One-Sided Employment Arbitration Clause and a Topsy-Turvy Case

In a recent, procedurally unusual case, an employee asked a federal court to compel arbitration of a dispute with her employer, but the federal court refused.  Stardock Systems, Inc. v. Miseta, No. 12–13345 (E.D. Mich. May 8, 2013).  (Click here for opinion.)

The employee in this case alleged that Stardock’s CEO had sexually harassed her, and she had previously signed a document titled “Receipt and Understanding by Employee,” which contained an arbitration clause covering disputes with Stardock.  The employee sued the CEO in his individual capacity in state court while simultaneously filing a written demand for arbitration against the corporate entity Stardock.  The CEO responded to the state court lawsuit against him by asking the court to enforce the arbitration agreement, but the court refused.  In the parallel arbitration proceeding, Stardock responded with counterclaims against the employee for breach of contract, breach of fiduciary duty, and conversion.  However, Stardock subsequently withdrew the counterclaims from arbitration and re-filed those claims against the employee in federal court.   The employee then sought to bar the counterclaims by asking the court to enforce a 6 month limitation period in the arbitration clause, and in the alternative, to compel arbitration of these re-filed counterclaims.  However, the federal court refused.  The court relied on the one-sided nature of the narrowly drafted arbitration clause and found that the 6 month limitations period as well as the duty to arbitrate only applied to claims brought by the employee, not claims brought by the employer.

As a result of the ruling, the parties are litigating in state court the individual claims against the CEO, arbitrating the employee’s claims against the corporation, and litigating the corporation’s “counterclaims” in federal court.  How’s that for efficiency?