Jottings By An Employer's Lawyer

Thursday, November 14, 2002

Alabama Supreme Court Knocks Out Arbitration Agreement Because No Class Actions Permitted

One of the greatest dangers to arbitration programs being established by employers is reaction to use of arbitration clauses in consumer agreements. If there is ever Congressional action it is apt to be because the two issues, employment and consumer transactions, are linked. The Alabama Supreme Court has just shown their unhappiness with arbitration in what they deemed 'a contract of adhesion' for termite services. The plaintiffs argument, adopted by the Court, was that because of the cost of arbitration and the relatively small amount of the individual claim, heightened by a clause limiting the type of damages they could recover, the only meaningful way to pursue the claim was small claims court or a class action. Since both avenues were foreclosed by arbitration, the Court found the agreement unconscionable and refused to enforce it. Leonard v. Terminix (Ala. 10/18/02). Although the same logic is not likely to extend to most employment claims, the underlying principle and the potential linkage arbitration in consumer transactions and arbitration in employment, should remain a concern to those who support arbitration in the employment area.


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