## Facts

- Virgen Parilla was hired by IAP Worldwide Services VI, Inc. as an hourly administrative assistant and, at the start of employment, signed an Hourly Employment Agreement.
- The agreement contained an arbitration clause requiring arbitration of any claim “arising out of or relating in any way” to the agreement or Parilla’s employment, including suspension or termination.
- The clause expressly included claims against the employer’s “parent or affiliated companies” and their “officers, directors, employees, and agents,” treating these entities collectively as “Employer” for arbitration provisions.
- The agreement incorporated the American Arbitration Association’s National Rules for the Resolution of Employment Disputes.
- Parilla later sued IAP Worldwide Services VI, Inc., its parent company (IAP Worldwide Services, Inc.), and two managers (Gene Ludlow and Roy Varner), alleging Title VII discrimination and related claims.
- Defendants moved to compel arbitration and stay the lawsuit under the Federal Arbitration Act (FAA).
- The District Court of the Virgin Islands denied the motion, finding the arbitration agreement unenforceable on unconscionability grounds, including objections to confidentiality-related aspects of the AAA rules and other terms.
- Defendants appealed the denial of the motion to compel arbitration.

## Issues

1. Whether the arbitration clause covered Parilla’s employment-related statutory claims and could be enforced by the parent company and individual managers identified in the agreement’s “parent/affiliate” and “officers/employees/agents” language.
2. Whether provisions such as a “loser pays” arbitral-costs term and other allegedly one-sided features rendered the arbitration agreement unconscionable and unenforceable.
3. Whether, if particular provisions were unconscionable, the district court was required to consider severing them and enforcing the remainder of the arbitration agreement.

## Decision

- The Third Circuit reversed the order denying the motion to compel arbitration and remanded.
- The court held the clause’s language was broad and plainly covered employment-related disputes, including statutory claims, and reflected a clear intent to arbitrate covered claims against the parent company and relevant individuals.
- The court concluded the district court’s unconscionability ruling was premature because it did not conduct a sufficiently specific, fact-dependent analysis of the challenged provisions, particularly the “loser pays” cost-shifting term.
- The court directed the district court on remand to determine whether any challenged provisions were unconscionable and, if so, whether they could be severed so that arbitration could proceed under the remaining valid agreement.

## Legal Principles

- Under the FAA, written arbitration agreements are enforceable except on generally applicable contract grounds (such as unconscionability).
- Broad arbitration language covering claims “arising out of or relating” to employment can encompass statutory employment-discrimination claims.
- Non-signatories may enforce an employment arbitration agreement where the contract text shows a clear intent to extend arbitration to identified categories (e.g., parent companies, affiliates, and their officers or employees), and the pleaded facts place the defendants within those categories.
- Unconscionability challenges to arbitration agreements require a provision-by-provision analysis that is sensitive to the agreement’s actual operation, including whether cost-shifting would deter the employee from effectively pursuing statutory rights.
- Even where particular terms are unenforceable, courts should assess severability and enforce the remainder of the arbitration agreement when consistent with contract law.

## Conclusion

The Third Circuit required a focused unconscionability and severability inquiry rather than wholesale invalidation of the arbitration agreement, holding that the clause’s broad language covered the plaintiff’s employment claims and could extend to the parent company and individual managers named within the agreement’s defined scope.


Parilla v. IAP Worldwide Servs. VI, Inc., 368 F.3d 269 (3d Cir. 2004)