April 5, 2013

Choice of Law: Law Firm Drafting of Arbitration Agreement Comes Back to Haunt Them

File this one under “be careful what you draft,” especially if you are a law firm.

Bingham McCutcheon LLP provided a letter agreement to one of its associates in California, Hartwell Harris, setting forth the terms of the employment relationship.  The letter agreement included arbitration language and stated that Massachusetts law would apply.

Hartwell filed a lawsuit and alleged that the firm wrongfully terminated her employment and discriminated against her after she requested reasonable accommodation for a sleeping disorder.  Bingham McCutcheon petitioned to compel arbitration based on the letter agreement language.

The California Court of Appeal looked at the language of the letter agreement, which had been drafted by the law firm.  The Court found that the choice-of-law provision applied Massachusetts law and that California courts favor enforcement of such choice-of-law provisions.  The Court then looked at the underlying law in Massachusetts and found that mandatory arbitration of statutory discrimination claims is enforceable only if arbitration agreements “at a minimum, state clearly and specifically that such claims are covered by the contract’s arbitration clause.”  The Harris letter agreement did not specifically identify the statutory discrimination claims.  Therefore, the Court concluded that the arbitration provision was not enforceable under Massachusetts law.

The Court criticized Bingham McCutcheon for trying to “have it both ways” by arguing the arbitration provision was enforceable, but language in the very same agreement (applying Massachusetts law) did not apply.  Further, the Court pointed to the law firm as the stronger party that drafted the agreement, which makes the firm’s attempt to avoid one of its provisions (application of Massachusetts law) even more problematic.  The Court stated that in California the weaker party to an adhesion contract may be able to avoid the enforcement of a choice-of-law provision where enforcement would result in substantial injustice.

Employers, especially those that cross multiple states, should be careful about the choice-of-law provision and ensure that an arbitration agreement or other contract language is enforceable under that particular state law.  That is why local counsel should be consulted in the drafting of such agreements.



Category: Arbitration,