On the heels of the U.S. Supreme Court’s decision in Epic Systems Corp. v. Lewis, holding that waivers of class/collective actions included within an agreement between employers and employees to arbitrate any and all disputes was valid and enforceable (see previous Epic Systems blog post), the US Court of Appeals for the Fifth Circuit reminded employers this week of the importance of adhering to the requirements of the arbitration agreements that they seek to enforce, holding that the employer’s failure to sign the agreement prevented its enforcement.
The dispute in Huckaba v. Ref-Chem, L.P. began when an employee filed a lawsuit in federal district court against her employer, and the company asked the Court to compel the employee to pursue her claims, instead, through arbitration, because the company and employee had agreed through an arbitration agreement to arbitrate any and all disputes between them. Unfortunately, the employer had not signed the arbitration agreement upon which its Motion to Compel was based, but the district court granted Ref-Chem’s Motion, and the employee appealed. In an opinion issued on June 11, 2018, the Fifth Circuit began by recognizing that mandatory, pre-dispute arbitration agreements between employers and employees are, in fact, contracts, and that if Ref-Chem wanted to enforce that contract to prevent Huckaba from moving forward with her lawsuit, it had to prove that it had an enforceable contract requiring arbitration of the parties’ disputes.
Because the dispute arose in Texas, the Court looked to Texas law, recognizing that a binding contract requires, among other things, an intent to be bound by the terms of the agreement. Differentiating the case from the situation presented to the Texas Supreme Court in 2002 in In re Halliburton Co., which held that a mandatory, pre-dispute arbitration agreement stating that continued employment following notice of the agreement constituted acceptance of its terms—without any signature by either the employee or the employer—the Fifth Circuit in Huckaba closely examined Ref-Chem’s agreement to arbitrate for indications of an intent to be bound. Agreeing that Ref-Chem’s failure to sign the agreement in the signature block included on the agreement did not, by itself, prevent enforcement of the agreement, the Fifth Circuit then looked at the language of the agreement, which referenced more than once the parties’ signatures as proof of their agreement to arbitrate. Recognizing that Texas law did not require that the parties sign the agreement, but recognizing further that the language of the agreement at issue indicated that signatures were required, the Fifth Circuit held that the employee could not be forced to arbitrate based upon the agreement that had not been signed by the company.
Although not discussed in the opinion, the Court’s decision underscores for those considering implementation of mandatory, pre-dispute arbitration agreements why the agreement to arbitrate should not be included as a policy within an Employee Handbook, which should include a provision stating that “this Handbook and not a contract, and nothing in this Handbook is intended to create a contractual relationship between Employer and Employee,” or words to that effect. Agreements to arbitrate disputes are contracts, and if the employer cannot prove that it has an enforceable contract requiring arbitration, then the employee can choose to pursue litigation in state or federal court. The Huckaba decision is a good reminder for all who have implemented such agreements or who are considering the implementation of such agreements that careful attention should be given to the preparation and introduction of the agreement. Words matter, and a simple change in the language of the agreement in Huckaba, or a process for verifying that the agreement was signed by the company, would have dictated a different result.
While Texas law permits employers to provide notice of the agreement to employees and specify that continued employment after the effective date constitutes agreement to be bound by the agreement, other states may require different strategies for implementation and methods of proving employees’ agreement, such as through actual or electronic signatures. Questions regarding the potential advantages or disadvantages of arbitration agreements, and considerations related to the drafting and implementation of such agreements, should be referred to qualified counsel who are familiar with the requirements of those states in which enforcement of the agreements may be sought.