From JDSupra, Christine Sargent discusses a case in which the arbitration agreement had a savings clause which made all the difference an allowed the court to enforce the arbitration agreement. Christine writes:
On July 8, 2022, in Gist v. ZoAn Management, Inc., the Oregon Supreme Court affirmed the decisions of the trial court and court of appeals granting the defendants’ motion to compel arbitration. The court concluded that because nothing in the arbitration agreement prohibited the plaintiff from being awarded any relief he might be entitled to under Oregon’s wage and hour statutes, the arbitration provision was not unconscionable and therefore enforceable.
The parties executed a Driver Services Agreement (DSA) in which the plaintiff agreed to provide the defendants with delivery services. The DSA stated that all drivers were independent contractors and included a section on dispute resolution, which provided that if the parties did not pursue mediation or if mediation failed, then “any dispute, claim or controversy” arising out of or relating to the DSA—including disputes about the “existence, scope or validity” of the DSA itself—shall be resolved through binding arbitration. The DSA also included a savings clause allowing for the severance of any invalid or unenforceable term of the DSA.
The plaintiff filed a class action complaint against the defendants on behalf of himself and “all current and former individuals subject to” the DSA, asserting that he was an employee, not an independent contractor, and that the defendants had violated state wage and hour statutes.
Trial Court and Appellate Courts’ Decisions
Based on the DSA, the defendants filed a motion to compel arbitration. The plaintiff opposed, arguing that the arbitration agreement in the DSA was unenforceable on the ground that it was unconscionable because it required him to arbitrate his wage and hour claims but prohibited the arbitrators from granting him relief on those claims. The plaintiff based this argument on a provision stating that the arbitrators could not “alter, amend or modify” the terms and conditions of the DSA, and that because the agreement classified him as an independent contractor, the arbitrators would be prohibited from concluding that he was an employee and enforcing his rights as an employee under Oregon’s wage and hour statutes, including his right to attorneys’ fees. Accordingly, the plaintiff argued that the arbitration provision was unconscionable and contrary to public policy under ORS 652.360, which prohibits employers from using a “special contract or any other means” to exempt themselves from statutes relating to the payment of wages.
The defendants argued, and the court of appeals agreed, that read in the context of the DSA as a whole, the provision prohibiting the arbitrators from “alter[ing], amend[ing], or modify[ing]” the terms and conditions of the DSA was “not plausibly read as a restriction on their authority to determine what terms are enforceable or what law is controlling.” The DSA’s savings clause contemplated that the arbitrators could disregard invalid or unenforceable provisions of the DSA, including the statement that drivers were independent contractors, not employees. In affirming the lower courts’ decisions, the Oregon Supreme Court held that because the DSA did not prevent the arbitrators from concluding that the independent contractor provision was invalid or unenforceable, the arbitrators could still resolve the plaintiff’s claims under the wage and hour statutes. Therefore, the arbitration provision did not violate ORS 652.360 and was not unconscionable.
The Oregon Supreme Court’s Gist decision is a positive development for employers that utilize arbitration agreements for both their employees and even independent contractors. The decision relied on the inclusion of a savings clause in the agreement, which employers are encouraged to include in similar agreements, because it permits the enforceability of the agreement as a whole even if certain provisions are deemed to be invalid and cannot be enforced. The decision was particularly important because a reversal of the trial court’s decision could have resulted in a much larger and more costly class action proceeding, thus driving home the benefits associated with implementing enforceable arbitration agreements.