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Employee Unable to Establish Substantive & Procedural Unconscionability to Overcome Enforcement of Arbitration Agreement


Styczynski v. MarketSource, Inc. & Allegis Group, Inc. - United States District Court, Eastern District of Pennsylvania


Facts:  Rachel Styczynski ("Styczynski") worked at MarketSource, Inc. ("MarketSource") and Allegis Group, Inc. ("Allegis").  (MarketSource is a wholly owned subsidiary of Allegis).  In her role, Styczynski was promoted several times during her four year employment.  Styczynski alleged that a male supervisor repeatedly harassed her, inappropriately touched her, and inquired about her sexual orientation and marital status.  According to Styczynski, MarketSource and Allegis' response was inadequate, discriminatory, and retaliatory.  Apparently the employer failed to address the harassment, commanded Styczynski continue reporting to and working alongside her harasser, and created the hostile work environment that ultimately forced Styczynski to resign.

After filing suit, MarketSource and Allegis moved to dismiss the case on the basis of a three page arbitration agreement that Styczynski signed when she was promoted.  The document provided that in the event of an employment dispute, Judicial Arbitration and Mediation Services ("JAMS") would arbitrate the dispute. 

Holding:  The District Court pointed out that a party to a valid and enforceable arbitration agreement is entitled to a stay of proceedings (in the court system) so the dispute can proceed to arbitration.  A court that is considering a motion to stay and compel arbitration must determine (1) whether a valid agreement to arbitrate exists under the FAA ("Federal Arbitration Act") and (2) whether the particular dispute falls within its scope.  As with any agreement, state defenses can invalidate an arbitration agreement.  Generally, defenses such as fraud, duress, or unconscionability may be considered.

To prove unconscionability under Pennsylvania law, it must be shown that the contract was both substantively and procedurally unconscionable.   In this case, the Judge found that the arbitration agreement was not substantively unconscionable.  The Supreme Court has previously rejected the argument that arbitration panels are inherently favorable to one side or that they limit employees' rights.  Based upon this Supreme Court precedent, the Judge indicated that Styczynski's global objection to arbitration could not withstand the "pro-arbitration jurisprudence".  As for Styczynski's claim that the JAMS rules and procedures for appointing arbitrators would deny her the ability to gauge and challenge arbitrators' potential conflicts of interests and bias, the Judge was unswayed.  JAMS' own rules and procedures provided several avenues for assessing and challenging potential conflicts and bias of arbitrators.  Even if there were a conflict of interest by an arbitrator that would lead to an untenable result, the FAA itself allows courts to vacate an arbitration award if:  "there was evident partially or corruption in the arbitrators."  The combination of the JAMS processes together with the protections of the FAA prevented a finding of unconscionability.

As for a procedurally unconscionable claim by Styczynski, the Court noted she would need to show "there was a lack of meaningful choice in the acceptance of the challenged provision."  However, the Supreme Court has held that "[m]ere inequality in bargaining power...is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context."  In this case, the Judge noted that while there was a degree of inequality in bargaining power between the parties, Styczynski did sign an agreement that stated three times (in clear language) that Styczynski was giving up her right to access to a court.  Consequently, the Judge held that Styczynski failed to establish that the arbitration agreement was procedurally unconscionable.

Judgment:  The District Court granted the employer's motion to dismiss on the grounds that the employee entered into a valid arbitration agreement and it could not be established that the arbitration agreement was substantively and procedurally unconsionable, nor that it came about as a result of fraud or duress.

The Takeaway:  Based upon the controlling state caselaw (to prove unconscionability), I think the Judge was correct to arrive at the conclusion that the arbitration agreement was valid and enforceable.  With that being said, I call attention to the end of the Judge's opinion in which several pages are spent criticizing employment arbitration agreements.  Notably, statistics show that employees tend to win fewer cases that go to arbitration (and the cases they do win often result in less money being awarded compared to a case in the court system).  While the remainder of the Judge's opinion does not provide a clear cut way to eliminate arbitration agreements in the employment context (or suggest a roadmap to lead to this result), there are some interesting arguments made about the continued use and viability of these agreements going forward.

Majority Opinion Judge:  Judge McHugh

Date:  November 30, 2018

Opinion:  http://www.paed.uscourts.gov/documents/opinions/18D0789P.pdf

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