Sixth Circuit Holds Employee Did Not Agree to Arbitration When Handbook Simply Referred to Dispute Resolution Procedure

Bickford Senior Living Group fired Maureen Hergenreder, a nurse, in early January 2007 and she filed a lawsuit alleging her firing violated the Americans with Disabilities Act.  Bickford moved to compel arbitration.  None of the documents Hergenreder signed when she started employment (only a few months before she was fired) mentioned arbitration.  Bickford's employee handbook, as is typical, said it was not a contract of employment, but that it was a summary of policies and procedures that apply to employment.

The handbook made no mention of "arbitration" as such.  Instead, it stated: “Dispute Resolution Process Please refer to the Eby Companies Dispute Resolution Procedure (DRP) for details.”  The Dispute Resolution Procedure, of course, required employees to submit all disputes to arbitration.  While Hergenreder acknowledged receipt of the employee handbook, she submitted an affidavit in which she stated she had "never seen or signed" for the Dispute Resolution Procedure.  Bickford did not produce any acknowledgment form signed by Hergenreder for the Dispute Resolution Procedure.  Instead, it provided an affidavit from its Vice President of Employee Relations, Jerry Knight, who states that the DRP “is distributed to employees.”

Absent evidence that Hergenreder had actual knowledge of the arbitration clause or at least was advised of the significance of the Dispute Resolution Procedure, the Sixth Circuit held Hergenreder could not be compelled to submit her ADA claim to arbitration (emphasis added):

There was neither an offer nor an acceptance. The objective signs that Bickford made Hergenreder an offer to be part of the arbitration agreement are few in number. The best Bickford can say is that Hergenreder was informed that, for “Employee Actions,” she should “refer” to the DRP. In Bickford’s view, Hergenreder “was or should have been aware of the DRP and so is bound by it.” Bickford Br. at 13 (capitalization removed). Yet she was not required to refer to the DRP; the “handbook does not constitute any contractual obligation on [Hergenreder’s] part nor on the part of Bickford Cottage[.]” Hergenreder Br. at Ex. 6 (Receipt of Employee Handbook Form). Moreover, the simple reference in the Handbook to “the Eby Companies Dispute Resolution Procedure” for “details” is not “the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” Kloian, 733 N.W.2d at 770 (internal quotation marks omitted). 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.

It turns out the holding is relatively narrow.  If the employee handbook or any other document the employee signs does not expressly require arbitration of employment disputes, then the document must at least emphasize the "importance of reading" the document that contains the arbitration clause.  The decision serves as a good reminder that the best course for employers is to have the employee sign a document consenting to arbitrate all employment disputes.  While the Sixth Circuit may require less than this, there's no reason to beat about the bush on something like this.

In fact, I'm having a hard time understanding why the employer didn't mention the arbitration clause here.  Perhaps it was just a clerical oversight.  In any event, employers are generally free to draft policies and procedures how they want.  In drafting employment contracts, policies and even benefit plans, I often advise clients to "take the easy road" and include language that will avoid a dispute if at all possible.  It is relatively easy to add a sentence to a policy when drafting a document especially if it might avoid costly litigation.

Arbitrating Discrimination Claims

I was modestly surprised by the Supreme Court's arbitration decision this week. In 14 Penn Plaza LLC v. Pyett, the Supreme Court held that "a collective-bargaining agreement ["CBA"] that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law." I had expected (assumed is more like it) the Court would do what it had previously done, find some way to avoid addessing the main issue. Let's start with some history.

In Alexander v. Gardner-Denver Co., 415 U. S. 36 (1974), the Supreme Court held that a union employee could pursue a Title VII claim even though the employee had already lost an arbitration at which the parties had disputed the same facts presented in the race discrimination claim. In its decision the Court distinguished between "contractual and statutory rights" and stated that "there can be no prospective waiver of an employee's rights under Title VII." This meant, to the "lower" courts, that employees could both arbitrate their contract rights under the CBA and pursue their discrimination claims with the EEOC and in court.

Subsequent decisions from the Supreme Court, however, undermined Alexander's statement that the discrimination statutes prohibited arbitration of discrimination claims. Those decisions, however, construed individual employment contracts, not collective bargaining agreements and for some time, the Supreme Court seemed content to permit the "tension" (the term a court uses to say "our decisions are not logically consistent") between individual arbitration agreements and CBA arbitration agreements.

