites is that the Supreme Court care­ful­ly lim­it­ed its rul­ing to the facts of that case, and indi­cat­ed that under oth­er cir­cum­stances it would care­ful­ly scru­ti­nize the arbi­tra­tion agreements:

• There may be ques­tions of whether “suf­fi­cient con­sid­er­a­tion was giv­en in exchange for the” arbi­tra­tion agree­ment. The Court not­ed that it had pre­vi­ous­ly ruled that an employ­er’s “promise mere­ly to review an employ­ment appli­ca­tion in exchange for a job appli­can­t’s promise to sub­mit employ­ment-relat­ed dis­putes not asso­ci­at­ed with the appli­ca­tion process to arbi­tra­tion does not rep­re­sent con­sid­er­a­tion suf­fi­cient to cre­ate an enforce­able con­tract to arbi­trate such employ­ment dis­putes.” (quot­ing State ex rel. Say­lor v. Wilkes, 216 W. Va. 766, 613 S.E.2d 914 (2005)).
• The Court notes that its prece­dent has “his­tor­i­cal­ly giv­en close scruti­ny to adhe­sion con­tracts that abro­gate a par­ty’s con­sti­tu­tion­al enti­tle­ment to access to the courts.”
• The court would be “troubl[ed]” by forum selec­tion claus­es, con­tained in con­tracts of adhe­sion, which would require an employ­ee to arbi­trate dis­putes “in far-away juris­dic­tions, remote­ly removed from the employ­ee’s actu­al place of employ­ment or residence.”
• It would be “trou­bling” for an arbi­tra­tion agree­ment to require the employ­ee to be “sub­ject to the sub­stan­tive law of a far-away jurisdiction”.

This Clites deci­sion is dis­cussed in my chart of West Vir­ginia Supreme Court deci­sions.

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Drew M. Capuder

Attorney at Capuder Fantasia PLLC

Publisher of Drew Capuder's Employment Law Blog. Lawyer with more than 30 years of experience, focusing on employment law, commercial litigation, and mediation. Extensive trial and appellate experience in state and federal courts. Call Drew at 304-333-5261.

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