Arbitration Is Favored, But Must Be Agreed To

          It is often said that we live in a litigious society and most frequently folks lay the “blame” for that at the feet of lawyers and law firms. That is why I found it ironic to read about a law firm that was trying to keep an employee from suing in court by trying to enforce an arbitration clause against that employee. However, in the March 24, 2009, decision issued by the United States Court of Appeals for the Third Circuit, the court found that the arbitration clause was not enforceable because the employee had never agreed to it. So, the word to the wise on this issue is that it is fine to agree to arbitrate but make sure that everyone involved really does agree or you may end up in a situation like that found in Kirleis v. Dickie, McCamey & Chilcote, P.C. This is so even though it is well established that the Federal Arbitration Act (“FAA”) makes it clear that federal policy is strongly in favor of arbitration.

          In the Kirleis case, when a disgruntled employee sought to bring suit against the firm, the law firm sought to enforce an arbitration clause it had in its bylaws. The employee objected, essentially claiming that in her nineteen years working with the firm as a lawyer she had never been shown any bylaws which included the arbitration clause. The court agreed with the posture that while there is a strong federal policy favoring the use of arbitration for dispute resolution, the federal presumption in favor of arbitration is not determinative of whether there is a valid agreement between the parties to arbitrate their dispute. Indeed, the court found that the law firm did not do what the firm surely advised its clients to do in similar situations; you must make sure that everyone is on notice of the agreement to arbitrate or it likely will not be enforceable.

          The firm tried to argue constructive notice upon the shareholder director, imputing the knowledge of company bylaws to its directors, but that was not of merit in this instance where the court found that explicit agreement is an essential element of an agreement to arbitrate. Finally, the firm argued that the doctrine of equitable estoppel applied; arguing that the firm was induced to believe that the employee had agreed to the arbitration clause and that it had detrimentally relied on this belief because of that  inducement. However, again the court found that this was analogous to the implied agreement to arbitrate argument and that as such it was not sufficient to overcome the requirement of explicit agreement to arbitrate.

          The moral of this story is simple: If you wish to enter into an agreement to arbitrate, make sure you do so explicitly with all of the parties involved, otherwise you may find that you are in court rather than in an arbitration setting. The federal presumption favoring arbitration is not sufficient to overcome the contractual requirements to arbitrate.