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Supreme Court of Hawaii: Arbitration Clause Is Unenforceable

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On October 31, 2014, the Supreme Court of Hawaii held that arbitration clauses that give employers “sole discretion” to select an arbitrator violate the “fundamental fairness standard” and are thus unenforceable.

In Nishimura v. Gentry Homes, Thomas and Colette Nishimura filed a class action suit against Gentry Homes. Gentry Homes filed a motion to compel arbitration, and the determination of that motion ultimately made its way to Hawaii’s highest Court.

The Hawaii Supreme Court’s refusal to enforce the arbitration provision is noteworthy for its use of the fundamental fairness standard developed by the Sixth Circuit Court of Appeals to ensure an employee’s right to a fair judicial forum. Specifically, the Hawaii Court cited the Sixth Circuit’s ruling in McMullen v. Meijer, Inc., which held that an arbitration agreement granting an employer exclusive control over a pool of arbitrators is unenforceable because the forum lacks neutrality.

The Court also relied on the Sixth Circuit’s decision in Walker v. Ryan’s Family Steak Houses, Inc., which held that the symbiotic relationship between defendant and arbitration service can render an arbitration clause unenforceable.

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