What's an Employer to Do About its Standard Arbitration Agreement in all of its Employee Contracts in Ohio – Arnold v. Burger King and Jones v. Carrols, LLC d/b/a Burger King

If you've ever eaten at a Burger King in Ohio, it may well be one that is owned and operated by Carrols LLC, the largest franchisee of Burger King restaurants in the United States.  Carrols and its related entities own over 560 Burger King franchises in 13 different states and employ over 17,000 employees.  Carrols owns over 60 Burger King restaurants in Ohio alone (indeed, as it turns out, the Burger King where I get my morning coffee is one owed by Carrols).  In August 2006, Carrols implemented a company-wide Mandatory Arbitration Program ("MAP"), and it distributed to all of its employees a company memorandum outlining the program and attaching a copy of the arbitration agreement to it.  The memorandum stated "'[b]y reporting to work on or after August 1, 2006, you agree to the terms of MAP as a condition of your continued employment with Carrols.'" Employees who were already employed as of August 2006 did not have to sign the agreement – reporting to work was consent to it; any new employees hired after that date had to sign the arbitration agreement as a condition of employment.

On January 23, 2019, in Jones v. Carrols, LLC, d/b/a Burger King, 9th Dist. Summit No. 28918, 2019-Ohio-211, the Ninth District Court of Appeals decided (after two previous appeals, reversals, and remands) that Carrols' mandatory arbitration agreement with the plaintiff Erick Jones was valid and enforceable.  The Ninth District found that Carrols' arbitration agreement was not substantively unconscionable and was not misleading or ambiguous, and that its provisions that waived class actions and required arbitration of statutory and constitutional claims did not render it unenforceable as against Ohio public policy.

The plaintiff Jones began working at the Burger King location owned by Carrols in 2004, and in 2006, after the MAP was implemented, he continued to work for Carrols and was not asked to sign and did not sign the arbitration agreement.  Jones, 2019-Ohio-211, at ¶ 2.  In 2012, after Jones' employment was terminated, he brought suit against Carrols, alleging claims of "racial and age discrimination, intentional infliction of emotional distress, invasion of privacy, and negligent supervision."  Id. at ¶ 2.  Carrols moved to compel arbitration.  Jones opposed, arguing first that he never agreed to the arbitration agreement and was unaware of its existence (id.), and when that argument failed, he next argued that the arbitration agreement was unconscionable, was against public policy because it included a waiver of class actions, and was otherwise not valid or enforceable under Ohio law, and that his claim did not fall within its scope and he never waived his right to jury trial.  Id. at ¶ 4.  After two appeals and remands, the trial court ruled against Jones and granted Carrols' motion to compel and dismissed the case.  The Ninth District affirmed.

Carrols' MAP states, among other things, that:

"Under the arbitration program, which is mandatory, Carrols and you agree that any and all disputes, claims or controversies for monetary or equitable relief arising out of or relating to your employment, even disputes, claims, or controversies relating to events occurring outside the scope of your employment ("Claims"), shall be arbitrated before JAMS, a national arbitration association, and conducted under the then current JAMS rules on employment arbitration."

Id. at ¶ 38.  The MAP also provides that "[c]laims subject to arbitration shall include, without limitation, disputes, claims, or controversies relating or referring in any manner, directly or indirectly, to . . . the Federal Fair Labor Standards Act or similar state statutes . . . ." and those involving "personal or emotional injury to you or your family."  Id. at ¶ 12, 42.   In addition, the MAP states:  "[t]o the extent permitted by the [JAMS] Procedural Standards, you agree that any action you bring shall be on an individual and not class or aggregate basis and that you must join all known claims together in one arbitration."  Id. at ¶ 25.  As the Ninth District noted, the MAP was "the paradigm of a broad [arbitration] clause." Id. at ¶ 11.

In affirming the trial court's decision enforcing the MAP, the Ninth District Court of Appeals in Jones first found that the agreement was not substantively unconscionable.  The court explained that "Ohio's public policy encourages arbitration as a method to settle disputes."  Id. at ¶ 7.  "Although some contracts may ostensibly provide for arbitration, an unconscionable provision is [however] unenforceable….  A party seeking to invalidate an arbitration clause on grounds of unconscionability must establish that the provision is both procedurally and substantively unconscionable."  Id. at ¶ 8.  Procedural unconscionability "concerns the formation of the agreement, and occurs when no voluntary meeting of the minds was possible."  Id. at ¶ 9.  On the other hand, "[s]ubstantive unconscionability encompasses those factors which concern the contract terms themselves, and the issue of whether these terms are commercially reasonable. . . .  Contract terms are unconscionable if they are unfair and commercially unreasonable. . . .  Arbitration clauses are unconscionable where the clauses involved are so one-sided as to oppress or unfairly surprise [a] party."  Id. at ¶ 10.

