Labor & Employment Law Daily Franken amendment won’t stop PricewaterhouseCoopers from forcing Title VII claim into arbitration
Tuesday, April 7, 2020

Franken amendment won’t stop PricewaterhouseCoopers from forcing Title VII claim into arbitration

By Lisa Milam, J.D.

The firm is no longer a defense contractor ,so the statutory arbitration restriction did not apply. Nor was the arbitration agreement unconscionable.

PricewaterhouseCoopers (PwC) may compel a former employee to arbitrate her Title VII race discrimination and retaliation claims pursuant to the parties’ arbitration agreement, the Fourth Circuit held, reversing a district court. Under the operative agreement, all claims against the employer are subject to mandatory arbitration except for claims arising under Title VII—”unless and until federal law no longer prohibits the Firm from mandating arbitration of such claims.” There was no change in federal law: the Franken amendment to the Defense Appropriations Act for Fiscal Year 2010 continues to “bar[] certain defense contractors from mandating arbitration of Title VII claims in employment contracts.” However, there was a change in the facts: PwC is no longer a defense contractor covered by the restriction. Moreover, the arbitration agreement was neither procedurally nor substantively unconscionable; thus, it was enforceable (Ashford v. PricewaterhouseCoopers LLC, April 3, 2020, Quattlebaum, A.).

Arbitration agreement exception. When she started working at PwC, the plaintiff electronically executed an employment agreement containing an arbitration provision. The agreement stated that all claims against the employer were subject to arbitration with the exception of “[c]laims that arise under Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination on the basis of race, color, religion, sex, and national origin.” This exception was a necessary add-on because, at the time it drafted the agreement, PwC, as a federal defense contractor, was subject to the Franken amendment, which prohibits employers from mandating arbitration of Title VII claims. However, the agreement further stated that the contractual limitation applied only “unless and until federal law no longer prohibits the Firm from mandating arbitration of such claims.”

The law’s the same; the facts changed. However, at the point in time when the plaintiff began her employment (and the arbitration agreement was executed), PwC no longer performed the types of federal contractor work that invoked the statutory prohibition on mandatory arbitration. But the district court concluded, and the plaintiff argued here, that the contractual “unless and until” language embodied in the Title VII contractual exclusion required an actual change in federal law, not merely a change in circumstances. And, because there had been no change in the law (this point was undisputed), the arbitration exclusion for Title VII claims remained intact.

“Unless and until.” The Fourth Circuit disagreed. It held that, because PwC was no longer subject to the Franken amendment as a factual matter, federal law no longer barred the firm from enforcing its mandatory arbitration agreement as to Title VII claims. Consequently, the contractual “unless and until” language kicked in, so any Title VII claims against PwC were also now subject to arbitration. After all, the appeals court said, given the strong federal policy favoring arbitration, “we must read the Title VII exclusion in favor of arbitration if we can reasonably do so.” And here, the contractual exclusion broadly alluded to circumstances under which PwC was no longer prohibited from mandating arbitration of Title VII claims, for any reason; it did not specify that only a change in law could relieve PwC of the Title VII arbitration restriction.

The appeals court also observed that it was only by virtue of mixed law and fact that PwC was restricted from compelling arbitration of Title VII claims in the first place—the fact of the firm’s status as a defense contractor, and the Franken amendment’s legal prohibition. “And since both the law and the facts were required to prohibit PwC from mandating arbitration of Title VII claims, a change in either could result in federal law ‘no longer prohibit[ing] PwC from mandating arbitration’ of such claims.”

“While the language of the agreement at issue is admittedly not a model of clarity, we do not review it with a clean slate,” the appeals court noted. “The FAA and our precedent tip the scales decidedly in favor of arbitration.”

Unconscionability. The district court had found that the PwC arbitration agreement was unconscionable anyhow, a holding the appeals court also rejected. Applying New York contract law, which requires both procedural and substantive unconscionability to invalidate a contract, the appeals court rejected the plaintiff’s contention that the arbitration provision was procedurally oppressive because only PwC knew, at the time they entered into the agreement, that the firm was no longer subject to the Franken amendment restriction. In her view, that meant the contractual exception contained in the agreement was “at least as deceptive as hidden language or fine print.” But this contention, even if true, went to the substance of the agreement, not its execution, so it could not support a finding of procedural unconscionability. Nor, for that matter, did it satisfy the “substantive unconscionability” prong.

To further support her assertion that the agreement was procedurally unconscionable, she pointed to the parties’ unequal bargaining power—an argument that is seldom a winner, lest “virtually all agreements requiring employees to arbitrate would be unconscionable as employers generally have greater bargaining power than potential employees.” At any rate, the plaintiff here—a professional consultant with degrees from Stanford, Columbia and Harvard—was no “run of the mill” employee, the appeals court noted.

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