Before Duncey’s Caps, Inc. hired Bud Dunop as its new human resources manager in 2018, all of Duncey’s human resources issues were handled by Dot Uris. One of Dot’s responsibilities was to have all new employees complete their new hire paperwork, which included an agreement for the employee and Duncey’s to arbitrate any employment-related disputes. The arbitration agreement included a signature block for Dot to sign on behalf of Duncey’s. Instead of signing each employee’s agreement, Dot just placed it in the employee’s file.
One day Don “Crash” Gordon broke his foot when he walked around the corner of the warehouse and stepped into a bucket that another Duncey’s employee placed on the floor. Crash filed a lawsuit against Duncey’s when it failed to cover his medical bills. Duncey’s attorney filed a motion to compel arbitration, attaching a copy of the arbitration agreement that Crash signed but Dot did not. Will Duncey’s be able to get this lawsuit sent to arbitration?
Are Employers Required to Sign Employees’ Arbitration Agreements?
Yes. Recently, the U.S. Court of Appeals for the Fifth Circuit reversed the lower court’s order compelling arbitration where the arbitration agreement that was only signed by the employee. The court was persuaded by three issues present in the arbitration agreement itself:
- a statement in the agreement that read “by signing this agreement the parties are giving up any right they may have to sue each other,”
- a clause prohibiting modifications unless they are “in writing and signed by all parties,” and
- a signature block for the employer.
Because the arbitration agreement contained language that the parties (not just the employee) needed to sign it to give it effect and the employer failed to sign, the Fifth Circuit invalidated the agreement and found that the agreement had not been executed according to its terms.
The employer argued that it wasn’t required to sign the agreement because the arbitration agreement included a clause informing the employee that continued employment constituted acceptance of the arbitration agreement. That argument was based on similar language the Texas Supreme Court relied on in forcing an employee to arbitrate where the agreement was not signed by either party. The federal court of appeals rejected that argument, finding the arbitration agreement before it was flawed because the execution element necessary to create an enforceable agreement was missing. The court also disagreed that the language about continued employment bound the employee to arbitrate. Unlike the language in the case before the Texas Supreme Court, here the language said continuation of employment served as “consideration” for the agreement, not that commencing work constituted acceptance and bound the parties to arbitrate.
Based on this case law, the court should deny Duncey’s motion to compel arbitration.
Tilting the Scales in Your Favor
Employers who read the federal court of appeals decision, or this blog, are probably reviewing their form employment agreement right now, and for good reason. Words in agreements matter. If the language indicates that both parties must sign the arbitration agreement to be enforceable, then employers need to ensure that someone signed for the company.
Shout out to Fred Gaona, a member of Gray Reed’s employment law section, who recently wrote a client alert on this issue.