In holding that the MAP was not substantively unconscionable, the court rejected Jones' argument that the agreement was "overbroad" and was unreasonable because it contained language that claims subject to arbitration included those involving "personal or emotional injury to you or your family."  Id. at ¶ 11, 12.  The court noted that this language would only bind Jones and not his family who were not signatories to nor bound by the agreement.  Id.  The court also rejected Jones' argument that the agreement was unfair and one-sided because it reserved the parties' rights to go to court if faced with irreparable injury because, although it may be more likely that the employer (Carrols) would have irreparable injury, the clause applied equally to both sides.  Id. at ¶ 13-14.

Jones also argued that the costs associated with arbitration and that arbitration did "not provide for the efficiency and judicial economy demanded of arbitration" rendered the MAP unconscionable.  Id. at ¶ 19-20.  Again, the court rejected the arguments, explaining that cost was not a rationale and that it "fail[s] to see how the arbitration process can be disparaged as being inefficient and uneconomical when arbitration has not yet been initiated" (id. at ¶ 19-20), especially when Jones was the one who filed suit in court.  Finally, Jones argued that the MAP was substantively unconscionable because summaries of the policy provided for by Carrols in the employee handbook and on posters made the terms "misleading and ambiguous." Id. at ¶ 15-18.  The court stated "a simplified description of the arbitration process is incomplete by nature of its brevity and broad generalities.  Importantly, however, the language that Mr. Jones refers to from the poster was not part of the arbitration agreement itself. . . ."  Therefore, "we cannot conclude that such language makes the actual agreement substantively unconscionable."  Id. at ¶ 16.

Having found that Carrols' MAP was not substantively unconscionable, the court declined to address whether the agreement was procedurally unconscionable.

Next, the Ninth District dismissed Jones' argument that the arbitration agreement violated Ohio public policy because it waived class actions, which Jones asserted violated the Fair Labor Standards Act ("FLSA") and the National Labor Relations Act ("NLRA").  The court rejected that argument in light of the United States Supreme Court decision in Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018), which held that arbitration agreements requiring individualized arbitration instead of class or collective proceedings did not violate the NLRA.  Jones, 2019-Ohio-211, at ¶ 27.

The Ninth District then held that the MAP was enforceable.  It found that Jones assented to the arbitration agreement by continuing to work for Carrols after the MAP was implemented, explaining that "[n]o consideration is required above and beyond the mutual agreement to arbitrate."  Id. at ¶ 32.  Further, all of Jones' claims fell within the scope of the agreement, including his claims for intentional torts and for violation of Article II, Chapter 34, of the Ohio Constitution, even though the agreement did not specifically mention constitutional claims. "While the language of the agreement may not specifically refer to claims falling under Section 34a of the Ohio Constitution, the agreement does anticipate claims brought under state statutes similar to the Federal Fair Labor Standards Act" and "[t]he purposes of the Ohio Fair Minimum Wage Amendment [Section 34a of the Ohio Constitution], implemented by statute under R.C. 4111.14, is similar to the FLSA.  Id. at ¶ 42.

Finally, the Court of Appeals rejected Jones' argument that he never waived his right to jury trial and therefore could not be compelled to arbitrate.  Id. at ¶ 44.  As the court succinctly stated, "[t]he waiver of the right to a jury trial is a necessary consequence of agreeing to arbitration and is not unconscionable."  Id. at ¶ 45.

Given Jones v. Carrols concise discussion of numerous issues relating to the validity and enforceability of arbitration agreements in employment contracts, such as Carrols' MAP, one would think that there would be little room to doubt that broad arbitration clauses in employment contracts will be enforced in Ohio.  Yet, that arguably is not the case.  During the pendency of the litigation involving Jones, Carrols was involved in another litigation with another employee in a different county in Ohio – Arnold v. Burger King, 8th Dist. Cuyahoga No. 101465, 2015-Ohio-4485, 48 N.E.3d 69, and in that case, the court refused to enforce the MAP.

