Ohio Supreme Court Finds Arbitration Clause Did Not Clearly Cover Intentional Tort Claim Without Specific Reference

Last week, the Ohio Supreme Court affirmed the denial of a motion to compel arbitration of an employee’s intentional tort workplace injury claim based on the arbitration clause of a collective bargaining agreement which did not specifically mention intentional tort claims or the intentional tort statute in the list of employment statutory claims which were covered.   Sinley v. Safety Controls Technology, Inc., Slip Opinion No. 2022-Ohio-4153.  The Court concluded that “while arbitration is generally favored in most contracts, there is no presumption of arbitrability of an individual employee’s claims under an arbitration clause contained in a collective-bargaining agreement.”  It also held that “[t]o compel arbitration against a union employee, the claim at issue must have been clearly and unmistakably waived in the arbitration provisions in the collective-bargaining agreement governing the parties” and to “be clear and unmistakable, the claim must be included either by statute or specific cause of action in the arbitration provision of the collective-bargaining agreement.”  It was insufficient that the clause explicitly applied “to any alleged violation of laws or statutes by the  . . . Company, as alleged by an employee, including without limitation” a list of particular statutes when the intentional tort statute was not one of those listed.

According to the Court’s opinion, the plaintiff employee claimed to have been intentionally injured with the removal of certain safety precautions and his supervisor’s testing the equipment while he was working on it.  When he filed suit against the employer, manufacturer, safety consultant and others, the employer moved to compel arbitration based on the applicable collective bargaining agreement whose arbitration clause covered a number of individual statutory claims, including employment discrimination and workers compensation retaliation, etc.  However, the clause did not specifically mention general torts or the intentional tort statute.

The Court agreed that such claims could be arbitrable if they were covered by the relevant arbitration clause.  While it would be better to cite the specific statute, it is sufficient to describe the types of claims which are covered.

In this case, the arbitration clause explicitly provided that it would apply to all statutory claims against the employer, “including without limitation” a list of various employment-related statutes.  However, the Court’s majority rejected that this could be interpreted to include intentional tort claims:

[I]f the parties intended for the nonexhaustive list to be taken to include all statutory causes of actions generally, then the provision becomes just that, a general clause requiring arbitration of all possible violations of laws or statutes. . . . .

We do not find that an arbitration provision in a collective[1]bargaining agreement must cover every possible, conceivable federal and state law claim in order for the language to constitute a clear and unmistakable waiver. But the body of case law presented by the parties and amici curiae on both sides demonstrates that some specific reference to the claim at issue is required. And while expressly including the specific statute when a right or claim is created by one leaves no question as to whether the parties intended to waive such a claim, doing so may not always be practical or necessary. But for a waiver to be clear and unmistakable, it must identify the claim either by statute or cause of action. Having no reference whatsoever to intentional-tort claims, the CBA here cannot be used to compel Sinley to arbitrate such claims.

The dissent focused on an earlier party of the arbitration clause which further clarified that the scope was to cover all employment-related claims, except for workers’ compensation: ““any employment-related controversy or dispute arising between the parties to [the] Agreement, or between an employee and the parties to [the] Agreement as to the interpretation or application of the terms and provisions of [the] Agreement, or as to the violation of any employment-related laws or statutes (except workers’ compensation matters).”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Addresses Union Issues Involving ERISA and Tacit Agreements on Arbitrability of Grievances in a Double-Breasted Shop

 Earlier this month, the Sixth Circuit Court of Appeals issued two interesting union-related decisions.  In one, it held the district court had jurisdiction to hear an ERISA claim even though the parties’ bargaining agreement had expired a years earlier because the union did not request the court to decide an unfair labor practice claim over the duty to maintain the status quo during negotiations. The other case involved whether a double breasted shop was subject to arbitration under the grievance procedure in a subsidiary’s bargaining agreement and whether the parent company had tacitly agreed to permit the arbitrator to decide the initial question of arbitrability by appearing at the arbitration.   The Court remanded the case to determine whether the parent company had tacitly agreed to permit the arbitrator (rather than a court) to determine arbitrability.  The Court also found that the employer’s motion to vacate the award was timely because it was filed within three months of the arbitrator’s supplemental award fixing damages even though it was filed four months after the arbitrator determined liability.

In Greenhouse Holdings v. Int’l Union of Painters and Allied Trades, the Kentucky employer owned 90% of a Tennessee subsidiary, which had a bargaining agreement and shared a similar name with the parent organization.  The union then filed an ambiguous grievance, which was submitted to arbitration.  The Union indicated that it believed that both the Kentucky and Tennessee operations were subject to the bargaining agreement while one management representative insisted that the Kentucky operations were non-union.  The arbitrator sided with the union and ordered wages paid to the Kentucky employees as well as the Tennessee employees.  The employer moved to vacate under the FAA.

