Facts
- Hooters-Toledo required employees to sign an “Agreement to Mediate and Arbitrate Employment-Related Disputes” as part of its dispute-resolution program.
- The agreement required an employee to request mediation of any dispute within 10 days of the last day the claim arose.
- Mediation was to occur in Jefferson County, Kentucky, rather than Toledo, Ohio, where the restaurant and employee were located.
- The mediator-selection process was controlled by Hooters: each party would select a mediator from a list provided by Hooters.
- Rachel Garrett worked at the Toledo Hooters location for a short period and was given the agreement by her manager, Chris Reil.
- Garrett asserted she did not understand the agreement and kept it for weeks before signing.
- Garrett alleged she was told she had to sign the agreement or she would not be allowed to work additional shifts and would be ineligible for certain job benefits (such as transfers, raises, or similar changes).
- Garrett signed the agreement while employed and later informed Reil that she was pregnant.
- Garrett claimed that after she disclosed her pregnancy, her shifts were reduced, she faced harassment connected to her pregnancy, and she was terminated; her position was filled by a non-pregnant person.
- Garrett sued Hooters-Toledo, R.M.D. Corporation, and Reil for gender/pregnancy discrimination under Title VII and Ohio law.
- Defendants moved under the Federal Arbitration Act (FAA) to compel mediation/arbitration and to stay the federal court action, and Garrett opposed enforcement on unconscionability grounds under Ohio contract law.
Issues
- Whether the employment ADR agreement (including the mandatory mediation requirement) was enforceable under the FAA and Ohio contract law or was unconscionable.
- If the agreement was unconscionable, whether the court should nonetheless compel ADR by severing offending provisions or instead deny the motion to compel and allow the case to proceed in court.
- Whether the litigation should be stayed pending mediation/arbitration.
Decision
- The court denied defendants’ motion to compel mediation/arbitration and denied the request to stay the case.
- The court held that the ADR agreement was unenforceable because it was unconscionable under Ohio law.
- The court found unconscionability based on both the manner in which the agreement was presented and the one-sided structure of the ADR process.
- Because the ADR program was unfair in operation and design, the court declined to enforce it against Garrett and allowed her discrimination claims to proceed in federal court.
Legal Principles
- Arbitration agreements governed by the FAA are generally favored, but they remain subject to generally applicable state-law contract defenses, including unconscionability.
- Under Ohio law, unconscionability commonly requires a showing of both procedural unconscionability (problems with assent and bargaining) and substantive unconscionability (unfair terms).
- Procedural unconscionability may be shown by significant inequality in bargaining power, lack of meaningful choice, pressure to sign as a condition of continued work or job benefits, and an employee’s limited ability to understand or negotiate the terms.
- Substantive unconscionability may be shown where the ADR process is unfairly one-sided, including where the employer controls key features of dispute resolution (such as mediator selection) or imposes burdensome conditions (such as an out-of-state forum or extreme time limits) that function as barriers to bringing claims.
- A mandatory mediation requirement can be unenforceable when it operates as an oppressive precondition to pursuing statutory employment-rights claims and is paired with employer-controlled procedures that skew the process.
- When an ADR scheme is infected by unfairness in its core structure, a court may refuse to enforce it rather than rewriting the contract through severance.
Conclusion
In Garrett v. Hooters Toledo, the Northern District of Ohio refused to compel mediation/arbitration under Hooters’ employment ADR agreement, holding that the program was unconscionable under Ohio law in both its formation and its one-sided terms (including a short deadline to request mediation, an out-of-state mediation location, and employer control over mediator selection), and therefore denied the motion to compel ADR and to stay Garrett’s pregnancy-discrimination lawsuit.