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Hawaii ignores Federal Arbitration Act
June 08, 2006 by Ross Runkel at LawMemo
The Hawaii Supreme Court ignored the Federal Arbitration Act in deciding that an employer's arbitration provision could not be enforced.
I thought Hawaii was a state of the United States, bound by the law of the land. Not so, it seems, based on the decision in Douglass v. Pflueger Hawaii, Inc (Hawaii 05/25/2006). Majority opinion | Concurring opinion
Two big errors, in my opinion.
Error No. 1: Ignoring Buckeye Check Cashing v. Cardegna (US Supreme Court 02/21/2006)
In Buckeye there was a lawsuit dealing with whether a high-interest loan agreement could be enforced. The loan agreement contained an arbitration provision.
For the Florida Supreme Court, it was easy. They said the whole contract was illegal and void under Florida law (because of the high interest rate), and therefore the arbitration provision could not be enforced.
The US Supreme Court said that was wrong. It's a two-step process. First look solely at the arbitration provision. If the parties agreed to arbitrate, then send the case to an arbitrator to decide whether the whole contract was illegal and void.
The Hawaii court got it backwards. They first looked to see whether the whole contract could be avoided on the ground that the plaintiff was under age.
Turns out this error did not affect the outcome, because the Hawaii arbitration provision was unenforceable for another reason.
Error No. 2: Treating arbitration provisions in a special way.
When the Hawaii court got to the issue of whether the plaintiff had assented to the arbitration provision, it became important to the court that this provision was contained in a long employee handbook and was not "boxed off" or otherwise set apart from the other provisions of the handbook. The error here is that the court was using a special rule that applies only to arbitration provisions. I can't imagine that every other provision had to be "boxed off." Thus, the court ignored the requirement that states can refuse to enforce arbitration agreements only on the very same grounds that they refuse to enforce other agreements. In other words, no special rules for arbitration are allowed.
But it didn't matter.
In the end, all of this did not change the outcome. It turns out that the court found that there was no "consideration" for the agreement to arbitrate because the provision allowed the employer to make any changes at any time without any advance notice.
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