Nevada Federal District Court Weighs In On Whether A Mandatory Arbitration Agreement Is Enforceable

Volume 7, Issue 4
April 3, 2008

Over the past fifteen years, a steadily increasing number of employers have implemented mandatory arbitration programs, by which non-bargaining unit employees are required as a condition of employment to agree to arbitrate their claims against their employers and waive their rights to a jury trial. Not surprisingly, this trend has been matched by litigation over such issues as the circumstances under which such agreements are enforceable, the appropriate terms of such programs, and whether employers can force employees to arbitrate statutory claims, such as Title VII discrimination claims. Many agreements are invalidated on the same grounds as consumer arbitration agreements because they are standardized, consumer contracts that fail to place employees on notice of their arbitration obligations. Yet, the federal courts and the Nevada Supreme Court have clearly determined that employees can be compelled to arbitrate statutory claims, such as those under Title VII and the Family Medical Leave Act.

On February 28, 2008, a Nevada federal judge considered whether one company's arbitration agreement with its employee was an unconscionable, unenforceable "adhesion contract" in the case of Lyman v. Furniture for Less, Inc. The court first held that a mandatory standardized employment arbitration agreement is not an unenforceable adhesion contract. However, the court went on to determine that the agreement still must be analyzed under the standards of a 2004 Nevada Supreme Court decision which invalidated as unconscionable an arbitration agreement located on the reverse side of a home purchase agreement. Under Nevada law, an agreement must be procedurally and substantively unconscionable to be declared unenforceable.

The court went on to hold as follows:

  • Even though the arbitration agreement was conspicuous and explicit in its placement (so the employee would notice it), the employee was not properly noticed that he/she was waiving rights to a jury trial. In other words, notifying the employee of the arbitration requirement was not necessarily notification that jury trial rights were being waived. Thus, the agreement was procedurally unconscionable.
  • The employee failed to prove that the cost of arbitration was too burdensome upon the employee. As such, the agreement was not substantively unconscionable. Because it was not both procedurally and substantively unconscionable, the agreement was enforceable.

While not invalidating the agreement in this particular case, the court left open the opportunity for future challenges by employees seeking to prove that their costs in arbitration will be too high for them to effectively litigate their rights as compared to actions in court.

Companies considering mandatory arbitration programs have several hurdles -- not the least of which is whether the resulting agreement will be enforceable when resisted by the employee once the claim has arisen. There are many important considerations entailed in deciding whether to implement such a program. Gregg Kamer and Carol Zucker outlined those considerations in a 2001 article whose points are as relevant now as then: /pdfs/library_arb_article.pdf

Lyman v. Furniture for Less, Inc., No. 3:06-CV-00666-ECR-RAM (D. Nev. February 28, 2008)

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.