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Monday, February 26, 2024 | Back issues
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Arbitration Won’t Do in Finish Line Spy Scandal

SAN FRANCISCO (CN) - Finish Line, the sporting goods retailer, cannot arbitrate claims that a former manager secretly videotaped female employees using the toilet and dressing rooms.

Five women, one of whom was a minor at the time she worked at Finish Line, sued the chain in August 2011 for a litany of civil and labor code violations, as well as invasion of privacy, negligence, and intentional and negligent infliction of emotional distress.

While they worked at a Finish Line near Milpitas, Calif., former manager David Meyer secretly monitored them with hidden cameras he placed directly across from a toilet and across from a dressing room bench, according to the complaint.

The women say the tapes caught them in various stages of undress and, in one case, inserting a tampon.

Though Meyer is named as a defendant, he allegedly fled California after the videos were discovered.

The Finish Line had sought to compel arbitration prior to the lawsuit. When that failed and the plaintiffs filed the federal complaint, the company moved again for arbitration.

But the plaintiffs say that the arbitration agreements they signed are "procedurally and substantively unconscionable and, therefore, unenforceable," because the Finish Line required them as a condition of employment.

U.S. District Judge Edward Davila agreed last week and denied retailer's motion without hearing oral arguments.

"Defendant required plaintiffs to assent to the pre-printed terms of the DRP as a condition of employment," Davila wrote, abbreviating the Dispute Resolution Plan given to Finish Line employees. "The portion of the employment application referencing the DRP is included in a pre-printed collection of paragraphs grouped together under the heading 'Application Statement.' By signing the application, plaintiffs had to confirm that a copy of the DRP was 'made available' for review prior to execution, and that the 'read and understood' and 'voluntarily agreed' to the DRP's terms."

"But here, the arbitration agreement had an effect even broader ... because defendant required it as a condition of plaintiffs' application for employment," Davila continued (emphasis in original). "Plaintiffs could not present themselves as employment candidates otherwise."

"This specific characteristic renders it particularly oppressive," Davila wrote.

"Moreover, an element of surprise is evident here because plaintiffs had no reasonable opportunity to read or review the DRP, whether on their own or with an adult, and could not negotiate its terms or that of the employment application prior to signing it," the 12-page decision states. "Defendant, a national corporation, is without a doubt the party of stronger bargaining strength, if not the party with all of the bargaining strength in this scenario."

"By contrast, plaintiffs were teenagers between the ages of 16 and 17 and still attending high school at the time they signed the employment application," Davila wrote. "Plaintiffs' collective belief that they had no meaningful choice but to accept the DRP in order to be considered for the job, even without having reviewed it in advance, is entirely understandable in these circumstances."

"Accordingly, because the DRP is an adhesion contract imposed by defendant as a condition of application for employment on a 'take-it-or-leave-it basis' without also providing plaintiffs a meaningful opportunity to negotiate or understand its effect, the court finds that it is procedurally unconscionable and that such unconscionability is particularly strong within the context presented," Davila said.

Davila also found the company's "cost-splitting" arbitration clause unconscionable.

"The DRP's cost-splitting provision requires the parties to equally share the cost of the arbitrator, but caps the employee contribution at 'the greater of $10,000 or 10% of the amount in controversy,' or at an amount determined by the arbitrator based upon a showing of substantial need," Davila wrote.

"The DRP also requires each party to deposit 'funds or post other appropriate security' in an amount determined by the arbitrator at least ten days before the first day of the hearing," the judge continued.

"The Ninth Circuit has held that an arbitration cost provision which places complaining employees at risk of incurring greater costs than they would bear if they were to litigate their claims in court is substantively unconscionable," Davila wrote. "Such is the problem here."

"Even with a cap, the DRP's cost-splitting provision presumes the employee will pay a rather substantial amount - not less than $10,000," Davila added. "Although the arbitrator can reduce the employee contribution based on 'substantial need,' this ill-defined standard offers no guarantee that costs will be reduced appropriately, and certainly does not contemplate that those fees will be limited to the $350 filing fee required for new federal litigation, the $175 fee required by the AAA Employment Arbitration Rules, or be waived altogether."

Arbitration requires fee payment in advance, an obstacle that the traditional court process does not impose, and would prove "insurmountable to most individuals, let alone the plaintiffs here," the judge found.

It is also unconscionable and unreasonable for the Finish Line to require completion of arbitration on its terms and in Indianapolis, according to the court. The plaintiffs live in the San Jose, Calif., area.

Another unconscionable provision exists in the plan's unilateral cancellation clause, which entitles the Finish Line to cancel the DRP with 60 days' notice to employees. "Plaintiffs do not have a similar right under the DRP's terms," Davila wrote.

The judge stood by just three challenged provisions of the plan: the choice of law, discovery and the arbitrator appointment process. But the Finish Line cannot sever the offending points and proceed with arbitration.

"Severance is of no cure here," Davila wrote. "The DRP's adhesive nature, lack of mutuality, and questionable context within which it was imposed so infect the DRP that it is left 'permeated' with unconscionability."

"The particular provisions identified as unlawful simply add to the total air of unfairness," he added. "It therefore cannot be enforced against the plaintiffs."

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