On July 17, 2012, the First Circuit provided employers with useful guidance regarding the enforceability of an arbitration provision contained in an application for employment. To sum up the opinion simply, the court warned employers to “choose their words wisely,” or forego the right to compel arbitration. Gove v. Career Systems Development Corp., No. 11-2468 (1st Cir. July 17, 2012). The panel of judges ruled the arbitration clause contained in an employment application was ambiguous, and therefore, would be construed against the employer that had drafted it.
Ann Gove applied for a position with Career Systems Development Corporation (“CSD”). CSD’s application for employment contained a provision regarding arbitration of disputes that stated as follows:
CSD also believes that if there is any dispute between you and CSD with respect to any issue prior to your employment, which arises out of the employment process, that it should be resolved in accord with the standard Dispute Resolution Policy and Arbitration Agreement adopted by CSD for its employees. Therefore, your submission of this Employment Application constitutes your agreement that the procedure set forth in the Arbitration Agreement will also be used to resolve all pre-employment disputes.
A few weeks after Gove completed the employment application, CSD invited her to interview for a position. At the time, Gove was 8 months pregnant. The CSD employer who interviewed Gove asked her “How much longer do you have?” and whether she had additional children.
Despite Gove’s experience, CSD did not hire her. It did, however, continue to advertise and interview applicants for the same position. Gove filed suit alleging CSD discriminated against her on the basis of her pregnancy; CSD moved to compel arbitration.
In affirming the lower court’s ruling that CSD could not compel Gove to arbitrate, the court emphasized that “nothing in the arbitration clause refers to ‘applicants’.” Instead, the court noted that “every reference [in the arbitration provision] is to ‘your employment,’ ‘the employment process,’ or ‘pre-employment disputes’.” Based on the CSD provision’s emphasis on employment status, the court held that it was reasonable for Gove to believe “that she would only be bound by the arbitration clause if ultimately hired”(emphasis added).
The court emphasized that in its appeal, CSD had not argued that the court should enforce its arbitration provision based upon the policy favoring arbitration of employment disputes. However, the court did not indicate whether such an argument would have changed the outcome of this case. Regardless, a carefully drafted arbitration clause is an employer’s best offense to compel arbitration.
What Does Gove teach us?
Despite federal and state policies favoring arbitration of employment disputes, courts will interpret any ambiguity in an arbitration provision against the drafter – and the drafter almost always is the employer. An arbitration requirement is like any other contract, and must be drafted with utmost clarity to avoid a court determining that reasonable people could read the provision differently.
If your company includes an arbitration provision in its application for employment, ensure that reference is specifically made to “applicants” rather than the “pre-employment process.”
Why Would an Employer Include (or Exclude) an Arbitration Provision in an Employment Application?
While mandatory arbitration clauses have their historical root in employer-union contracts, arbitration provisions are becoming more popular in the individual employee context. There are several reasons why an employer would want to require an applicant for employment, employee, or former employee to arbitrate, rather than litigate, employment-related claims.
For the most part, arbitration offers employers a private and confidential setting, unlike court litigation, which tends to be public. So from a public relations perspective, arbitrating disputes might make sense. In theory, arbitration should be quicker and less expensive than litigation. Finally, since an arbitrator rather than a jury determines the case’s outcome, employers with strong defenses may benefit from the unbiased (and unemotional) view of an arbitrator.
At the same time, arbitration’s benefits have their limits. For example, the decision of an arbitrator is not appealable except in very rare circumstances. Therefore, employers do not have recourse for wrong decisions made by an arbitrator.
What Else Should Employers Know About Arbitration?
- As Gove teaches us, employers must use clear, unambiguous language when drafting arbitration provisions.
- Employers should provide notice that employment claims must be arbitrated. It is advisable to have your arbitration provision included in a separate memo that is part of the new hire package; it is better not to bury the provision in an employee handbook. Furthermore, employers should require employees to sign the memo to signal their acceptance of the terms of the arbitration provision.
- Determine the scope of arbitration you want to include: do you want to limit it to the employment application process; an employment agreement; or to any claim, controversy or disagreement related to or arising out of the employment relationship;
- In 2009, the Supreme Judicial Court ruled that an employer cannot subject an employee to mandatory arbitration of harassment and discrimination claims unless the arbitration provisions states in “clear and unmistakable terms” that such claims are subject to arbitration. Therefore, an employer should not limit its arbitration clause to “all claims regarding or arising out of the employment relationship.” The clause must go on to state “including but not limited to any claims arising out of Massachusetts General Law chapter 151B, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, or any other federal, state or local statute, regulation, or law that provides employment discrimination or harassment protection;
- In 2009, in Feeney v. Dell, Inc., 454 Mass. 192, 205-08 (2009), the SJC ruled that an arbitration provision that had the effect of prohibiting participation in class actions is void as contrary to Massachusetts’s “strong public policy in favor of class actions for small value claims under” Mass. Gen. Laws ch. 93A;
- Even if an employee is compelled to arbitrate employment claims, the Massachusetts Commission Against Discrimination (“MCAD”) is permitted to proceed “with its investigation and resolution of [the] discrimination complaint — including, if the evidence warrants, granting relief specific to” the complaining employee. However, the SJC also held that “there is no legal bar to having an arbitration and the MCAD proceeding continue concurrently, on parallel tracks.”
- The arbitration provision should put the employee on notice regarding the costs of arbitration, including the payment of attorney and arbitration fees. If an arbitration clause is considered to be excessively expensive, a court may refuse to enforce it.