A federal district court in New Jersey has declared an employment arbitration agreement unconscionable due in part to "prohibitively expensive" arbitration fees and a complete prohibition on written opinions beyond basic disposition statements.

In Lucey v. FedEx Ground Package Systems, Inc., Civ. No. 06-3738 (RMB), 2007 WL 3052997 (D.N.J. Oct. 18, 2007), FedEx hired the plaintiffs as delivery drivers and required the plaintiffs to execute "Operating Agreements" before beginning work. FedEx later terminated the plaintiffs.

When the plaintiffs sued for wrongful termination, FedEx moved to compel arbitration in accordance with an arbitration provision in the Operating Agreements. In opposing the motion, the employee plaintiffs argued that the arbitration agreement was unconscionable and therefore unenforceable.

In ruling on the unconscionability challenge, the Court first addressed the requisite showing of procedural unconscionability. On this issue, the Court found that the sequence of events deprived the plaintiffs of any meaningful choice in entering into the agreement.

Specifically, according to the plaintiffs, they were not presented with the agreement until shortly before the start of employment and did not have an opportunity to review it, seek counsel, or negotiate its terms. Moreover, by the time the agreement was presented to them, the plaintiffs had already committed to working for FedEx through truck purchases and participation in training sessions.

Having found the requisite degree of procedural unconscionability, the Court turned to the issue of substantive unconscionability. On this issue, the Court found several indicia of substantive unconscionability, including an abbreviated statute of limitations, a limitation on damages, and a ban on "written and deposition discovery."

Another source of substantive unconscionability was the prohibitive cost of arbitration in this case. As the Court explained, the American Arbitration Association (AAA) fee schedule required one of the plaintiffs to spend more than $6,000 before any hearings were held. Moreover, the plaintiffs' financial circumstances precluded them from shouldering this cost because they had not only lost their income but they were "saddled with the considerable debt of their truck leases."

Lastly, the Court found that the arbitration agreement was substantively unconscionable because it prohibited the arbitrator from issuing a written opinion. In reaching this finding, the Court distinguished Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), where the Supreme Court approved rules that did not require a reasoned award, on the basis that the agreement in this case expressly prohibited a written opinion and allowed "only a written determination of the outcome." The Court viewed the prohibition on written opinions as an "attempt to maintain spin control" and "run[ning] counter to the tenets of judicial efficiency."

Given the presence of both procedural and substantive unconscionability, the Court denied the motion to compel arbitration.

Throughout the opinion, the Court emphasized that its willingness to hold the terms of the agreement unconscionable was informed by the cumulative effect and interaction of all the terms taken together. Also, in its substantive unconscionability analysis, the Court frequently noted that the circumstances surrounding the plaintiffs' assent to the agreement implied a high level of procedural unconscionability which may have rendered otherwise permissible terms unenforceable.

Written opinions are sometimes viewed as a safeguard of fairness. For instance, in Marsh v. First USA Bank, N.A., 103 F.Supp.2d 909, 925 (N.D. Tex. 2000), the court noted that Rule 37(H) the National Arbitration Forum Code of Procedure safeguards fairness by allowing either party to "request a written opinion of the arbitrator's ruling." Conversely, under Rule 42(b) of the AAA Commercial Arbitration Rules, the arbitrator does not have to issue a written opinion unless both parties request it.