What does it mean to sever illegal terms from a contract

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Reference no: EM131337355

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Respond in writing to the case questions.

Casias v. Wal-Mart Stores

695 F. 3d 428 (6th cir. 2012)

OPINION By Circuit Judge Clay:

In this wrongful discharge action, Plaintiff Joseph Casias, a former Wal-Mart employee, appeals the district court's . . . dismissal [of his lawsuit] for failure to state a claim following his termination for failing a drug test in violation of Defendants' drug testing policy. . . . [W]e AFFIRM the judgment of the district court.

* * * Plaintiff was an employee of Wal-Mart's Battle Creek, Michigan store from November 1, 2004 until November 24, 2009, when Plaintiff was terminated from Wal-Mart after he tested positive for marijuana, in violation of the company's drug use policy.

Plaintiff was diagnosed with sinus cancer and an inoperable brain tumor at the age of 17. During his employment at Wal-Mart, Plaintiff endured ongoing pain in his head and neck. Although his oncologist prescribed pain relief medication, Plaintiff continued to experience constant pain as well as other side effects of his medication. After Michigan passed the MMMA [Michigan Medical Marihuana Act] in 2008, Plaintiff 'soncologist recommended that he try marijuana to treat his medical condition. The Michigan Department of Community Health issued Plaintiff a registry card on June 15, 2009, and, in accordance with state law, he began using marijuana for pain management purposes. Plaintiff stated that the drug reduced his level of pain and also relieved some of the side effects from his other pain medication. Plaintiff maintains that he complied with the state laws and never used marijuana while at work; nor did he come to work under the influence. Instead, Plaintiff used his other prescription medication during the workday and only used the marijuana once he returned home from work.
In November 2009, Plaintiff injured himself at work by twisting his knee the wrong way while pushing a cart. Plaintiff contends that he was not under the influence of marijuana at the time of his accident. Although Plaintiff came to work the next day, he had trouble walking and was driven to the emergency room by a Wal-Mart manager to receive treatment. Since Plaintiff was injured on the job, he was administered a standard drug test at the hospital in accordance with Wal-Mart's drug use policy for employees. Prior to his drug test, Plaintiff showed his registry card to the testing staff to indicate that he was a qualifying patient for medical marijuana under Michigan law. Plaintiff then underwent his drug test, wherein his urine was tested for drugs.

One week later, Defendant notified Plaintiff that he tested positive for marijuana. Plaintiff immediately met with his shift manager to explain the positive drug test. Plaintiff showed the manager his registry card and also stated that he never smoked marijuana while at work or came to work under the influence of the drug. Plaintiff explained that the positive drug test resulted from his previous ingestion of marijuana within days of his injury in order to treat his medical condition. The shift manager made a photocopy of Plaintiff 's registry card.

The following week, Wal-Mart's corporate office directed the store manager . . . to fire Plaintiff due to the failed drug test, which was in violation of the company's drug use policy. Wal-Mart did not honor Plaintiff 'smedical marijuana card. Plaintiff sued Wal-Mart . . . for wrongful discharge and violation of the MMMA, arguing that the statute prevents a business from engaging in disciplinary action against a card holder who is a qualifying patient. * * * [T]he district court held that the MMMA does not protectPlaintiff 's right to bring a wrongful termination action because the MMMA does not regulate private employment. Plaintiff now appeals.

* * * According to the MMMA,

A qualifying patient who has been issued and possesses a registry identification card shall not be subject to arrest, prosecution, or penalty in any manner, or denied any right or privilege, including but not limited to civil penalty or disciplinary action by a business or occupational or professional licensing board or bureau, for the medical use of marihuana in accordance with this act. . . .

The parties' dispute focuses on the use of the word "business" and whether the word simply modifies the words "licensing board or bureau," or in the alternative, whether "business" should be read independently from "licensing board or bureau." * * * The district court concluded that "the MMMA does not regulate private employment; [r]ather the Act provides a potential defense to criminal prosecution or other adverse action by the state." Specifically, the court concluded that the "MMMA contains no language stating that it repeals the general rule of at-will employment in Michigan or that it otherwise limits the range of allowable private decisions by Michigan businesses." * * *

We agree with the district court and find that the MMMA does not impose restrictions on private employers, such as Wal-Mart. * * * Based on a plain reading of the statute, the term "business" is not a stand-alone term as Plaintiff alleges, but rather the word "business" describes or qualifies the type of "licensing board or bureau." Read in context, and taking into consideration the natural placement of words and phrases in relation to one another, and the proximity of the words used to describe the kind of licensing board or bureau referred to by the statute, it is clear that the statute uses the word "business" to refer to a "business" licensing board or bureau, just as it refers to an "occupational" or "professional" licensing board or bureau. The statute is simply asserting that a "qualifying patient" is not to be penalized or disciplined by a "business or occupational or professional licensing board or bureau" for his medical use of marijuana.

