Thursday, June 17, 2010

arbitration - one-sidedness; belated resort to arbitration

Nino v. The Jewelry Exchange - 3d Cir. - June 15, 2010

Rajae Nino brought this action against his former employer, alleging that he was discriminated against on account of his gender and national origin. After litigating the matter before the District Court for fifteen months, the employer invoked an arbitration provision in Nino’s employment contract and moved the District Court to compel the parties to arbitrate their dispute.

Nino opposed the motion, arguing (1) that the arbitration agreement was unconscionable and, therefore, unenforceable, and (2) that by engaging in extensive litigation of this dispute, the employer had waived its right to compel arbitration.

The District Court concluded that although the arbitration agreement contained unconscionable terms, those provisions could be severed from the contract and the remainder of its terms could be enforced. The Court then concluded that the employer did not, through its litigation conduct, waive its right to compel arbitration. We disagree.

In our view, the pervasively one-sided nature of the arbitration agreement’s terms demonstrates that the employer did not seek to use arbitration as a legitimate means for dispute resolution. Instead, the employer created a system that was designed to give it an unfair advantage through rules that impermissibly restricted employees’ access to arbitration and that gave the employer an undue influence over the selection of the arbitrator.

We hold that it is not appropriate, in the face of such pervasive one-sidedness, to sever the unconscionable provisions from the remainder of the arbitration agreement. We further conclude that the employer, by engaging in protracted litigation of this matter before belatedly seeking to arbitrate its dispute, waived its right to compel arbitration. We will thus reverse the District Court’s order compelling the parties to arbitrate.

>