Ohio Courts of Appeal Refused Enforcement of Arbitration Clauses

Last month, two Ohio Courts of Appeal ruled against employers attempting to enforce arbitration clauses.   In the first, the Court affirmed the denial of a motion to compel arbitration and held that the trial court was not required to hold a jury trial on the enforceability of the clause.  Costin v. Midwest Vision Partners LLC, 2024-Ohio-463.  The parties had amended the plaintiff’s employment agreement upon his termination of employment and specified which clauses of his former agreement would survive termination of his employment.  The arbitration clause was not one of the provisions that the amended agreement listed as surviving his employment termination. Accordingly, the trial court could grant summary judgment on that issue.   In the second case, the Court reversed and remanded the dispute where the plaintiff’s age discrimination claim had been stayed pending arbitration because the trial court had failed to consider the plaintiff’s argument that the "loser pays" provision of the arbitration clause was unconscionable, contrary to public policy and unenforceable.   Grimm v. Professional Dental Alliance, LLC, 2024-Ohio-637. 

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.

Duh! Employee Handbook's Arbitration Clause Cannot Be Enforceable If Handbook Explicitly Disclaims Being an Enforceable Contract.

 

Last week, the Hamilton County Court of Appeals reversed an employer’s motion to dismiss and compel arbitration because the arbitration “clause” was contained in an employee handbook, which specifically said that it was not a binding contract and was illusory since the employer could change the terms at any time without the employee’s assent.  Bauer v. River City Mtge., L.L.C., 2023-Ohio-3443. “Because the acknowledgement form disavowed any binding force and provided [the employer] with the authority to amend the employee manual at any time without notice to [the employee], we hold there was no meeting of the minds here. And absent mutual assent, the employee handbook was merely a unilateral statement of rules and policies which did not create any contractual obligation and rights.”

According to the Court’s opinion, the plaintiff employee signed the Handbook Acknowledgement, which explicitly stated that Handbook could be changed at any time at the employer’s discretion without notice and that it was not intended to form an implied or express contract.  One of the policies required employees to arbitrate any dispute with the employer.   The plaintiff filed suit after being fired, claiming that she had been subjected for years to discrimination and sexual harassment.  The employer moved to dismiss and compel arbitration based on the employee handbook.  The trial court dismissed the complaint due to the arbitration policy.

The appellate court reminded the parties that:

As in all contracts, express or implied, both parties must intend to be bound. Absent mutual assent, a handbook becomes merely a unilateral statement of rules and policies which create no obligation and rights.

The Court distinguished prior court decisions where the handbook acknowledgement specifically referenced the arbitration requirement and the employee’s consent to it.  Unlike those cases, the handbook acknowledgement in this case said nothing about mandatory arbitration; on the contrary, it referred only to how the handbook was not an enforceable contract.

Further, the employer’s reservation of rights to unilaterally modify the handbook policies without notice or consent rendered any such contract illusory. “Many courts have ‘found that permitting an employer to unilaterally amend or terminate an arbitration agreement without notice renders the agreement illusory.”’

Defendants rely heavily on Ohio’s strong policy favoring arbitration to argue the employee manual was a binding contract. But this policy is not triggered when a broad disclaimer of contractual obligations indicates the parties never agreed to arbitrate. Further, the presumption in favor of arbitration is useful in resolving ambiguities in the language of an arbitration provision. . . . .But here, no such ambiguities exist, as the acknowledgement form clearly and unequivocally disclaims any contractual obligations. Defendants’ reliance on Ohio’s strong policy favoring arbitration is therefore misplaced.

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.

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.

Franklin County Court of Appeals Affirms Stay in Favor of Arbitration Despite $23K Arbitration Cost for Plaintiff

Last week, the Franklin County Court of Appeals affirmed a trial court’s order staying litigation pending arbitration without first holding an evidentiary hearing despite evidence that the plaintiff would be required to deposit over $23,000 with the American Arbitration Association in order to pursue her claims of disability discrimination. Shearer v. VCA Antech, Inc., 2011-Ohio-5171 (10-6-11). The plaintiff had filed suit challenging the arbitration proceedings and, in doing so, apparently only challenged the arbitration clause on the basis of procedural and substantive unconscionability under state law. She did not rely on any federal court precedent that such expensive arbitration expenses could deprive a victim of discrimination of the benefit of the Americans With Disabilities Act and, thus, be unenforceable. Thus, the Court had no difficulty finding that the arbitration agreement was enforceable when presented with documentary evidence that the plaintiff had consulted with counsel and negotiated over some of its terms and had never been concretely mislead. While the defendant employer had persuaded her to agree to the terms by claiming that it had never sought legal enforcement in the past and was unlikely to do so in the future, it wanted to reserve its right to sue in the event that she prematurely resigned her employment.

According to the Court’s opinion, the plaintiff sold her veterinary practice to the defendant employer. In doing so, she signed an agreement of sale and an employment agreement. Both contained arbitration clauses. They also both required her to remain employed for four years and precluded any voluntary resignation before that time. Before signing, she consulted with counsel and negotiated a requirement to use the AAA in the arbitration clause. The employer refused to include her proposed revision giving her the right to resign on 30 days notice. When she expressed concern, they assured her that they could not force her to continue working, but did not want her to quit right after selling the practice because of her clients would probably go elsewhere. While they had never enforced the termination clause in the past, they wanted the ability to do so in the future – just in case.