Plaintiff also argues that the plain language of the statute somehow regulates private employment relationships, restricting the ability of a private employer to discipline an employee for drug use where the employee's use of marijuana is authorized by the state. We find, however, that the statute never expressly refers to employment, nor does it require or imply the inclusion of private employment in its discussion of occupational or professional licensing boards. The statutory language of the MMMA does not support Plaintiff 's interpretation that the statute provides protection against disciplinary actions by a business, inasmuch as the statute fails to regulate private employment actions.

We also note that other courts have found that their similar state medical marijuana laws do not regulate private employment actions. Thus, in addition to being unpersuasive on its face, Plaintiff 's interpretation of the MMMA, which would proscribe employer terminations of qualified medical marijuana users, is in direct conflict with other states which have passed similar legislation.

For similar reasons, we dismiss Plaintiff 's argument that Plaintiff 's discharge was contrary to public policy. The district court held that * * * accepting Plaintiff 'sargument would create a new category of protected employees, which would "mark a radical departure from the general rule of at-will employment in Michigan." We agree with the district court that accepting Plaintiff 's public policy interpretation could potentially prohibit any Michigan business from issuing any disciplinary action against a qualifying patient who uses marijuana in accordance with the Act. Such a broad extension of Michigan law would be at odds with the reasonable expectation that such a far-reaching revision of Michigan law would be expressly enacted. * * * The MMMA does not include any such language nor does it confer this responsibility upon private employers. We therefore reject Plaintiff 's policy argument.

Case Questions

1. What was the legal issue in this case? What did the appeals court decide?

2. Why do you suppose that the employer ordered a drug test following the workplace injury and decided to terminate the employee despite being aware of his lawful medical use of marijuana?

3. What does employment at will mean? How does it figure into the decision in this case?

4. Do you agree with the decision in this case? Why or why not?

Nino v. The Jewelry Exchange

609 F.3d 191 (3d cir. 2010)

OPINION By Circuit Judge Fuentes:

Rajae Nino brought this action against his former employer, alleging that he was discriminated against on account of his gender and national origin. . . . [T]he employer invoked an arbitration provision in Nino's employment contract and moved the District Court to compel the parties to arbitrate their dispute. Nino opposed the motion, arguing that the arbitration agreement was unconscionable and, therefore, unenforceable. . . . The District Court concluded that although the arbitration agreement contained unconscionable terms, those provisions could be severed from the contract and the remainder of its terms could be enforced. * * *

In our view, the pervasively one-sided nature of the arbitration agreement's terms demonstrates that the employer did not seek to use arbitration as a legitimate means for dispute resolution. Instead, the employer created a system that was designed to give it an unfair advantage through rules that impermissibly restricted employees' access to arbitration and that gave the employer an undue influence over the selection of the arbitrator. We hold that it is not appropriate, in the face of such pervasive one-sidedness, to sever the unconscionable provisions from the remainder of the arbitration agreement. * * * We will thus reverse the District Court's order compelling the parties to arbitrate.

* * * We have repeatedly recognized that the Federal Arbitration Act ("FAA") establishes a "strong federal policy in favor of the resolution of disputes through arbitration." Under the FAA, arbitration agreements "are enforceable to the same extent as other contracts." "A party to a valid and enforceable arbitration agreement is entitled to a stay of federal court proceedings pending arbitration as well as an order compelling such arbitration."

* * * Under Virgin Islands law, "[t]he doctrine of unconscionability involves both ‘procedural' and ‘substantive' elements." The procedural component of the unconscionability inquiry looks to the "process by which an agreement is reached and the form of an agreement, including the use therein of fine print and convoluted or unclear language." We have consistently found that adhesion contracts-that is, contracts prepared by the party with greater bargaining power and presented to the other party "for signature on a take-itor-leave-it basis"-satisfy the procedural element of the unconscionability analysis. "A contract, however, is ‘not unconscionable merely because the parties to it are unequal in bargaining position.'" Instead, a party challenging a contract on unconscionability grounds must also show that the contract is substantively unconscionable by demonstrating that the contract contains "terms unreasonably favorable to the stronger party." *

Looking first to the question of procedural unconscionability, we agree with the District Court that Nino had no opportunity to negotiate with DI [Diamonds International-the name under which the Jewelry Exchange does business] over the contract's terms, that DI was the stronger contractual party, and that the arbitration agreement is thus procedurally unconscionable. First and most significantly, as the District Court expressly found, DI presented the arbitration agreement to Nino "for signature on a take-it-or-leave-it basis." As Nino explained in his deposition, during his first week at the St. Thomas store, DI's human resources manager provided him with a copy of the company's employment contract and instructed him to "read it and sign it," without affording him any opportunity to negotiate over its terms. * * *