On March 13, 2014, Shannon Arnold filed a lawsuit against Carrols/Burger King in Cuyahoga County, Ohio, alleging that she had been raped by her supervisor while she was cleaning the bathroom in the restaurant.  Id. at ¶ 5.  She brought claims against Burger King and the supervisor for sexual harassment, respondent superior/negligent retention, emotional distress, assault, intentional tort, and employment discrimination.  Id.  Carrols filed a motion to compel arbitration pursuant to the Federal Arbitration Act ("FAA") and the company's MAP, which Arnold signed when she was hired in 2012.  Id. at ¶ 6-7.  The Cuyahoga County Court of Common Pleas denied Carrols' motion to compel without opinion; the Eighth District Court of Appeals affirmed, with a lengthy opinion.  The Eight District Court of Appeals held that, even though Arnold signed the arbitration agreement (unlike Jones), (1) Arnolds' claims did not fall within the scope of the broad arbitration agreement and (2) the arbitration agreement was unenforceable because it is unconscionable.

Although the Eighth District recognized that "[g]enerally speaking, Ohio's public policy encourages arbitration as a method to settle disputes" and that there is a "strong presumption in favor of arbitration when the disputed issue falls within the scope of the arbitration agreement," id. at ¶ 23-24, this is perhaps the only thing that the Eighth and Ninth Districts agreed on.  Despite Ohio's public policy and presumption in favor of arbitration, the Eighth District Court nonetheless declined to find Arnold's claims to be within the scope of Carrols' arbitration agreement.  It began by noting that "Ohio also recognizes that principles of equity and fairness require that greater scrutiny be given to arbitration provisions that do not involve parties of equal sophistication and bargaining power."  Id. at ¶ 25.  It then explained that a "proper method" for determining whether a claim falls within the scope of the arbitration agreement "is to ask if an action could be maintained without reference to the contract or relationship at issue.  If it could, it is likely outside the scope of the arbitration agreement."  Id. at ¶ 30.  According to the court, this method "allows courts to make determinations of arbitrability based upon the factual allegations in the complaint instead of on the legal theories presented.  It also establishes that the existence of a contract between the parties does not mean that every dispute between the parties is arbitrable."  Id. at ¶ 31.  Thus, "tort claims that may be asserted independently, without reference to the contract, fall outside of the scope of an arbitration provision." Id. at ¶ 32.  And, "[c]learly, a lawsuit arising from a rape is an outrageous tort that is legally distinct from the contractual relationship between the parties."  Id. at ¶ 35 (emphasis added).

In addition, the Eighth District explained whether claims fall within the scope of an arbitration agreement depends on the answer to the question: "[w]as it reasonably foreseeable that the arbitration contract encompassed the conduct in question?"  Id. at ¶ 45.  "Foreseeability embraces the knowledge, sophistication and expectations of the parties at the time of contracting."  Id. at ¶ 46.  The court said that "Carrols possessed unique and superior knowledge of the employment environment at the time the [arbitration agreement] was executed" because in 1998, Carrols had been sued by the EEOC in New York on behalf of 500 female employees alleging, among other claims, sexual harassment, and although in 2005, the year before Carrols implemented its mandatory arbitration policy, the pattern and practice charges were dismissed, Carrols nevertheless entered into a settlement "Consent Decree, which included payment of $2.5 million to the remaining 89 [female employees] and requiring Carrols to take a number of steps to address the issue[s]…" in 2013.  Id. at ¶ 47-55.  "[That] lawsuit had been pending for more than ten (10) years at the time Arnold executed the [arbitration agreement].  Carrols was on notice of the allegations of sexual assault, including rape accusations, involving coworkers and restaurant supervisors in multiple restaurant locations at that time and had a unique knowledge of the environment and special challenges that may have been involved. Arnold did not have that knowledge."  Id. at ¶ 56.  Thus, the conduct on which Arnold based her claims was not foreseeable and therefore not within the arbitration agreement.  Id. at ¶ 67.

