The Federal District Court in Maryland recently issued a ruling that should give Maryland employers some concern. In Jeffrey B. Mould v. NJG Food Service Inc., et al., the Court examined the effect of an arbitration agreement on an employee’s federal and state wage claims. Most practitioners know that arbitration is generally favored by the courts and is hotly contested by plaintiffs, who prefer to try their claims before a jury. This case was no exception, although the outcome was a bit unexpected.
Plaintiff Scott Clempner was a server at the Crab Bag in Ocean City, Maryland between March 2011 and September 2013. After Mr. Clempner filed claims against various Defendants alleging violations of the FLSA and Maryland’s wage laws, the defendants sought to compel arbitration based on an arbitration agreement he signed in June 2013 – over two years after his employment began. Mr. Clempner’s wage claims encompassed, at least in part, the time period before he signed the arbitration agreement.
After the Court ruled that the arbitration agreement applied to Mr. Clempner’s claims that accrued before he signed the arbitration agreement, it addressed whether the arbitration agreement was procedurally and substantively unconscionable and, if so, invalid. Applying Maryland law, the Court ruled that since the arbitration agreement was presented on a “take it or leave it basis” and Mr. Clempner had no opportunity to bargain about its terms, it was procedurally unconscionable.
The Court then addressed whether the agreement was substantively unconscionable, which was also required to invalidate the arbitration agreement. The Court noted that while the agreement bound both parties equally for prospective claims, it treated Mr. Clempner much worse than Defendants for past claims that already accrued and existed at the time the arbitration agreement was signed. Essentially, Mr. Clempner gave up the right to sue in court for existing claims while Defendants gave up nothing. Because of this disparity, the Court ruled that the arbitration agreement was unreasonably favorable to Defendants and, thus, invalid.
Employers should be aware that this is simply one case that tracks against numerous rulings in favor of arbitration. However, they also should be aware that courts are going to take a more detailed look at exactly what claims, if any, existing employees are giving up when they execute arbitration agreements.