Why It Is So Difficult to Invalidate a Mandatory Arbitration Clause in New York August 2, 2010

Over the last few months, I’ve been asked why certain mandatory arbitration provisions in an employment agreement couldn’t be invalidated on the grounds that the employees were “forced” to sign it against their will on threat of losing their job.

The reason is fairly simple: the courts – beginning with the United States Supreme Court – have clearly sided in favor of upholding arbitration provisions rather than invalidating them.

First, and at the outset, one New York Federal Judge held that claims of adhesion are generally considered objections to a contract and not to an arbitration provision. See Wright v. SFX Entm’t Inc., 00 Civ. 5354, 2001 WL 103433, at *3 (S.D.N.Y. Feb. 7, 2001). Applying this rule, the court held that the question of whether the arbitration clause was enforceable had to be determined by the arbitrator rather than the courts.

Moreover, and in any event, the courts generally disfavor invalidating contracts on grounds of adhesion or unconscionability, stating: “A court will find adhesion only when the party seeking to rescind the contract establishes that the other party used ‘high pressure tactics,’ or ‘deceptive language,’ or that the contract is unconscionable.

“Typical contracts of adhesion are standard-form contracts offered by large, economically powerful corporations to unrepresented, uneducated, and needy individuals on a take-it-or-leave-it basis, with no opportunity to change the contract’s terms.”

To that end, and in the employment context, the United States Supreme Court stated as follows: “The unequal bargaining power between employers and employees is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context. Cf., e.g., Rodriguez de Quijas, supra, at 484, 109 S.Ct., at 1921-1922. … Such a claim is best left for resolution in specific cases.”  Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647 (1991).

In light of the Supreme Court’s relatively clear language on the subject, a trial court’s unwillingness to challenge it in a specific case is quite understandable.

Jonathan Cooper is a New York Business Litigation and New York Commercial Litigation Lawyer with a focus on New York breach of contract and New York business fraud claims before the Nassau, Queens, Brooklyn, Bronx, Westchester and Suffolk County courts of New York State. For more information, feel free to contact his Long Island office at 516-791-5700.

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