The Eighth District Court of Appeals further found, unlike the Ninth District, that Carrols' mandatory arbitration agreement was not enforceable because it was unconscionable, both procedurally and substantively.  In finding the arbitration agreement procedurally unconscionable, the court again noted the disparate bargaining power between Carrols and Arnold, that Carrols had superior knowledge of the employment environment at the time, that Carrols drafted the agreement and presented it to Arnold as a condition for hiring her – "[a]s for Arnold's bargaining power, the choice was either sign it or remain unemployed. There is no evidence that Arnold could alter any of its terms."  Id. at ¶ 74-77.  Furthermore, the court found the agreement unconscionable because

"[t]here can be no true meeting of the minds when a party is unable to understand the [terms of] the agreement.  We restate that the [agreement] not only defines 'Claims' as events arising out of the employment as well as outside of the scope of employment, it provides a laundry list of legal causes of actions and laws, in legal terminology, such as strict liability, Family Medical Leave Act, and Employee Retirement Income Security Act.  The exceptions to coverage are the 'exclusive remedies under either workers compensation law or employee injury benefit plan.' The [agreement] includes arbitration of 'personal or emotional injury to you or your family.' The agreement does not, in any way, explain the tremendously overreaching impact of its terms on the employee's life both within and outside the scope of employment."

Id. at ¶ 81.

As for substantive unconscionability, according to the Eighth District, Carrols' arbitration agreement was substantively unconscionable because the company's Policy Notice states that arbitration is "quicker and less expensive[,]" but "[t]hat is not always the case."  Id. at ¶ 85.  The employee has to initiate arbitration by filing a request with JAMS, and although the agreement states that Carrols will reimburse the employee 50% of any JAMS filing fee, the employee must show proof of payment within two weeks, and "[w]hat constitutes proof of payment is not described [and] [t]here is no statement of the cost of arbitration."  Id. at ¶ 86-87.  The court stated that the employee has to bear the other costs associated with the arbitration and in Ohio, "there is a point at which the costs of arbitration could render a clause unconscionable as a matter of law." Id. at ¶ 88-89.

The court also found that the fact that the agreement directs the employee to the JAMS website and incorporates JAMS terms and conditions by reference further supports its unconscionability. The JAMS website "is a true labyrinth of information with links to rules, forms, ethics, discovery protocols, etc. There is nothing to direct an arguably unsophisticated individual through the maze of information in order to ascertain which of the multiple documents apply to pursuing arbitration against Carrols."  Id. at ¶ 95.  Moreover, the Carrols' arbitration agreement "provides that an aggrieved employee will be subject to the 'then current' JAMS terms and conditions. Therefore, the employee (even if they possessed the level of sophistication required to navigate the JAMS website), would not, at the time of signing, be able to identify the applicable rules and regulations or know what terms and conditions applied if an arbitration was filed since the rules could be revised at any time without notice."  Id. at ¶ 97.

The Eighth District Court also found, opposite to the Ninth District, that the provision in the arbitration agreement that gives the parties the right to go to court if they are faced with the risk of irreparable harm was an "attempt at mutuality" that was however "misleading and arguably illusory."  Id. at ¶ 99.  "To the extent some degree of mutuality is deemed to be present, Arnold may be 'irreparably harmed' if she is forced to defend herself at arbitration on a sensitive and emotionally scarring subject involving explicit personal details."  Id.  Finally, the court found that the agreement was substantively unconscionable because it did not contain a choice of law or waiver clause and did not have a severability provision.  Id. at ¶ 103.

Given these two different treatments by two different courts to the same mandatory arbitration agreement, what is an employer like Carrols to do?  Perhaps, in the end, nothing except to be prepared to brief and argue all of the intricacies of Ohio law when seeking to compel arbitration.  It is well-settled that arbitration agreements in employment contracts are generally enforceable in Ohio and elsewhere.  Indeed, Carrols has had more success than failure in enforcing its mandatory arbitration agreement, not only in Ohio but also in other states (see, e.g., Green v. Carrols Restaurant Group, Inc., S.D. Fla. No. 10-23471, 2011 U.S. Dist. LEXIS 158862 (June 9, 2011); Foster v. Carrols Corp., W.D.N.C. No. 1:17-cv-00128, 2018 U.S. Dist. LEXIS 17480 (Feb. 2, 2018); Herboso v. Pollo Operations, Inc., S.D. Fla. No. 18-21960, 2018 U.S. Dist. LEXIS 201468 (Nov. 27, 2018), report and recommendation affirmed and adopted, S.D.Fla. No. 18-21960, 2018 U.S. Dist. LEXIS 222941 (Dec. 17, 2018)).  Arnold, arguably, is an aberration decided on unusual and shocking allegations of rape and therefore should be best limited to its unique facts.

About The Author

Melinda Burton | Faruki Attorney