The district court agreed that there was insufficient evidence that the employer had agreed that its Kentucky operations were subject to the bargaining agreement and had never signed the CBA.   However, the Sixth Circuit determined that this did not end the question and remanded the case for the trial court to re-examine the facts.  The employer may have tacitly agreed to arbitrate the arbitrability of the dispute (i.e., let the arbitrator decide whether it was subject to the bargaining agreement) instead of permitting a court to determine arbitrability.   If so, the court’s review of the issue would be much more limited and not de novo.

On one hand, the Union’s attorney suggests that Kinney spoke on behalf of Greenhouse at the arbitration. But on the other, Kinney states that he participated only on behalf of Clearview Tennessee. This dispute matters. If Greenhouse wasn’t at the arbitration, or if Kinney appeared on behalf of Greenhouse merely to object to the arbitrator’s authority, then the court can decide de novo whether Greenhouse was bound by the CBA. But if Greenhouse consented to arbitration and the question of whether it was bound by the CBA was clearly before the arbitrator, then a higher standard of review applies.

In Operating Engineers v. Rieth-Riley Construction, the Court reversed the dismissal of the union’s ERISA complaint, but noted that the case may still be ultimately dismissed (on summary judgment) for the same reason.  The union agreed to the termination of the 2013 multi-employer bargaining agreement and refused to accept ERISA contributions from the defendant employer, until the employer discovered an old bargaining agreement (which had expired and been replaced many years earlier), reflecting a previous 9(a) relationship with the union.  The employer insisted on negotiating a new agreement with the union and, thus, maintaining the status quo under NLRA rules.  The union accepted the contributions and then, a year later when negotiations had soured, sought to audit the employer for delinquent contributions and brought suit under ERISA to enforce payment of the allegedly delinquent contributions.  While the union could not attempt to litigate an unfair labor practice charge through ERISA, it could sue the employer for breach of contract under ERISA.  The lack of a live contract – since the bargaining agreement had expired and been replaced years ago – was not a jurisdictional requirement to bring an ERISA action, but it might result in the lawsuit being dismissed on summary judgment or at trial:

The trial court determined that the

source of the obligation . . . . acted as “an essential jurisdictional fact” that it had to “determine before proceeding forward.” . . . And here, [the employer] and the Funds “never entered into another contract” after the CBA expired.  Nor did any independent agreements bind the parties. Without a contract, the court found [the employer’s] contribution duty “[arose] solely” from its “statutory status quo obligation under federal labor law.” . . . . And without a contract, the court held it lacked jurisdiction to hear the Funds’ claim.  So it directed the Funds to the NLRB and dismissed their suit without prejudice.

                 . . . .

Here, the Funds brought an ERISA claim, not an unfair-labor-practices claim. They argued that [the employer] failed to make its “promised [contractual] contributions,” not that it violated the NLRA by refusing to bargain or maintain the status quo. . . . . Because the Funds ask us to find that [the employer] breached a contract, not that it violated the NLRA, their claim does not fall into Advanced Lightweight’s ambit.

Of course, in the end, the Funds’ contract claims may fall flat for the reasons the district court gave.  But those findings go to the merits of the Funds’ ERISA claim, not our jurisdiction to hear it. To the extent that the district court concluded otherwise, it erred.

                 . . .

[Assuming the employer] is right about the contracts; they don’t exist. Even so, a deficient contract claim by itself doesn’t  convert[] the Funds’ complaint into an unfair labor practice claim” and “divest[]” this court of jurisdiction. . . . . Rather, it would mean what a deficient claim always does in this context: The Funds lose on the merits.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Recent Developments Concerning Mandatory Pre-dispute Arbitration

 

In light of the recent federal legislation carving out sexual assault and sexual harassment cases from the provisions of mandatory pre-dispute arbitration, it is worth remembering that mandatory arbitration is not as one-sided as some may think.  There were several cases decided within last year which indicated that arbitrations are not automatically compelled.   None of these decisions involved sexual harassment or assault allegations.   In Robie v. Maxill, Inc., 2021-Ohio-2264, the court remanded the dispute for the trial court to conduct an evidentiary hearing on the alleged unconscionability of the arbitration agreement.  In Boykin v. Family Dollar Stores, 3 F.4th 821 (6th Cir. 2021), the Court remanded the dispute so that the trial court could evaluate whether the underlying contract had even been made.   Finally, in Ciccio v. SmileDirectClub, LLC, 2 F.4th 577 (6th Cir. 2021), the Court held that the AAA Administrator lacked authority to determine the arbitrability of the dispute; only the arbitrator was authorized to conduct that analysis.

In Robie, the plaintiff alleged that she had been fired in retaliation for complaining about illegal compensation practices (i.e., being required to work without pay answering client questions while she was on furlough and receiving unemployment compensation).  The trial court granted the employer’s motion to stay pending arbitration.  The Trumbull County Court of Appeals found that the trial court was typically not required to conduct an evidentiary hearing before staying litigation pending arbitration, but was required to consider evidence that the agreement was unconscionable if so alleged.   The case was remanded on that issue.

