Issues in Employment Law

January 2002

An employer cannot re-write an arbitration agreement that is deemed unconscionable to make it enforceable.

In Murray v. United Food and Commercial Workers International Union, No. 01-1602 (May 10, 2002), the Fourth Circuit Court of Appeals, which includes Maryland, North Carolina, South Carolina, Virginia, and West Virginia, held that an arbitration agreement with certain terms and conditions was unenforceable for being unconscionable. Further, the Court held that the union-employer could not salvage that agreement by promising to act fairly in future cases. The employer was not allowed to "rewrite the arbitration clause and adhere to unwritten standards on a case-by-case basis in order to claim it was an acceptable one."

An employer must avoid terms in contracts that make arbitration clauses unconscionable. An arbitration clause is supposed to do no more than choose the forum for dispute resolution; anything that favors one party may make the agreement unconscionable. Examples of unconscionable terms include: having the list of possible arbitrators provided by the employer with no specified constraints or allowing the employer to ignore the arbitration result (i.e., arbitrator has no power to prevent employer from terminating employee in any event). These unconscionable terms would invalidate the arbitration agreement and allow employees to take their claims to court.

As the law relating to arbitration agreements is dynamic, it would be prudent to contact us before entering into any such agreement.

Non-compete provisions in employment contracts must be narrow in scope, duration and geography to be enforceable.

In Modern Environments, Inc. v. Stinnett, Record No. 011268 (Apr. 19, 2002), the Highest Court in Virginia held that a non-compete covenant that prohibited an employee from working for a competitor in any capacity within a 50-mile radius was unenforceable.

Courts generally disfavor non-compete clauses because they restrict trade. To be enforceable, a non-compete clauses must be no more restrictive than necessary to protect the employers' legitimate business interests, they must not unduly prevent an employee from earning a living, and they must be reasonable by public policy.

Please consult us if you are considering including non-compete clauses or other restraints of trade in your employment contracts.