In Awuah v. Coverall North America, Inc., the U.S. Court of Appeals for the First Circuit dispensed an important win to businesses by ordering franchisees to arbitrate their claims even though they had not signed, received, or reviewed an arbitration agreement.
Coverall contracts to provide commercial janitorial cleaning services to buildings, and its franchisees do the cleaning. A large group of plaintiff-franchisees asserted various state law claims against Coverall, including misclassification as independent contractors. Many of the plaintiffs became franchisees by signing Franchise Agreements, which provided that all disputes between Coverall and franchisees "shall be submitted promptly for arbitration." Some plaintiffs, however, did not sign a Franchise Agreement or even see the Franchise Agreement. Instead, these plaintiffs became franchisees by signing Transfer Agreements or Guaranties, or both. While neither the Transfer Agreements nor the Guaranties included arbitration clauses, they both included language incorporating all rights and obligations that are in the Franchise Agreement.
The plaintiffs moved the U.S. District Court for the District of Massachusetts to include those who became franchisees by signing Transfer Agreements or Guaranties as part of the class who would have their state law claims addressed by the District Court. While Coverall argued that those franchisees were required to arbitrate their claims instead of having them addressed by the District Court, the plaintiffs argued that those franchisees did not have adequate notice of the arbitration clause and thus were not required to go through arbitration. The District Court held that franchisees who signed Transfer Agreements or Guaranties but did not receive the actual Franchise Agreement containing the arbitration clause were not required to go arbitrate their claims because Coverall did not give those franchisees adequate notice of the requirement to arbitrate.
The First Circuit disagreed, holding that while the Transfer Agreements and Guaranties did not use language explicitly incorporating the requirement to arbitrate, those franchisees were still required to arbitrate their disputes because other language in the agreements clearly communicated the purpose of incorporating the Franchise Agreement's arbitration clause. The First Circuit found significant the language stating that the franchisees assumed all of the rights and obligations under the Franchise Agreement. "All" means "all" the First Circuit affirmed, meaning that the Transfer Agreements' and Guaranties' incorporation of "all" obligations under the Franchise Agreement clearly included the obligation to arbitrate disputes. The First Circuit expounded that there is no heightened notice requirement for the enforcement of arbitration clauses in Massachusetts. The Court further noted that in Massachusetts, one who signs an agreement is generally bound by its terms, regardless of whether he or she reads and understands them.
This decision is important for employers who are looking to enforce arbitration agreements. While arbitration agreements that are signed directly may be more clearly enforceable, the decision shows that courts may enforce arbitration agreements that are not signed or even reviewed as long as they are properly incorporated by reference into another enforceable agreement.