In Boykin, the plaintiff alleged that he had been unlawfully fired on account of his age and race.  The employer moved for judgment under Rule 12(b)(3) and to compel arbitration based on an e-signed agreement.  The trial court dismissed the case under Rule 12(b)(6) even though it considered evidence outside the pleadings.  The Sixth Circuit reversed:

Although the Federal Arbitration Act requires a court to summarily compel arbitration upon a party’s request, the court may do so only if the opposing side has not put the making of the arbitration contract “in issue.” 9 U.S.C. § 4. The district court in this case should have evaluated whether Boykin adequately challenged the making of the contract using the standards that apply on summary judgment. And Boykin’s evidence created a genuine issue of fact over whether he electronically accepted the contract or otherwise learned of Family Dollar’s arbitration policy. Although his affidavit denying that he accepted the contract may have been “self-serving,” that description alone does not provide a valid basis to ignore it.

In Ciccio, a group of plaintiffs brought their claims (mostly relating to false advertising) in court, but the appellant voluntarily dismissed and submitted his claim to the AAA in accordance with a previously signed arbitration agreement.  However, the AAA Administer refused to accept it unless the plaintiff signed a new post-dispute arbitration agreement, which he refused to do.  When the plaintiff returned to court, the trial judge found he had satisfied his obligations under the arbitration agreement, meaning that his dispute was not covered by the agreement.  The Sixth Circuit reversed and ordered the dispute to be submitted to an arbitrator (rather than the AAA administrator) to determine arbitrability.

But whether an arbitration agreement covers a dispute is a gateway question of arbitrability, and here the parties delegated such questions to an arbitrator. Under the agreement and the incorporated AAA rules, it was improper for an administrator to effectively answer that gateway question or to overlook it altogether . . .

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: Court Decides FAA Exemptions for Workers in Interstate Commerce, Not Arbitrator

This morning, the Supreme Court affirmed a Federal Arbitration Act decision and held that a court – not the arbitrator --  should decide whether a §1 exemption for “contracts of employment of . . . workers engaged in foreign or interstate commerce” applied to negate FAA enforcement of the arbitration clause in the plaintiff trucker’s independent contractor agreement.   New Prime, Inc. v. Oliveira, No. 17-340 (1-15-19).   Further, the Court held that the common meaning of “worker” and “contract of employment” at the time the FAA was enacted in 1925 would control its interpretation of those terms instead of the contemporary understanding of those terms in order to protect the reasonable reliance of the public.  In 1925, “employment” was broadly understood to encompass workers and independent contractors and not just employees. 

According to the Court’s opinion, the plaintiff was hired under an “operating agreement” to work as an independent contractor truck driver for the defendant interstate trucking firm.  The operating agreement contained an arbitration clause which provided that the arbitrator should decide questions of arbitrability. The plaintiff filed a class action claiming that he and his fellow drivers had been misclassified as independent contractors and were entitled to minimum and overtime wages.   The defendant company moved to compel arbitration.  The plaintiff argued that he and his fellow drivers were exempt from FAA enforcement under §1, but the company argued that this decision should be made by the arbitrator and, if not, “contracts of employment” referred to common law and statutory employees, not independent contractors like the plaintiff and his fellow drivers.

The Court observed that the FAA only compels arbitration of disputes when the FAA applies.  Among other things, the FAA requires an “agreement in writing” between the parties and applies to disputes which arise from a “written provision in any maritime transaction or a contract evidencing a transaction involving commerce.”  The FAA also specifically exempts certain agreements from enforcement.  Section 1 of the FAA defines the terms “maritime transactions” and commerce,” and then provides:

but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.

This exemption existed because:

Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers.  And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties’ private contracts might happen to contemplate.

Clearly, a court could not apply the FAA and compel arbitration before deciding for itself whether the FAA even applied:

The parties’ private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.

This is not a new concept. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 402 (1967).

The Court then rejected the defendant company’s argument that “contracts of employment” covered only agreements with common law and statutory employees and not to contacts of employment with workers (like the plaintiff) who might be independent contractors.   The parties agreed that the plaintiff was a worker engaged in interstate commerce and the plaintiff was willing to assume – only for this issue – that he was an independent contractor.   

In deciding whether “contracts of employment” included independent contractor agreements, the Court observed:

“[I]t’s a ‘fundamental canon of statutory construction’ that words generally should be ‘interpreted as taking their ordinary . . . meaning . . . at the time Congress enacted the statute.’” . . . After all, if judges could freely invest old statutory terms with new meanings, we would risk amending legislation outside the “single, finely wrought and exhaustively considered, procedure” the Constitution commands. INS v. Chadha, 462 U. S. 919, 951 (1983).  We would risk, too, upsetting reliance interests in the settled meaning of a statute. . . .

