By Kathleen Kennedy-Luczak, J.D.
The employment agreement between the employer and employee contained an arbitration provision, limitation of liability provision, and a fee shifting clause. The employee argued that the limitation of liability provision and fee shifting clause invalidated the entire agreement.
Granting the employer’s motion to compel arbitration, a federal district court in New York ruled that the employee’s challenge to the agreement to arbitrate attacked the validity of the employment contract as a whole and had to be decided by the arbitrator. The disputed limitation of liability section fell outside the arbitration provision and had no bearing on the otherwise valid agreement (Crispin Porter & Bogusky LLC, et al. v. Watson, October 10, 2019, Broderick, V.).
Employment agreement. The employee was hired as chief creative officer for an advertising agency in its Boulder, Colorado office. The employee signed an employment agreement setting forth the terms and conditions of his employment. Included in the agreement was an arbitration provision that specified the parties would arbitrate certain disputes, including any claims arising under Title VII and the ADEA. Following anonymous allegations of sexual harassment against the employee, the employer terminated his employment for cause. The employee filed suit in federal court in Colorado, bringing claims under the ADEA, Title VII, and various common law claims. In response, the employer filed a motion to compel arbitration of the Colorado action. The employee argued that the arbitration provision included a requirement that suits to compel or enjoin arbitration be filed in federal court in New York. Consequently, the employer filed a motion to compel arbitration and to dismiss or, in the alternative, stay the Colorado action in federal district court in New York. The Colorado action was administratively closed pending the outcome of the motion filed in New York.
Arbitrability. Initially, the court noted the strong policy in favor of arbitration agreements. Furthermore, in determining whether claims are subject to arbitration, the court reiterated that it must consider whether the parties have entered into a valid agreement to arbitrate and, if so, whether the dispute at issue comes within the scope of the agreement. Courts must apply ordinary state-law principles regarding the formation of contracts to examine whether the parties entered into a valid agreement. If the conditions of arbitrability are met, then the court must direct the parties to proceed to arbitration.
Validity challenged. The employee did not dispute that he signed the employment agreement that included the arbitration provision. Moreover, he did not dispute that his claims against the employer fell within the scope of the provision. Rather, the employee contended that the parties did not enter into a valid agreement to arbitrate. Specifically, the employee argued invalidity based on the employment agreement’s limitation of liability provision and fee-shifting clause.
Liability limitation. First, the employee challenged the validity of the agreement to arbitrate based on the sections in the employment agreement that pertained to the limitation of the employer’s liability. Yet, those sections of the employment agreement fell outside the arbitration provision. An arbitration provision is severable from the remainder of a contract. A challenge to a different contract provision does not prevent the court from enforcing a specific agreement to arbitrate. Consequently, the court determined that even though the limited liability sections mentioned an arbitrator, they had no bearing on the employer’s and employee’s otherwise valid agreement to arbitrate. The employee’s argument that the arbitration provision was unconscionable attacked the validity of the entire contract, not merely the validity of the arbitration provision. Therefore, that issue had to be decided by the arbitrator.
Fee shifting. Next, the court considered the employee’s challenge to the fee-shifting clause. Although the fee-shifting clause did appear in the arbitration provision of the employment agreement, the court concluded that the employee’s challenge was without merit. The employee argued that because certain of his claims were brought under Title VII, under which an employee should not be assessed his opponent’s attorneys’ fees absent a finding that the claim was frivolous, unreasonable or groundless, such a fee-shifting clause is enforceable in New York courts. However, the court noted that the employee failed to identify any federal or New York court case that invalidated an agreement to arbitrate based on the inclusion of a fee-shifting clause. Regardless, even if an arbitrator were to award attorneys’ fees to a prevailing employer on a Title VII claim without first making a finding that the claim was frivolous, unreasonable or groundless, such an award would be subject to attack on the grounds that the arbitrator disregarded the law.
Motion to dismiss or stay. Finally, the court found that it did not have authority to enter an order imposing upon the docket management of the district court in Colorado. The Colorado action was not pending before the district court in New York so there was not authority to stay it. The employer’s motion to dismiss or stay the Colorado action was denied without prejudice to refile the motion in the proper jurisdiction.
The case is No. 18-MC-384 (VSB).
Attorneys: Howard Jeffrey Rubin (Davis & Gilbert LLP) for Crispin Porter & Bogusky LLC and MDC Partners Inc. Michael W. Ayotte (Law Offices of Michael W. Ayotte) for Ralph M. Watson.
Companies: Crispin Porter & Bogusky LLC; MDC Partners Inc.
Cases: Arbitration Discharge SexualHarassment Discrimination ContractClaims ColoradoNews NewYorkNews
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