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The Eighth Circuit Court of Appeals held that an employee could not intervene in an EEOC enforcement action where her discrimination claims were subject to arbitration. In reaching this holding, the Court explained that the employee was not giving up any substantive rights because intervening in an EEOC enforcement action is merely a procedural right.
In EEOC v. Woodmen of the World Life Insurance Society, No. 06-1522, 2007 WL 702758 (8th Cir. Mar. 9, 2007), Rollins, a former Woodmen employee, filed a motion to intervene in an EEOC enforcement action against Woodmen. Woodmen responded by filing a motion to compel arbitration pursuant to an arbitration agreement in Rollins' employment contract.
The district court denied Woodmen's motion to compel arbitration on two grounds. First, the district court found that arbitration was cost-prohibitive in light of Rollins' financial situation and the arbitration agreement's fee-splitting provision. Second, the district court found that forcing Rollins to arbitrate would interfere with the EEOC's ability to protect the public interest.
On appeal, the Court first addressed the district court's finding that arbitration would be cost-prohibitive. The Court rejected this finding for two reasons. First and foremost, the fee-splitting provision was moot because Woodmen agreed to pay the costs of arbitration. Second, the district court could not make an unconscionability determination based on Rollins' post-employment financial condition because unconscionability must be measured by the circumstances existing when the contract was formed.
The Court next turned to the question of whether arbitration of Rollins' claim would interfere with the EEOC enforcement action. As the Court explained, under EEOC v. Waffle House, 534 U.S. 279 (2002), an arbitration agreement does not impede an EEOC enforcement action. Moreover, disallowing Rollins' intervention in the enforcement action would not deprive her of a substantive right because "intervening in [an] enforcement action is a procedural, not a substantive right."
Since arbitration was neither cost-prohibitive nor an obstacle to the EEOC enforcement action, the Court remanded the case with instructions to order arbitration.
As this case reminds us, a finding of unconscionability must be based on the circumstances existing when the contract was formed. This rule, though embodied by section 208 of the Restatement (Second) of Contracts, is often overlooked.
For example, in Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006), the court's voluminous opinion nowhere mentions the rule even though the lower court's finding of unconscionability was based entirely on the party's post-formation financial situation rather than her financial situation at the time of formation, which was comparatively favorable.
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