Then, some 11 years ago, in Wright v. Universal Maritime Service Corp., 525 U.S. 70, 82 (1998), the parties raised the same issue decided in Penn Plaza. The Court ducked the issue, however, because clause in the CBA was not "clear and unmistakable." So even if an arbitration clause in a CBA could include discrimination claims, the clause in Wright would fail the clear and unmistakable standard primarily (but not only) because it required arbitration of "matters in dispute," did not explicitly incorporate any statutory antidiscrimination requirement or even have a no discrimination clause in the bargaining agreement. Picking up on these points, the Sixth Circuit in Kennedy v. Superior Printing Co., 215 F.3d 650, 654 (6th Cir. 2000), held that a "general anti-discrimination provision [in a bargaining agreement] that prohibits various forms of discrimination against employees" does not force union employees to arbitrate discrimination claims where the arbitration clause only applied to the interpretation of the contract and did not specifically require arbitration of discrimination claims. And in Bratten v. SSI Servs., Inc., 185 F.3d 625, 631 (6th Cir. Tenn. 1999), the court held that where the CBA arbitration clause "does not mention statutory claims, but only states in boilerplate fashion that it applies to "any grievance arising under the terms of this contract or an alleged violation thereof" was not a sufficient waiver of statutory rights.

The clause in Penn Plaza squarely presented the issue because it not only prohibited discrimination and listed the relevant state and federal discrimination statutes by name, it then said (in the no-discrimination clause) that "All such claims shall be subject to the grievance and arbitration procedures . . . as the sole and exclusive remedy for violations." The clause was, in fact, so clear that the employees' never argued that it was not a clear and unmistakable waiver until they filed their merits brief in the Supreme Court.

So the practical question employers should ask, after Penn Plaza, will be whether or not the no-discrimination clause or the arbitration clause contains a clear and unmistakable waiver of the right to pursue statutory discrimination claims in federal court. What Penn Plaza does is remove the final hurdle to this inquiry by saying that a CBA can, if sufficiently clear, require employees and employers to arbitrate discrimination claims. Penn Plaza does leave open the possibility that there may be some statutes which might prohibit arbitration but, so far, those statutes do not include Title VII, the ADEA or the ADA. Neither does USERRA, but there is a bill pending in Congress (H.R. 1474) which would prohibit arbitration of USERRA claims unless the agreement to arbitrate arises after the "dispute arises." Even here, the bill provides that the prohibition on arbitration does not "preclude the enforcement of any of the rights or terms of a valid collective bargaining agreement." And whether Congress might act to legislatively overturn the Penn Plaza decision remains to be seen.

So what does a CBA have to say to require (or not) discrimination claims be arbitrated? The clause in Penn Plaza is the clearest example. On the other extreme, Wright says a general "all disputes" arbitration clause is not enough. The Sixth Circuit decisions I mentioned earlier hold that unless the CBA specifically says (at a minimum) that discrimination claims are subject to the arbitration clause, they are not sufficient. Also, the decisions might be construed to say that a CBA arbitration clause must not just mention "age discrimination" claims (for example) but must also specifically mention the statute (the "Age Discrimination in Employment Act") in question. I am not so sure that it makes sense to require the statute be mentioned. Think about it, if your clause says that all rights protected by "Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e" must be arbitrated, that is not as informative (to a non-lawyer) as telling employees that all claims for race, sex, national origin and religious discrimination must be arbitrated. But, as the contract lawyers in my firm constantly say, when you draft a contract you use the language that you know works.

And remember, to quote the Penn Plaza decision, "[u]nion members may also file age-discrimination claims with the EEOC and the National Labor Relations Board, which may then seek judicial intervention under this Court's precedent. See EEOC v. Waffle House, Inc., 534 U. S. 279, 295–296 (2002)." In other words, no matter how clear the arbitration clause is, it will not prevent the EEOC or the NLRB from investigating or litigating a discrimination or NLRA claim against an employer (or union).

Arbitration of USERRA Claims

For the first time in a while, courts are having the opportunity to construe the terms of the Uniformed Services Employment and Reemployment Rights Act of 1994. Because USERRA has a structure somewhat different than the more common federal discrimination statutes it poses increase risks and correspondingly greater obligations on employers who have employees on military leave.

Answering one of the open questions, the Sixth Circuit today held in this decision that the terms of USERRA did not clearly prohibit arbitration of USERRA claims. That means that general arbitration agreements can lawfully mandate arbitration of USERRA and other claims.

Drafting a valid arbitration clause is not simple so employers should consult with counsel before deciding to impose one on employees. Courts have invalidated arbitration clauses for a number of reasons such as because they slanted too much in the employer's favor, imposed a disproportionate cost on the employee to invoke it, or did not permit the arbitrator to award full relief authorized by the statute. Properly drafted, however, an arbitration clause will be enforced.