Arbitration & Mediation

Yet Another Way to Commit Malpractice: Draft an Unenforceable Arbitration Clause

By Victoria Pynchon

Before I begin to get hate mail from attorneys about this series, let me say that it is meant to sound the alarm, raise red flags, and make attorneys overly cautious so that our clients wouldn't even ever think of suing us for malpractice.  

I don't mean to suggest here that drafting an arbitration clause a Court refuses to enforce or to apply to a given claim constitutes malpractice.  The way the Courts are dealing with arbitration clauses these days, it's probably not outside the standard of care to fail to satisfy their passing fancies on scope and unconscionability.  

I do, however, WANT TO DISCOURAGE ALL LAWYERS FROM USING BOILER PLATE ARBITRATION CLAUSES which is why I'm alerting you to yesterday's opinion by the Fifth Circuit Court of Appeal refusing to apply Halliburton's employment arbitration provision to a sexual assault claim. 

Here's the clause. 

 You understand that the Dispute Resolution Program requires, as its last step, that any and all claims that you might have against Employer related to your employment . . . must be submitted to binding arbitration instead of to the court system.

Pretty broad, but not, according to Jones v. Halliburton, broad enough to include a sexual assault claim that occurred in worker housing.  With one Justice dissenting, the Court was careful to limit is opinion strictly to the facts of the case before it.  Here's the holding: 

The one consensus emerging from [our] analysis is that it is fact-specific, and concerns an issue about which courts disagree. When deciding whether a claim falls within the scope of an arbitration agreement, courts 'focus on factual allegations in the complaint rather than the legal causes of action asserted'. Waste Mgmt., Inc. v. Residuos Industriales Multiquim, S.A. de C.V., 372 F.3d 339, 344 (5th Cir. 2004) .Here, the allegations are as follows: (1) Jones was sexually assaulted by several Halliburton/KBR employees in her bedroom, after-hours, (2) while she was offduty, (3) following a social gathering outside of her barracks, (4) which was some distance from where she worked, (5) at which social gathering several co-workers had been drinking (which, notably, at the time was only allowed in 'non-work' spaces).

                                         *                     *                   *

Under these circumstances, the outer limits of the 'related to' language of the arbitration provision have been tested, and breached. Halliburton/KBR essentially asks this court to read the arbitration provision so broadly as to encompass any claim related to Jones' employer, or any incident that happened during her employment, but that is not the language of the contract. We do not hold that, as a matter of law, sexual-assault allegations can never 'relate to' someone's employment. For this action, however, Jones' allegations do not 'touch matters' related to her employment, let alone have a 'significant relationship' to her employment contract.

N.B.  Review the case law; forecast the types of claims that might be made against your client.  Tell the client there's no way you can provide it with any absolute assurances that the arbitration clause will be enforceable in every given situation.  Say that in writing.  Do your best.  Maintain a great working relationship with your clients and you'll be fine.  Just fine.

Hat tip to Pop Tort for the head's up on this case!

Full post as published by Settle It Now Negotiation Blog on September 16, 2009 (boomark / email).