That, we think, holds the key to the case.  To many lawyerly ears today, the term “contracts of employment” might call to mind only agreements between employers and employees (or what the common law sometimes called masters and servants).  Suggestively, at least one recently published law dictionary defines the word “employment” to mean “the relationship between master and servant.” Black’s Law Dictionary 641 (10th ed. 2014).  But this modern intuition isn’t easily squared with evidence of the term’s meaning at the time of the Act’s adoption in 1925.  At that time, a “contract of employment” usually meant nothing more than an agreement to perform work.  As a result, most people then would have understood §1 to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.

The Court examined prior law dictionaries and found that “contracts of employment” was not even a term of art or defined term in 1925:

It turns out, too, that the dictionaries of the era consistently afforded the word “employment” a broad construction, broader than may be often found in dictionaries today.  Back then, dictionaries tended to treat “employment” more or less as a synonym for “work.”  Nor did they distinguish between different kinds of work or workers: All work was treated as employment, whether or not the common law criteria for a master-servant relationship happened to be satisfied.

 . . . This Court’s early 20th-century cases used the phrase “contract of employment” to describe work agreements involving independent contractors.  Many state court cases did the same.  So did a variety of federal statutes. . . . We see here no evidence that a “contract of employment” necessarily signaled a formal employer-employee or master-servant relationship.

Further, the §1 of the FAA itself refers to “contracts of employment” with “workers.”  Workers, then as now, refers to a broader class of individual which includes both employees and independent contractors.

The Court rejected the defendant company’s argument that “contracts of employment” must necessarily only cover employees because the words “employment” and “employee,” while derived from a common root did not develop simultaneously and have different understandings and legal meaning with “employment” traditionally having a broader meaning than employee.  While “contracts of employment” clearly included contracts with employees, they could also include contracts with workers or independent contractors who were not employees.

The  Court refused to enforce the purpose of the FAA over the statutory mandates or to utilize the Court’s inherent authority to compel alternative dispute resolution.

Justice Ginsburg agreed with the  Court’s decision and rationale, but not surprisingly, also asserted that Congress could design legislation that should change with the times: sometimes, “[w]ords in statutes can enlarge or contract their scope as other changes, in law or in the world, require their application to new instances or make old applications anachronistic.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Unanimous Supreme Court Rejects Another Non-Statutory Exception to FAA Enforcement

Yesterday, the Supreme Court unanimously reversed  an arbitration decision that will affect non-competition litigation between employees and employers who have incorporated arbitration clauses into their agreements.  The Court ruled that the Federal Arbitration Act requires the arbitrability of a dispute to be resolved by the arbitrator even if the trial court finds the request for arbitration to be “wholly groundless” if the parties’ agreement reserved questions of arbitrability to the arbitrator.  Henry Schein, Inc. v. Archer & White Sales, Inc., No 17-1272 (1-9-19).  In that case, the parties’ contract provided for arbitration of disputes, except when the party was seeking injunctive relief.  While the contract did not specifically address the question of arbitrability, its brief two-sentence arbitration clause referred to the AAA rules, which provides that arbitrators can decide arbitrability.  The plaintiff filed suit seeking damages and injunctive relief and the defendant sought to have the entire matter referred to arbitration.  The plaintiff objected on the grounds that the defendant’s request was “wholly groundless” (because of the contract’s exception for injunction requests) so that the trial court could resolve the arbitrability question.  The trial and appellate court agreed, but the Supreme Court reversed and found that the FAA does not contain an exception for “wholly groundless” arguments as to arbitrability.  However, because the contract was silent about the question of arbitrability, the Court remanded the matter to determine if the parties’ contract reserved the question of arbitrability to be decided by the arbitrator or the trial court.

The Court rejected the defendant’s argument that Sections 3 and 4 of the FAA only require a court to stay litigation pending arbitration and to refer a matter to arbitration after an initial evaluation of arbitrability.

This Court has consistently held that parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by “clear and unmistakable” evidence. First Options, 514 U. S., at 944 (alterations omitted); see also Rent-A-Center, 561 U. S., at 69, n. 1.  To be sure, before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists. See 9 U. S. C. §2.  But if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.

The Court also refused to impose a common law exception into the FAA to prevent a waste of the parties’ resources.   Moreover, it was doubtful that systematic resources would be spared when there was likely to be collateral litigation over arbitrability regardless of whether the arbitrator or trial court decided the issue.

Under the Act, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms. Rent-A-Center, 561 U. S., at 67.  Applying the Act, we have held that parties may agree to have an arbitrator decide not only the merits of a particular dispute but also “‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.”  Id., at 68–69; see also First Options, 514 U. S., at 943.  We have explained that an “agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other.”  Rent-A-Center, 561 U. S., at 70.

                 . . .

We must interpret the Act as written, and the Act in turn requires that we interpret the contract as written. When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue.  That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.