We likewise conclude that the arbitration agreement is substantively unconscionable because it contains terms unreasonably favorable to DI, the stronger party. * * * First, . . . the arbitration agreement's provision requiring that an employee file a grievance within five days of the complained-of incident in order to preserve his or her opportunity to arbitrate the dispute is substantively unconscionable. We have twice held in no uncertain terms that a thirty-day filing requirement in an arbitration agreement is substantively unconscionable. . . . [W]hile "a provision limiting the time to bring a claim or provide notice of such a claim to the defendant is not necessarily unfair or otherwise unconscionable," the time period designated by the agreement must still be reasonable. If a thirty-day filing window is "clearly unreasonable" [as held in a prior case], then the five-day filing requirement imposed by the parties' contract in this case is even more unduly favorable to DI. . . . Indeed, the filing requirement in Nino's arbitration agreement is particularly unreasonable because it is both inflexible and one-sided. With regard to its inflexibility, the agreement states that its filing requirements "are binding and may not be waived except by written agreement of both parties." * * * DI's "unfair advantage is only compounded by the fact that [DI itself] is apparently not required to provide detailed and written notice to an employee of any of its own claims within a strictly enforced [five]-day time period." Indeed, the arbitration agreement in this case imposes no notice requirement upon DI whatsoever. * * * The one-sided five-day filing requirement is manifestly unreasonable and is substantively unconscionable under Virgin Islands law.

Nino likewise argues, and the District Court found, that the arbitration agreement's requirement that the parties bear their own attorney's fees, costs, and expenses is substantively unconscionable. We agree. * * * [I]f arbitration is to offer claimants the full scope of remedies available under Title VII, arbitrators in Title VII cases, just like courts, must . . . ordinarily grant attorney fees to prevailing claimants rather than be restricted by private contractual language. Provisions in arbitration clauses requiring parties to bear their own attorney's fees, costs, and expenses work to "the disadvantage of an employee needing to obtain legal assistance." * * *

Finally, we turn to the arbitration agreement's provision governing the selection of an arbitrator, which Nino contends is substantively unconscionable. Under the arbitration agreement, . . . DI is required to submit a request to the AAA for a panel of four arbitrators. The parties select a single arbitrator from this list according to the following process: From the panel the Employer will strike the first arbitrator for whatever reason is unacceptable to the Employer. The Employee will then be allowed to strike one arbitrator from the remaining names of panel members. This process will continue until there remains one arbitrator who will be the arbitrator for this grievance or the parties can decide on an arbitrator that would be mutually acceptable. Although it is phrased in neutral, procedural terms, the upshot of this provision is that DI is permitted to strike two arbitrators from the four-member AAA panel, whereas the employee is permitted to strike just one.

This provision is "one-sided in the extreme and unreasonably favorable to [DI]." It confers an advantage upon DI for no discernible purpose other than to stack the deck in its favor. Courts of Appeals have not hesitated to conclude that provisions in arbitration agreements that give the employer an unreasonable advantage over the employee in the selection of an arbitrator are unconscionable. . . . "By agreeing to arbitration in lieu of litigation, the parties agree to trade the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration," but they do not accede to procedures "utterly lacking in the rudiments of even-handedness." * * *

Our final task in addressing Nino's unconscionability challenge to the arbitration agreement is to determine whether the unconscionable terms may be severed from the agreement such that the remainder of its terms may be enforced. * * * [T]wo lines of inquiry are relevant to the question of severability. The first of these is whether the unconscionable aspects "of the employment arbitration agreement constitute[] ‘an essential part of the agreed exchange' of promises" between the parties. If the unconscionable aspects of the clause do not comprise an essential aspect of the arbitration agreement as a whole, then the unconscionable provisions may be severed and the remainder of the arbitration agreement enforced. * * * The second consideration for the question of severability . . . is whether the unconscionability of the arbitration clause demonstrates "a systematic effort to impose arbitration on an employee, not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage."

* * * We need not discuss whether the unconscionable provisions of the parties' arbitration agreement comprise an essential aspect of the agreement as a whole, because we conclude that the one-sided nature of the arbitration agreement reveals unmistakably that DI "was not seeking a bona fide mechanism for dispute resolution, but rather sought to impose a scheme that it knew or should have known would provide it with an impermissible advantage." The provisions in question do not simply accord an advantage upon DI indirectly or by happenstance. Instead, they are baldly one-sided, with only one discernible purpose-to create advantages for the employer that are not afforded to the employee. Of the four members of the arbitration panel, the agreement permits DI to strike two and the employee to strike just one. The employee is required to give notice to DI of the claims he intends to arbitrate, while DI is under no such obligation to provide any notice to the employee. The employee must file a detailed grievance regarding the matter he seeks to arbitrate within five days of the underlying events or lose the right to go to arbitration altogether, while DI is insulated against the risk of default for any failure to adhere to its own filing deadlines. * * *We conclude . . . that the arbitration agreement is procedurally and substantively unconscionable, and that the pervasively one-sided nature of the agreement forecloses any possibility of severing the unfair provisions from the remainder of the agreement. * * *

Case Questions

1. What was the legal issue in this case? What did the appeals court decide?

2. What does it mean for a contract to be "unconscionable," To be "procedurally unconscionable"? "To be substantively unconscionable"?

3. What was the evidence that this agreement was procedurally unconscionable? That this agreement was substantively unconscionable?

4. What does it mean to "sever" illegal terms from a contract? Why did the appeals court decline to do so here?

5. What would you advise this employer to do in light of this decision? Should it redraft the language of the arbitration agreement to deal with the court's objections or drop the whole thing?

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Reference no: EM131337355

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