A year later, the plaintiff resigned – despite the termination clause requiring her to work four years – and the employer filed a claim with the AAA. She counterclaimed that it had failed to accommodate her disability and retaliated against her, among other things. The AAA ultimately required each party to deposit over $23,000 before proceeding to hearing. At that point, the plaintiff filed suit objecting to the cost of arbitration. There is no discussion in the decision of the Morrison v. Circuit City opinion where the Sixth Circuit found such cost sharing/shifting provisions to be inconsistent with federal employment statutes, and thus, unenforceable. Rather, the only discussion is whether the arbitration clauses – and cost shifting provisions – are procedurally or substantively unconscionable. The Court found they were not.

The plaintiff also objected to the lack of an evidentiary hearing. The Court noted that a hearing was discretionary when the party only sought to stay arbitration and were not mandatory unless the party sought to compel arbitration.

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 Finds Arbitration Policy is Unenforceable Without Proof Employee Was Given Notice and Knew of It

This morning, the Sixth Circuit reversed an order to compel arbitration based on a lack of evidence that the employee knew about the arbitration policy. Hergenreder v. Bickford Senior Living Group, LLC., No. 10-1474 (6th Cir. 8/31/11). In that case, the plaintiff was hired as a nurse in October 2006 and soon thereafter required a medical leave of absence following a cancer diagnosis. When she attempted to return to work in December 2006, she was told there was no job for her and was notified that she had been fired (with the ability of being rehired) in January 2007 because she had not qualified for a medical leave of absence so soon after being hired. When she filed suit under the ADA, the employer moved to compel arbitration even though she had never signed an arbitration agreement. The employer could not rely on any arbitration provisions in the employee handbook because it contained numerous disclaimers that it was not a binding contract. The employer’s arbitration policy was purportedly distributed to all employees, but there was no evidence that it had been specifically distributed to plaintiff during the application process or after being hired. The plaintiff had never signed it and denied that she had ever seen it before the litigation. The Court, therefore concluded that she could not have agreed to arbitrate her claims and remanded the matter back to the District Court.

The Federal Arbitration Act only requires arbitration agreements to be in writing, but does not require them to be signed. However, both parties must still be aware of the terms of the agreement and agree to them. The employer argued that a reference to the dispute resolution policy in the employee handbook put the employee on notice of the arbitration policy and agreement. However, the Court disagreed because the handbook was not a contract and there were too few details (let alone no mention of the word arbitration) in the employee handbook to have put any employee on notice that s/he was agreeing to arbitrate his or her claims.

This statement says nothing about arbitration, and it says nothing that would indicate to Hergenreder that accepting or continuing her job with Bickford would constitute acceptance. Indeed, it is incorrect to conflate the fact that Hergenreder knew generally of the DRP with the notion that she knew of the arbitration language—and Bickford’s desire to create an arbitration agreement—contained within the DRP. Were Hergenreder required to read, or even notified of the importance of reading, the DRP, the analysis here might be different. But this court’s inquiry is focused on whether there is an objective manifestation of intent by Bickford to enter into an agreement with (and invite acceptance by) Hergenreder, and we are not convinced that there is any such manifestation made by Bickford in the record in this case.

In addition, even if the policy constituted an offer of an arbitration agreement, there was no evidence that the plaintiff’s continued employment constituted acceptance of that offer because she had never been informed that continuing employment constituted acceptance of the arbitration 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.

Sixth Circuit: USERRA Claims Subject to Arbitration Clause in Employment Agreement.

Today, the Sixth Circuit held that an optometrist’s claims that he was discriminated against in violation of USERRA was subject to the arbitration clause he signed when he was hired. In Landis v. Pinnacle Eye Care LLC, 07-6204 (6th Cir.), when the plaintiff optometrist signed his employment agreement upon being hired in 1995, it contained an arbitration clause where he promised “to ‘resolve any controversy, dispute or disagreement arising out of or relating to [the] Agreement’ through negotiation or, if negotiation proved unsuccessful, through arbitration governed by the American Arbitration Association.” He claims that he negotiated revised terms of employment in 2004 when he was called up by the National Guard to serve in Afghanistan. However, when he returned to work in 2005, the defendant employer refused to honor the alleged modified terms of employment and allegedly “threatened that any further
involvement with the military would adversely affect his career.”

When the plaintiff optometrist filed suit over the breach of the modified agreement and threats about his military career, the district court stayed the action on account of the arbitration clause in his employment agreement and referred the entire matter (including the claims against the individual defendants) to arbitration. The Sixth Circuit agreed because the plaintiff’s claims “fall within the scope of the employment agreement since Article VIII, Section 8.7 of the agreement states that ‘[t]his Agreement constitutes the entire agreement between Practice and Optometrist pertaining to the employment relationship between Practice and Optometrist.’ Therefore, any termination or modification of employment necessarily relates to ‘the employment relationship’ and is subject to the arbitration clause.” Moreover, the claims against the individual defendants (who were not parties to the employment agreement) “were subject to the arbitration clause of the employment agreement. These parties were employers within the meaning of USERRA, 38 U.S.C. § 4303(4)(A), and the claims against them arose in their capacities as managers” of the employer’s offices. Finally, although a few district courts in other jurisdictions disagreed, the Sixth Circuit found that there was nothing in the statutory language of USERRA or its history to indicate that it was not subject to the Federal Arbitration Act to the same extent as Title VII, the ADEA and other federal employment statutes.

Insomniacs can read the full decision at http://www.ca6.uscourts.gov/opinions.pdf/08a0285p-06.pdf.

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.