That conclusion follows not only from the text of the Act but also from precedent. We have held that a court may not “rule on the potential merits of the underlying” claim that is assigned by contract to an arbitrator, “even if it appears to the court to be frivolous.”  AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 649–650 (1986). A court has “‘no business weighing the merits of the grievance’” because the “‘agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.’” Id., at 650 (quoting Steelworkers v. American Mfg. Co., 363 U. S. 564, 568 (1960)).

                 . . . .

The [wholly groundless] exception is inconsistent with the statutory text and with our precedent. It confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.  When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract

 Ultimately, however, the Court expressed

no view about whether the contract at issue in this case in fact delegated the arbitrability question to an arbitrator. The Court of Appeals did not decide that issue.  Under our cases, courts “should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”  First Options, 514 U. S., at 944 (alterations omitted).  On remand, the Court of Appeals may address that issue . . .

This decision will affect employers because many employment agreements contain non-competition and non-solicitation clauses as well as arbitration clauses that similarly carve out exceptions for when the employer seeks injunctive relief.  The reason for such carve-outs is so that the employer can obtain speedy preliminary injunctive relief when damages will be inadequate for the harm caused by the improper competition or solicitation.  However, if the employee seeks to have the entire matter referred to arbitration, resolution of the dispute could be delayed while the parties select an arbitrator, etc. to resolve the arbitrability issue.   

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney. 

Ohio Appeals Court Refuses to Compel Arbitration of Employment or Sexual Assault Claims Where Arbitration Agreement Was Overly Broad and Ambiguous

Last Thursday, a divided Cuyahoga County Court of Appeals affirmed the denial of a motion to compel arbitration of an employee’s rape and sexual harassment claims against her former restaurant employer even though she signed an arbitration agreement covering any claims relating to her employment, “claims or controversies relating to events outside the scope of your employment,” claims involving ““personal or emotional injury to you or your family,” and excluded only claims where the ““exclusive remedies under either workers compensation law or employee injury benefit plan” or which involved “the risk of irreparable harm, such as the disclosure of confidential information.” Arnold v. Burger King, 2015-Ohio-4485.  The Court unanimously found that the plaintiff’s claims based on the alleged sexual assault did not relate to her employment or fall within the scope of the arbitration clause.  The majority also found that none of the plaintiff’s other claims of employment discrimination, retaliation and threat of termination, etc., were reasonably foreseeable to her to arise out of her employment and could not have been intended or agreed by her to be within the scope of the arbitration clause.  The majority also found the arbitration clause to be unconscionable.  

According to the Court’s lengthy opinion, upon being hired in May 2012, the plaintiff executed a mandatory arbitration agreement submitting disputes to JAMS for resolution.  The MAA contained terms describing the scope of the agreement including:

·        Any and all disputes, claims or controversies for monetary or equitable relief arising out of or relating to your employment, even disputes, claims, or controversies relating to events occurring outside the scope of your employment (“Claims”), any claims relating to her employment,

·        claims involving ““personal or emotional injury to you or your family,”

·        Claims against the franchise’s officers, directors, managers, employees, owners, attorneys and agents, as well as to any dispute you have with any entity owned, controlled or operated by Carrols Corporation.

The plaintiff filed suit against Burger King, the franchise and her former supervisor after she had been sexually assaulted by her supervisor during working hours in the men’s restroom (which she had been assigned to clean) and suffered additional sexual harassment. She also alleged that the franchise and her supervisor retaliated against her and threatened to fire her when she attempted to enforce her rights.  She specifically claimed that she had suffered from sex discrimination in her employment.  The franchise moved to compel arbitration and the trial court denied that motion without opinion.  

The Court rejected the plaintiff’s argument that disputes against the franchise were not covered by the MAA, which was signed by Carrols Corporation. Carrols Corporation was not a party to the litigation.  Carols Restaurant Group, Inc. was the sole member of Carols LLC (i.e., the franchise).  Even though the franchise was not a signatory to the MAA, it could still enforce it as an owner or agent of the Corporation.   

The Court recognized that federal and state law encourage arbitration and a strong presumption that disputes fall within an arbitration clause.  Indeed, the Ohio Supreme Court has concluded that a motion to compel arbitration “should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.”  The Court also felt that adhesion contracts between parties of disparate bargaining power were subject to greater scrutiny than other contracts. Ultimately, a court should not refer to arbitration claims which the parties did not intend to be arbitrated.  Importantly, merely because there is a contract between the parties does not make every dispute between them arbitrable:

 

For example, if two small business owners execute a sales contract including a general arbitration clause, and one assaults the other, we would think it elementary that the sales contract did not require the victim to arbitrate the tort claim because the tort claim is not related to the sales contract. In other words, with respect to the alleged wrong, it is simply fortuitous that the parties happened to have a contractual relationship.”

