In Thomas v. Hyundai of Bedford, No. 108212 (January 23, 2020), the Eighth District Ohio Court of Appeals held that an arbitration clause in an employment contract was substantively and procedurally unconscionable because it sought to include as arbitrable all conceivable claims between the parties, even those outside the employment relationship. The Eighth District’s decision serves as a reminder of the benefits of well-tailored arbitration agreements.
Shannon Thomas worked for Midal I, LLC and Hyundai of Bedford (collectively, “Hyundai”) in May 2017 as a sales associate. Shortly after he commenced employment, Thomas alleged severe mistreatment because of his race. Thomas is an African American male and his complaint said that his coworkers and supervisors directed racial slurs towards him, were paid more than he was, and were not disciplined for their harassment.
On December 15, 2017, approximately seven months after commencing employment, Thomas signed an arbitration agreement that allowed him or Hyundai to compel arbitration under the Federal Arbitration Act to resolve any “Covered Disputes.” Thomas’s continued employment was conditioned on his signing the agreement. The agreement defined “Covered Disputes” as “any actual or alleged claim or liability, regardless of its nature, that [Hyundai] or its owners, managers, members, officers, employees, agents, or insurers may wish to bring against [Thomas], or that [Thomas] may wish to bring against [Hyundai] or any of [Hyundai’s] owners, managers, members, officers, employees, agents, or insurers” (emphasis added). The agreement excluded claims for unemployment compensation, workers’ compensation benefits, and those brought under the National Labor Relations Act.
In September 2018, Thomas sued Hyundai and two of his supervisors in their individual capacities for race discrimination and retaliation under Ohio’s antidiscrimination statute, Ohio Rev. Code § 4112. The defendants filed a motion to stay pending arbitration, which the trial court granted. Thomas appealed the decision.
The Court’s Analysis
The Eighth District reversed and remanded the case to the trial court, finding that the trial court had abused its discretion in granting the motion to stay. After dismissing some of Thomas’s other arguments, the Eighth District noted that arbitration clauses cannot be enforced if they are unconscionable. Unconscionability refers to contract terms that unreasonably favor one party, together with an absence of meaningful choice on the part of the other party.
According to the Eighth District, the arbitration agreement that Thomas signed was both substantively and procedurally unconscionable. Focusing on the language requiring Thomas to arbitrate any claim, regardless of its nature, the Eighth District found the arbitration clause to be substantively unconscionable because it would have required Thomas to arbitrate claims outside the employment relationship (though Thomas’s actual claims in the case did, in fact, arise as a result of his employment at Hyundai). The court relied on a 2015 decision in which the Eighth District held that an arbitration agreement was substantively unconscionable because it “sought to include every possible situation that might arise in an employee’s life,” and because “the arbitrator would be resolving disputes unrelated to employment.”
The Eighth District found procedural unconscionability largely for the same reason that it found substantive unconscionability: the scope of the agreement encompassed claims outside the employment relationship. The court noted that Ohio precedent permits employers to condition at-will employment on an agreement to arbitrate future disputes. Nevertheless, it determined that “an employer may not condition an employee’s continued employment on his assent to an arbitration agreement that provides that every conceivable claim the employee may ever have against the employer … be resolved by arbitration” (emphasis added). It is doubtful the analysis would have changed had Hyundai required Thomas to sign the arbitration agreement prior to commencing employment.
At first blush, this holding might appear to have eroded the efficacy of arbitration agreements for employment claims in Ohio. But the Eighth District determined that this arbitration agreement in particular was overbroad because it theoretically covered tort claims arising outside the scope of employment.
Ohio employers using arbitration agreements may want to be mindful of this holding and calibrate the scope of their arbitration agreements accordingly. Careful drafting may reduce the likelihood that an Ohio court will determine arbitral terms to be unconscionable, and it may limit potential litigation costs associated with an employee’s claiming an agreement is not enforceable.
Because the holding in Thomas is a bit of an anomaly on its facts, Hyundai may seek reconsideration or en banc review by the Eighth District and/or petition the Supreme Court of Ohio to review the decision. We will keep you updated on the issues and developments in the case via the Ohio State Developments blog.