Cooper v. MRM Investment Co.
2002 WL 753832, 2002 U.S. Dist. LEXIS 8098, 199 F. Supp. 2d 771 (2002)
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Rule of Law:
A mandatory, pre-dispute arbitration agreement presented as a take-it-or-leave-it condition of employment is unenforceable as an unconscionable contract of adhesion if its terms are oppressive and it imposes potentially prohibitive costs that would prevent an employee from effectively vindicating their federal statutory rights.
Facts:
- On or about January 8, 2000, Sarah Cooper was hired by MRM Investment Co. ('MRM'), a Kentucky Fried Chicken ('KFC') franchisee, to work at its Waverly, Tennessee location.
- Prior to commencing work, and as a condition of employment, Cooper signed a document titled 'Arbitration of Employee Rights.'
- The agreement stipulated that Cooper and KFC, including its 'related companies', would use confidential binding arbitration for all employment-related claims, such as sexual harassment.
- The agreement specified that the rules of the American Arbitration Association ('AAA') would apply to any proceedings.
- Cooper alleged that Terry Rogers, an owner of MRM, sexually harassed her during her employment.
- Cooper claimed that due to the harassment, she was constructively discharged from her job on or about August 2000.
Procedural Posture:
- Sarah Cooper filed a lawsuit against MRM Investment Co. and Terry Rogers in the U.S. District Court for the Middle District of Tennessee.
- Cooper's complaint alleged violations of Title VII of the Civil Rights Act of 1964 and the Tennessee Human Rights Act.
- The Defendants filed a Motion to Dismiss, or in the alternative, to Compel Arbitration and Stay Proceedings, based on the arbitration agreement Cooper signed.
- The Plaintiff filed a response opposing the Defendants' motion.
- The district court held a hearing for oral arguments on the motion.
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Issue:
Is a mandatory arbitration agreement, signed as a condition of employment, unenforceable under Tennessee contract law as an unconscionable contract of adhesion when it requires a low-wage employee to bear costs that would prevent the vindication of federal statutory rights?
Opinions:
Majority - Nixon, J.
No. The mandatory arbitration agreement is unenforceable because it is an unconscionable contract of adhesion under Tennessee law. The court found the agreement was procedurally unconscionable as a contract of adhesion, presented to a low-wage employee on a 'take it or leave it' basis with no realistic opportunity to bargain. The court also found it substantively unconscionable because its terms were oppressive, the waiver of the right to a jury trial was not knowing and clear, and the overall inequality of the bargain was 'so manifest as to shock the judgment of a person of common sense.' Furthermore, by incorporating AAA rules that impose significant fees on the initiating party, the agreement creates a prohibitive financial barrier that prevents Cooper from being able to vindicate her federal statutory rights under Title VII. The court rejected the defendant's post-litigation offer to pay all costs, reasoning that allowing employers to sever invalid provisions only when challenged would create an incentive to draft overreaching and unlawful agreements.
Analysis:
This district court opinion exemplifies how courts apply state-law contract defenses, specifically unconscionability, to invalidate mandatory arbitration agreements under the Federal Arbitration Act. The decision emphasizes a fact-sensitive inquiry, focusing on the vast disparity in bargaining power between a large corporation and a low-wage employee. It establishes that even if an arbitration agreement is formally bilateral, it can be found unconscionable due to an 'asymmetry born out of a difference in bargaining power.' The ruling also sets a critical precedent for rejecting an employer's after-the-fact offer to pay arbitration costs, viewing it as a tactic that encourages the drafting of illegal agreements, thereby deterring employees from vindicating their rights.