The Court identified a number of tort and statutory claims – such as identity theft by a lender’s employee or an anti-trust dispute --  which other courts had refused to find within the scope of an arbitration clause because the claims did not involve the business relationship that supported the arbitration clause.  “A proper method of analysis here is to ask if an action could be maintained without reference to the contract or relationship at issue. If it could, it is likely outside the scope of the arbitration agreement.”  In particular, the Court was influenced by decisions where courts had refused to compel arbitration of “outrageous torts that are unforeseeable to a reasonable consumer in the context of normal business dealings,” and “those outrageous torts, which although factually related to the performance of the contract, are legally distinct from the contractual relationship between the parties.” 

With this in mind, the Court concluded “a lawsuit arising from a rape is an outrageous tort that is legally distinct from the contractual [employment] relationship between the parties.”  The Mississippi Supreme Court found a similar working hours rape claim by another restaurant employee to also be outside the scope of a similar arbitration clause (covering all claims relating to employment), as were the negligent hiring, retention and supervision claims.  The Court also cited to other federal cases involving other workplace sexual assault claims which were similarly found to be outside the scope of an arbitration clause relating to employment.

The Court was also influenced by the franchise defendant’s ability to foresee the potential harm to the plaintiff in light of pending EEOC litigation filed eleven years ago against it in New York involving class allegations of sexual harassment.   The Court also decided to construe ambiguities in the arbitration clause against the defendant employer in divining the intent of the parties.  Notably, the employer had posted a notice in every restaurant that purported to summarize the MAA and which contended that it only applied to employment-related claims:

 . . .  the Policy Notice (“Policy Notice”) posted in the restaurant location states, “employment related disputes that cannot be resolved internally will proceed to arbitration rather than in a lawsuit.” It does not say that disputes arising outside the scope of employment are also required to proceed to arbitration. An agreement to arbitrate claims that arise outside the scope of employment results in an infinite and unforeseeable variety of potential claims.

The Court also found it significant when the employer specifically identified certain statutory claims, but not others:

Additionally relevant to assessing foreseeability and expectations is whether there was an understanding of what the parties understood the MAA language to mean. The MAA provides a list of legal causes of actions and laws, in legal terminology, such as strict liability, Family Medical Leave Act, and Employee Retirement Income Security Act.

 . . . .The agreement does not, in any way, explain the tremendously overreaching impact of its terms on the employee’s life both within and outside the scope of employment. There is no bold language such as is required in consumer agreements putting the employee on notice of the extensive abrogation of rights.

Ultimately, the court unanimously agreed that the claims arising out of the alleged sexual assault existed outside the employment relationship and did not fall within the scope of the arbitration clause.  “Any individual could assert the same causes of action based on the underlying facts.”  A patron subjected to such misconduct could bring claims at the Ohio Civil Rights Commission for discrimination and employment. 

Where the majority and dissent parted ways is that the majority of the Court found that it was not foreseeable that the plaintiff could be subjected to sexual harassment in connection with her employment.  According to the Court, unless the claims were foreseeable, the plaintiff could not have expected them to be covered by the arbitration clause and, therefore, could not have agreed to it as a matter of contract law.  

We find that ongoing verbal and physical contact culminating in sexual assault as well as retaliation, harassment, or other detrimental acts against Arnold based on the unlawful conduct is not a foreseeable result of the employment.

In any event, the majority also found that the arbitration clause was unenforceable because it was both procedurally and substantively unconscionable.

“Procedural unconscionability concerns the formation of the agreement and occurs when no voluntary meeting of the minds is possible” and “consider[s] the relative bargaining positions of the parties including each party’s age, education, intelligence, experience, and who drafted the contract.” Based on many of the issues already discussed, the Court found that the MAA was procedurally unconscionable. 

The Court also found the MAA to be substantively unconscionable “inasmuch as the MAA sought to include every possible situation that might arise in an employee’s life, the clause is substantively unconscionable as the arbitrator would be resolving disputes unrelated to employment.” 

The Court observed that the employer’s arbitration Policy Notice was misleading when it said that arbitration was less expensive for both sides because arbitration fees are more expensive than court filing fees (even though the employer agreed to reimburse the employee for 50% of the arbitration filing fee if the employee provided an unspecified proof of payment within two weeks). In this case, there was no way for the employee to tell how much the fees might be.  Moreover, the MAA limited the financial recovery of that a prevailing employee could receive and said nothing of attorney fees (although the JAMS website indicated that all remedies remains available).  In addition, the JAMS website was confusing: 

There is a true labyrinth of information with links to rules, forms, ethics, discovery protocols, etc. There is nothing to direct an arguably unsophisticated individual through the maze of information in order to ascertain which of the multiple documents apply to pursuing arbitration against Carrols.

