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Legal Memorandum: Submission to Arbitration Clauses

Issue: What characteristics of the individuals being asked to submit to arbitration clauses have been found to make the agreements involuntary?

Area of Law: Alternative Dispute Resolution, Business Organizations & Contracts
Keywords: Arbitration clause; Knowing and voluntary waiver
Jurisdiction: Federal
Cited Cases: 400 F.3d 370; 565 F.2d 255
Cited Statutes: None
Date: 09/01/2007

The Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d 370 (6th Cir. 2005) court reasoned that the most significant factor demonstrating an absence of a knowing and voluntary waiver was that most of the plaintiff employees in that case had not finished high school and desperately needed money at the time they applied for employment and signed the waiver.  400 F.3d at 381.  The court observed that many of the plaintiffs were in “desperate” need of the low-wage jobs offered by the employer and were “in dire financial circumstances” at the time they signed the arbitration agreements.  Id. at 374.  The Walker court held that the district court did not err when it found that this factor demonstrated that the plaintiffs did not knowingly and voluntarily agree to arbitration. Id. at 381.  A “gross inequality in bargaining power suggests . . . that [an] asserted waiver was neither knowing nor intentional.”  Nat’l Equip. Rental, Ltd. v. Hendrix, 565 F.2d 255, 258 (2d Cir. 1977) (holding that lessee’s purported waiver of right to jury trial was neither knowing nor intentional, especially given that he “did not have any choice but to accept the [defendant’s] contract as written if he was to get badly needed funds”).

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