NEW V. GAMESTOP, INC. D/B/A GAMESTOP: NEW HOPE FOR ARBITRATION AGREEMENTS

As we have reported on this blog before, there has been a trend among employers to adopt mandatory arbitration agreements. For many employers, arbitration is preferred to civil litigation because the process is usually faster and, as a result, tends to be less expensive. In part, this increased use of mandatory arbitration agreements can be attributed to a series of recent decisions by the United States Supreme Court that have reaffirmed the validity of arbitration agreements. West Virginia courts have not always been receptive to arbitration agreements and have found them to be invalid in a variety of contexts, including the employment context. However, this month the Supreme Court of Appeals of West Virginia has issued two important decisions that found arbitration agreements to be valid. The Court’s decision in New v. GameStop, Inc. d/b/a GameStop, No. 12-1371, which upheld an arbitration agreement in the employment context, has important ramifications for all West Virginia employers that use or plan to use arbitration agreements.

New worked at GameStop as an assistant manager at its Logan County, West Virginia location. When she started employment, she was provided a copy of the GameStop C.A.R.E.S. program, which is a multi-step, internal dispute resolution program that includes binding arbitration. New acknowledged receipt of the program in a written document, which provided that she agreed that all workplace disputes or claims must be resolved through dispute resolution and arbitration rather than civil litigation.

In September 2011, rather than filing a demand for arbitration, New filed a civil complaint in the Circuit Court of Logan County alleging wrongful discharge, sexual harassment, hostile work environment, intentional infliction of emotional distress, negligent infliction of emotional distress, and violations of the West Virginia Wage Payment and Collection Act. In response, GameStop filed a motion to dismiss or compel the matter to mandatory arbitration. The trial court granted the motion, and New appealed to the Supreme Court of Appeals.

There was no dispute among the parties that New’s claims would be covered under the scope of the mandatory arbitration provision if the arbitration agreement itself was valid. New contended that the arbitration agreement was invalid because the parties never formed a valid contract as there was no mutual assent or “meeting of the minds” to arbitrate claims. The Supreme Court of Appeals easily rejected this argument because the plain language of the arbitration acknowledgement signed by New stated that she understood that “by continuing my employment with GameStop … I am agreeing that all workplace disputes or claims … will be resolved under GameStop C.A.R.E.S. program rather than in court.”

New, however, alleged that a provision in the employee handbook that stated that she did not have an employment contract rendered the arbitration agreement unenforceable. This standard at-will language is included (and should be included) in most employee handbooks. According to New, the contract disclaimer language in the employee handbook voided the arbitration agreement. The Supreme Court of Appeals disagreed. It explained that “the unambiguous language of the GameStop C.A.R.E.S. Rules that were separate from the handbook and the [a]cknowledgement signed by [New] coupled with [New’s] continued employment with GameStop, clearly demonstrate that the parties mutually assented to arbitrate all covered workplace disputes or claims.” GameStop offered New the arbitration agreement as a condition to her employment, and she accepted the agreement by accepting employment.

New also argued that the arbitration agreement was an unconscionable contract of adhesion and, therefore, unenforceable. Unconscionability means that because of an overall and gross imbalance, one-sidedness or lopsidedness in a contract, a court may be justified in refusing to enforce the contract as written. To determine whether an agreement is unconscionable, the court must assess the circumstances surrounding the execution of the agreement and the fairness of the agreement as a whole. This analysis focuses on the relative positions of the parties, the adequacy of the bargaining position, the meaningful alternatives available to the contracting parties, and the existence of unfair terms in the agreement. Courts examine whether the agreement is both procedurally unconscionable and substantitively unconscionable.

Procedural unconscionability focuses on inequities, improprieties, or unfairness in the bargaining process and formation of a contract. Factors that courts will consider include “age, literacy, or lack of sophistication of a party; hidden or unduly complex contract terms; the adhesive nature of the contract; and the manner and setting in which the contract was formed, including whether each party had a reasonable opportunity to understand the terms of the contract.”

New contended that the arbitration agreement was procedurally unconscionable because, when she signed the agreement, she was an unemployed, high school graduate who possessed no bargaining power against GameStop, which is an international corporation. She also contended that she had no meaningful alternative and could not negotiate the language of the agreement. The Supreme Court of Appeals rejected the argument because New failed to provide any evidence that she was incapable of understanding the terms of the arbitration agreement that provided in clear terms that she had agreed to arbitrate any workplace disputes or claims.

Next, the Court addressed whether substantitive unconscionability would bar the arbitration agreement. Substantitive unconscionability examines the unfairness in the contract itself and whether the contract terms are one-sided. New argued that the arbitration agreement was substantitively unconscionable because there was no mutual obligation to arbitrate inasmuch as the agreement provides GameStop with the unilateral right to modify or discontinue the GameStop C.A.R.E.S. program. The Supreme Court of Appeals rejected this argument because the agreement only provided that GameStop could modify the arbitration program with at least 30 days advance notice and that any changes could only be prospective in nature. Accordingly, the Supreme Court of Appeals upheld the agreement, and New will be required to arbitrate any claims she may have against GameStop.

With a series of federal and state court decisions upholding arbitration agreements, now is a good time for employers to explore whether mandatory arbitration of disputes should be adopted. Mandatory arbitration may not be appropriate for all employers, but all employers should at least explore the possibility given the advantages of arbitration compared with civil litigation.