The MAA provides that an employee is to send a complaint to JAMS with a copy to Carrols’ legal department. The JAMS website contains a six page form entitled “Demand for Arbitration” that was last updated “11/24/14.” It is unknown whether a similar form was required to be filed to initiate arbitration via the MAA. To fill out the form, a party must know whether they are pursuing arbitration on a predispute, post dispute, oral dispute, or court order. A $400 nonrefundable “Case Management Fee” is also required. There is no schedule of fees contained in the document, just as there was none provided to the trial court via Carrols’ submission of the applicable rules and regulations. In fact, this court’s attempt to ascertain the costs attendant to pursuit of arbitration applicable to this case was an exercise in futility.

The majority – like some other courts – also implied that consideration was illusory because the parties’ promises were not mutual in that the employer exempted claims involving irreparable harm, such as breaches of confidentiality.  However, it did not push the point since there is no legal requirement that promises be mutual in order to be enforceable.   Instead, it made a nonsensical argument that the plaintiff “may be “irreparably harmed” if she is forced to defend herself at arbitration on a sensitive and emotionally scarring subject involving explicit personal details” as though it would be easier to testify on the same subjects in open court.

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Terms of Arbitration Clause Did Not Govern Statutory Retaliation Claims

On Thursday, the Sixth Circuit reversed the dismissal of whistleblower/retaliation claims brought under the federal False Claims Act on the grounds that the applicable arbitration clause only governed disputes which arose under the terms of the employment agreement and not independent statutory claims.  U.S. v. BAE Systems Technology Solutions & Services, Inc., No. 13-2237 (6^th Cir. 5-22-14). The plaintiffs brought a qui tam action alleging that their former employer defrauded the government and retaliated against them for complaining and reporting the misconduct.   The district court dismissed the FCA claim and referred the retaliation claim to arbitration.  However, the Sixth Circuit reversed the referral to arbitration on the grounds that the arbitration clause did not govern the dispute.  The arbitration clause applied only to “dispute[s] arising from this Agreement” and, unlike other arbitration clauses, did not explicitly incorporate any dispute related to the employee’s employment or termination.  Accordingly, because the plaintiffs’ claims arose from an alleged statutory violation and were not dependent on the terms of their employment agreement, the arbitration clause did not apply.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court Enforces Arbitration Clause so Arbitrator Can Rule on Validity of Non-Compete

On Monday, the Supreme Court issued a per curiam decision reversing the Oklahoma Supreme Court in a dispute over arbitration and non-competition clauses in an employment agreement. Nitro-Lift Technologies LLC v. Howard, 568 U.S. __,  No. 11-1377 (U.S. 11-26-12).  In Howard, the employer served a demand for arbitration on former employees who had gone to work for a competitor in violation of the non-competition clause.  Rather than comply, the employees brought a declaratory judgment action in state court seeking to void the agreement on the grounds that the non-competition clause was unenforceable under state law.  While the trial court referred the matter to arbitration in compliance with the Federal Arbitration Act, the employees appealed and the state supreme court ruled the non-competition agreement was a matter of a specific state law – not a general federal law – and was unenforceable under state law. The Supreme Court concluded that the validity of the non-competition clause was for the arbitrator to decide, not a state court, because the parties had a valid arbitration clause in the contract.

The Court repeated its years of jurisprudence that the enforceability of arbitration agreement is governed by the FAA.  Unless the party attacks the validity of the arbitration clause (rather than the validity of the contract itself), the dispute must be resolved by the arbitrator instead of a state or federal court:

For these purposes, an “arbitration provision is severable from the remainder of the contract,” Buckeye, supra, at 445, and its validity is subject to initial court determination; but the validity of the remainder of the contract (if the arbitration provision is valid) is for the arbitrator to decide.

This principle requires that the decision below be vacated. The trial court found that the contract contained a valid arbitration clause, and the Oklahoma Supreme Court did not hold otherwise. It nonetheless assumed the arbitrator’s role by declaring the noncompetition agreements null and void.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Divided Supreme Court Upholds Arbitrator’s Contractual Authority to Determine Arbitrability of Arbitration Agreement

This morning, a divided Supreme Court again reversed the Ninth Circuit Court of Appeals in California on the enforceability of an arbitration agreement in an employment discrimination dispute. Rent-A-Center, West, Inc. v. Jackson, No. 09-497 (6/21/10). This arbitration dispute centered on whether the court or the arbitrator should determine the arbitrability of the dispute when the arbitration agreement itself provided that an arbitrator should resolve any such controversy over arbitrability. In particular, as Justice Scalia put it, whether under the Federal Arbitration Act, "a district court may decide a claim that an arbitration agreement is unconscionable, where the agreement explicitly assigns that decision to the arbitrator." The Court held that the question of arbitrability is for the arbitrator to decide when the challenge goes to the validity of the entire agreement as a whole or when the agreement clearly and unmistakably empowers the arbitrator to decide arbitrability, but is for the trial court to decide when the challenge goes only to the enforceability of the arbitration clause and there is no clear and unmistakable waiver of the trial court jurisdiction.

