The question at hand in Crespo v. Kapnisis case was whether unconscionable provisions can be voided by a court without having to scrap the rest of the obligation. This is a case that began when allegations were made that a variety of labor laws had been violated. Some of these were direct infractions of the Fair Labor Standards Act. It’s a case that has major implications on arbitration agreements in New York and elsewhere.
What happens when an arbitration agreement includes unconscionable provisions?
The defendants, Kapnisis and others, had given the plaintiffs an arbitration agreement to sign as part of their employment. The plaintiff, Crespo, holds to the position that there were substantively unconscionable provisions included in that arbitration agreement that he was required to sign in order to keep his job.
In this agreement, the elements that were out of line and unethical included provisions demanding that the party that lost any appeal of the reward would have to pay the fees of the winning party’s attorneys. This is assuming that the arbitration costs are distributed equally amongst the parties.
This agreement also made the limitation on statutory claims shorter than one year which is the legislatively mandated time limit.
Crespo v. Kapnisis timeline of events
The first thing that happened was the plaintiff claiming procedural unconscionability. Those claims were dismissed by the court.
Next, the court addressed the matters brought forth in the case using the effective vindication test, which is an exception to the general policy that the FAA upholds to enforce an arbitration agreement. Under this exception, a provision becomes invalid when it is operating as a potential way of wavering someone’s right to pursue statutory remedies.
The consensus in Crespo v. Kapnisis was that courts don’t have to void the entirety of an obligation if a portion of an arbitration agreement is not enforceable. The solution that the court held is to eliminate the provisions that don’t align with FAA policies. The court’s reasoning is that these provisions would be a subversion of the statutory scheme put in place by the FLSA.