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Court severs anti-punitive damages clause
July 05, 2005 by Ross Runkel at LawMemo

An arbitration agreement was unenforceable as written because it precluded an award of punitive damages, which is available under state (D.C.) statute. What should a court do now?

• Sever the offensive clause and order arbitration?
• Disallow arbitration and send the case to court litigation?

The District of Columbia Circuit says to sever the offensive clause and compel arbitration. Booker v. Robert Half Intl (DC Cir 07/01/2005).

Timothy Booker had signed an agreement to arbitrate his employment disputes, but when he had a claim of racial discrimination and wrongful discharge he filed suit. When the employer moved to compel arbitration, Booker pointed out that the arbitration agreement contained a clause that was unlawful: a ban on punitive damages. So the trial court excised the punitive damages clause and enforced the agreement to arbitrate.

The DC Circuit approved. Although the court identified other Circuit decisions that seemed to go both ways on this issue, there were two factors that prevailed. (1) The agreement had only one flaw, and was not riddled with unlawful clauses. (2) The agreement had an express severability clause in it.

My view:

• On the facts of this case, a proper outcome. By analogy to the law of unconsionability, it seems proper, if possible, to cut out the offensive portion(s) of an agreement and preserve the remainder. Easily done here.
• I do remain sympathetic to one of Booker's arguments: Employers who know that courts will "prune" the illegality out of arbitration agreements will be encouraged to overreach and include improper clauses. Employees will be required to go to court to get the thing fixed. This adds another hurdle for the employee, and adds costs to the process, all of which is contrary to the spirit of arbitration as a dispute-resolution method.

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