According to the Court's opinion, the employer moved to compel arbitration after the plaintiff former employee filed a § 1981 employment discrimination suit in federal court based on the arbitration which the plaintiff had signed. The Agreement provided for arbitration of all "past, present or future" disputes arising out of [the plaintiff's] employment . . . , including claims" for employment discrimination. The arbitration clause also provided that "[t]he Arbitrator, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable." The plaintiff attempted to avoid the arbitration agreement by arguing that it was unconscionable (in that the parties were required to split the arbitration fees and limits were placed on discovery), but the employer asserted that such a challenge was for the arbitrator to decide. The trial court agreed with the employer, but noted that he did not think the agreement was substantively unconscionable merely because the parties were required to split the arbitration fees. A divided Ninth Circuit Court concluded that the trial court was required to determine unconscionability, but agreed that the clause was not unconscionable merely because of the fee splitting provision. A divided Supreme Court reversed.

The FAA provides that arbitration clauses must be enforced just like any other contracts. Nonetheless, unless the parties clearly and unmistakenly provided otherwise, the question of whether the parties agreed to arbitrate is for the court and not the arbitrator. "The validity of a written agreement to arbitrate (whether it is legally binding, as opposed to whether it was in fact agreed to—including, of course, whether it was void for unconscionability) is governed by §2'sprovision that it shall be valid "save upon such grounds as exist at law or equity for the revocation of any contract." Justice Scalia found it irrelevant that prior cases examining the arbitrability question involved agreements where the substantive provisions concerned subjects other than arbitration (such as check-cashing, consulting, talent management, etc), unlike this case where the "contract as a whole" involved only arbitration of any future disputes.

There are two types of validity challenges under §2: "One type challenges specifically the validity of the agreement to arbitrate," and "[t]he other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid." Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440, 444 (2006). In a line of cases neither party has asked us to overrule, we held that only the first type of challenge is relevant to a court's determination whether the arbitration agreement at issue is enforceable. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 403–404 (1967) . . . That is because §2 states that a "written provision" "to settle by arbitration a controversy" is "valid, irrevocable, and enforceable" without mention of the validity of the contract in which it is contained. Thus, a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate. "[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract." . . . . But that agreements to arbitrate are severable does not mean that they are unassailable. If a party challenges the validity under §2 of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with that agreement under §4 [employer parties to seek enforcement of arbitration clauses in federal court].

Nonetheless, Justice Scalia found it irrelevant that prior cases examining the arbitrability question involved agreements where the substantive provisions concerned subjects other than arbitration (such as check-cashing, consulting, talent management, etc) and merely also contained an arbitration clause, unlike this case where the "contract as a whole" involved only the arbitration of any future disputes. Instead, he found that the plaintiff could only prevail in obtaining the trial court's examination of the arbitrability of the dispute if he had challenged only the delegation clause – which empowered the arbitrator to decide arbitrability – instead of attacking the unconscionability of the arbitration contract as a whole:

It may be that had [the plaintiff] challenged the delegation provision by arguing that these common procedures as applied to the delegation provision rendered that provision unconscionable, the challenge should have been considered by the court. To make such a claim based on the discovery procedures, [the plaintiff] would have had to argue that the limitation upon the number of depositions causes the arbitration of his claim that the Agreement is unenforceable to be unconscionable. That would be, of course, a much more difficult argument to sustain than the argument that the same limitation renders arbitration of his fact bound employment-discrimination claim unconscionable. Likewise, the unfairness of the fee-splitting arrangement may be more difficult to establish for the arbitration of enforceability than for arbitration of more complex and fact-related aspects of the alleged employment discrimination. [Plaintiff], however, did not make any arguments specific to the delegation provision; he argued that the fee-sharing and discovery procedures rendered the entire Agreement invalid.

The Court refused to address an additional argument made by the Plaintiff because he failed to raise it below: that the quid pro quo for the delegation provision failed because of the Supreme Court's decision in Hall Street Associates LLC v. Mattel, Inc. entered after he signed the agreement. He claimed that he had agreed to the clause delegating arbitrability to the arbitrator in exchange for the employer's agreement that the arbitration decision would be subject to substantive judicial review (when the FAA and state laws generally provide that courts will only overturn an arbitration decision for fraud, corruption, etc.). However, his consideration for agreeing to the delegation failed when the Hall Court held that parties cannot agree by contract to alter the exclusive judicial review of arbitration decisions provided by the FAA. The Court found that he could have filed a supplemental brief with the Ninth Circuit on this issue following the Hall Court decision, but that it might have been pointless because that was already the rule in the Ninth Circuit even before the Hall decision.

In light of this decision, one can expect that employers across the country will – and even should – amend their arbitration agreements to reserve the question of arbitrability for the arbitrator in the hopes of avoiding long and expensive battles over the enforcement of an arbitration clause or agreement.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.