The U.S. Supreme Court recently handed the National Football League (NFL) a significant off-field loss, declining to enforce the league’s arbitration agreement. West Virginia employers would be wise to make sure their agreements stand up to scrutiny.
Flag on the Play
Former coach Brian Flores sued the NFL and two teams, the New York Giants and Houston Texans, alleging race discrimination and retaliation for his failure to be hired by either team. He alleged that his interviews with the teams were a sham. The league asked the court to compel Flores to take his claims to binding arbitration rather than have a jury decide the case. The lower federal courts, including the U.S. 2nd Circuit Court of Appeals, refused to enforce a supposed arbitration agreement. The Supreme Court followed suit by summarily rejecting the NFL’s appeal, thus allowing the 2nd Circuit’s ruling to stand.
Flores had an employment agreement that incorporated by reference the NFL constitution. That constitution contains a provision requiring teams, coaches, and players to resolve all disputes through an arbitration process. Specifically, the constitution granted the NFL commissioner “the full, complete, and final jurisdiction and authority” to arbitrate any dispute between any coach and a club. Thus, either the commissioner himself or his designee would be judge and jury on Flores’s claims.
The courts found that the NFL had overreached. Indeed, the 2nd Circuit was harsh with its language: The NFL constitution “provides for arbitration in name only.” It “offends basic presumptions of our arbitration jurisprudence by submitting Flores’s statutory claims to the unilateral substantive and procedural discretion of the principal executive officer of his adverse parties.” The court concluded an arbitration agreement is enforceable only so long as a “litigant effectively may vindicate its statutory cause of action in the arbitral form.”
West Virginia Experience on the Arbitration Field
Every state has a body of law on the enforcement of arbitration agreements. The NFL would have been well served to study the legal playbook on what an employer can and cannot do with an arbitration agreement.
As in many states, West Virginia’s high court had a phase where it was hostile to arbitration agreements. It took a change in judges and a couple of rebukes by the U.S. Supreme Court before the West Virginia Supreme Court began enforcing arbitration agreements as a matter of course. The overarching themes of the case law, under the decades-old Federal Arbitration Act, are that arbitration agreements are favored and that state and federal courts should enforce them as they would any other contract.
Notwithstanding the favorable federal policy, attorneys for employees and state court trial judges keep pushing back against arbitration agreements. A former West Virginia Supreme Court justice, while begrudgingly concurring in the enforcement of an arbitration agreement, was not bashful in expressing her personal opinion: “I will continue to express my judicial disdain for these mandatory arbitration agreements prepared by sophisticated businesses and forced upon people as a condition of employment.”
West Virginia Supreme Court decisions of the last decade, resulting from clashes over arbitration agreements, have produced a checklist of dos and don’ts for employers.
Basics of an Arbitration Agreement
First and foremost, make sure you actually have an agreement with the employee and that you have a copy of the agreement. In a notable West Virginia case, a state agency attempted to invoke an arbitration agreement an employee had with the staffing agency that had sent her to work for the agency. The court ruled the agency wasn’t a party to the agreement and, accordingly, couldn’t compel arbitration when sued by the employee. In another case, an employer couldn’t locate a copy of the arbitration agreement but argued circumstantial evidence showed the employee probably signed one. The court was unconvinced. In third case, a company argued it had been assigned the rights of a party that had earlier contracted for arbitration, but the company didn’t have evidence supporting a chain of assignment. Arbitration wasn’t compelled. On the other hand, an affiliated entity can be covered as a non-signatory if the agreement expressly refers to “affiliates.” Identifying the affiliates by name in the agreement isn’t necessary.
A “wet ink” signature isn’t required to sustain an arbitration agreement. An authenticated copy will suffice. Likewise, an electronic signature will work but make sure you can rebut a contention from a motivated employee that the e-signature was made by someone else.
Drafting the Agreement
In drafting the agreement, use plain language. Don’t over lawyer it. Use words such as, “this Mutual Arbitration Agreement contains legally binding promises. Please seek legal advice, of your choosing, instead of signing this Agreement if you do not understand or have any questions about any part of this Agreement.”
On the acknowledgment page, use language such as “I understand,” “I agree,” “I agree to abide by and accept,” “condition of employment,” “final decision,” and “ultimate resolution.” Make sure that the agreement to arbitrate is mutual—that it applies equally to the employer and the employee. Incorporate the rules and procedures of a truly independent arbitration provider such as the American Arbitration Association.
Although mutuality of obligation is essential, the courts have also approved an employer imposing terms such as a class action waiver, shortened statutes of limitations (e.g., one year instead of two), and limited discovery. The key is whether the employee is able to vindicate their statutory rights in the arbitral forum.
An employer, in insisting upon arbitration, may carve out the right to seek injunctive relief in court, such as enjoining an employee violating a noncompete or unfairly using proprietary information. Carving out such equitable, emergency relief doesn’t invalidate the arbitration agreement. As a bookend to such pro-employer terms, you can (and should) include carveouts for the employee, such as workers’ compensation claims, unemployment compensation filings, and claims under employment benefit plans regulated by the Employee Retirement Income Security Act (ERISA).
For unionized employers, the agreement to arbitrate is embedded within the collective bargaining agreement (CBA). If you want the arbitration clause to cover more than disputes under the CBA, such as statutory claims for discrimination, then the CBA must include a “clear and unmistakable” waiver of the employee’s right to pursue statutory and common law employment discrimination claims in court. Any ambiguities in language will be construed in favor of the employee and against a waiver of rights.
Preserving At-Will Employment
You can mandate that your employees arbitrate disputes without compromising their at-will status. Many employers explain and preserve employment-at-will status in employee handbooks.
You shouldn’t, however, rely on an arbitration provision embedded in a handbook. It’s fine to outline the arbitration process in the handbook, but you should have the employee sign a separate acknowledgment that, while declaring the at-will relationship to be maintained, also states the parties have made binding promises to each other to send their disputes to arbitration. The mutuality of commitment is deemed adequate consideration to create a binding contract. In other words, you don’t need to give the employee something of value, such as a pay increase, to make it a legally enforceable deal.
Delegation Clause
The hostility in some quarters to arbitration has been noted. One bulwark against judicial mischief that an employer can build in its agreements is what is known as a “delegation clause.” Per that part of the agreement, the parties delegate to the arbitrator any disputes over arbitrability.
Here is representative language for such a clause: “You and the company also agree to resolve exclusively through final and binding arbitration all disputes relating to whether this agreement is enforceable, unconscionable, applicable, valid, void, or voidable.” This clause removes contract construction from the court.
Under controlling West Virginia law, an employee challenging an arbitration agreement in court must first challenge the delegation clause. If the employee doesn’t do so, and, moreover, attacks the arbitration agreement generally, then the employee shall be deemed to have waived any arguments against the delegation clause. The clause is presumed to be valid, and the court must refer disputes over the agreement to the arbitrator.
Conclusion
The NFL, with its self-serving language controlling the selection of the arbitrator, built a bridge too far. As an employer, you and the employee can craft your own agreement. There are many advantages to a more efficient and less-expensive process, but you cannot hollow out the employee’s statutory and/or common law right to seek a remedy for wrongs happening in the workplace.
Bryan Cokeley is an attorney with Steptoe & Johnson PLLC in Charleston, West Virginia, and can be reached at 304-353-8116 or bryan.cokeley@steptoe-johnson.com.