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When Does an Employee's Silence Signify Agreement

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When Does an Employee's Silence Signify Agreement VOL. 34, NO. 1 SUMMER 2008 Employee Relations LAW JOURNAL When Does an Employee’s Silence Signify Agreement to a Mandatory Arbitration Contract? Howard S. Suskin and Eric J. Schwab This article examines how courts are responding to the challenge of reconciling mandatory arbitration agreements favored by the Federal Arbitration Act with basic principles of contract law that require evidence of acceptance. After a recent federal circuit court split, pending clarifi cation from the Supreme Court, the authors advise that the safest course for employers seeking to enforce mandatory arbitration agreements for their employees’ disputes is to obtain the employee’s signature on the document and not rely simply on silent acquiescence. ncreasingly, employers are attempting to implement and enforce Iagreements requiring their employees to resolve their employment disputes through arbitration. Employers commonly use “opt out” proce- dures that allow employees to enroll in mandatory arbitration programs by default, or simply notify their employees that agreeing to arbitrate will be a condition of continued employment. Recently, a split has emerged among federal courts called upon to enforce these types of arbitration provisions against employees. While a majority of courts, invoking the “liberal federal policy favoring arbitration,” have upheld agreements based on an employee’s default or de facto acceptance, a growing number of courts have balked at enforcing mandatory arbitra- tion clauses that were unilaterally promulgated by employers but never actually signed or otherwise explicitly accepted by the employee. The resistance to such arbitration clauses is especially pronounced when those contracts require the employee to waive important substantive rights and remedies. This article examines how courts are responding to the challenge of reconciling mandatory arbitration agreements favored Howard S. Suskin, a partner in Jenner & Block LLP’s Chicago offi ce, is the chair of the fi rm’s Class Action Litigation Practice and co-chair of the fi rm’s Securities Litigation Law Practice. Eric J. Schwab is an associate at the fi rm and a member of the Litigation Practice. The authors may be contacted at [email protected] and [email protected], respectively. Employee Silence and the Mandatory Arbitration Contract by the Federal Arbitration Act with basic principles of contract law that require evidence of acceptance. THE FEDERAL ARBITRATION ACT’S BIAS TOWARDS ENFORCEMENT The challenge for courts in determining whether mandatory arbitra- tion clauses for employees are enforceable in the face of objections based on state law contractual principles derives from a policy tension built into the Federal Arbitration Act (FAA). Congress enacted the FAA in 1925 in an effort to overcome “longstanding judicial hostility” to arbitration. 1 The FAA requires courts to treat arbitration agreements as “valid, irrevocable, and enforceable, save upon such grounds as exist in law or in equity for the revocation of the contract.” 2 In rulings over the past three decades, the Supreme Court has interpreted this language as expressing Congress’s broad intent to “foreclose” states from attempting to limit or undercut the enforceability of arbitration agreements, either through competing legislation 3 or in the courts. 4 When evaluating arbi- tration agreements, courts may apply state law contract principles only to the extent that these “govern issues concerning the validity, revoca- bility, and enforceability of contracts generally.”5 The FAA’s ostensible purpose is thereby “to place arbitration agreements on the same footing as other contracts.” 6 Because the Supreme Court has also instructed that the FAA embodies a “liberal federal policy favoring arbitration agree- ments, notwithstanding any state substantive or procedural policies to the contrary,” 7 courts deciding the enforceability of arbitration agree- ments must weigh the extent to which the federal policy favoring arbi- tration should be “taken into consideration even in applying ordinary state [contract] law.” 8 This policy tension informs even the threshold legal determina- tion of whether the employer and employee have reached a binding agreement to arbitrate. 9 While standard contract law requires offer and acceptance, the statutory language of the FAA requires an “agreement in writing” or a “written provision” in an employment contract. 10 And while courts have “readily” agreed that this language means only that the arbitration offer must be in writing but does not imply a signature requirement, 11 courts have disagreed over what exactly constitutes adequate evidence that the employee has accepted the written offer to arbitrate. MAJORITY VIEW: SILENCE EQUALS ACCEPTANCE Under the dominant trend followed in the Fifth, Seventh, Ninth, Tenth, and Eleventh Circuits, courts invoke the “course of conduct” Vol. 34, No. 1, Summer 2008 2 Employee Relations Law Journal Employee Silence and the Mandatory Arbitration Contract rule under state contract law to fi nd that an employee’s inaction may be enough to signal tacit acceptance of a mandatory arbitration clause, as manifested either by failing to “opt out” or else by simply “continu- ing employment.” 12 As the Ninth Circuit explained: “As a general rule, silence or inaction does not constitute acceptance of an offer…however, where circumstances or the previous course of dealing between the par- ties places the offeree under a duty to act or be bound, his silence or inactivity will constitute assent.” 13 After several earlier rulings that appeared to grant adhesion-style “take-it-or-quit” arbitration contracts less than automatic approval, 14 the Sixth Circuit recently joined the majority of other circuits in upholding an arbitration agreement based on the employee’s acceptance-by-continued employment. 15 In this most recent ruling, however, the dissenting judge very pointedly underscored his skepticism towards the notion that an employer could plausibly interpret an employee’s silence or inactivity as acceptance of the employer’s offer by citing an example of such silence taken from an episode of the popular television show The Simpsons : Homer Simpson talking to God: “Here’s the deal: you freeze every- thing as it is, and I won’t ask for anything more. If that is OK, please give me absolutely no sign. [no response] OK, deal. In gratitude, I present you this offering of cookies and milk. If you want me to eat them for you, please give me no sign. [no response] Thy will be done.” 16 THE GROWING MINORITY VIEW: SILENCE DOES NOT EQUAL ACCEPTANCE On the basis of similar (albeit more conventionally expressed) con- tract law principles, courts in the First, Second, and Third Circuits have rejected the views of the majority circuits and refused to regard arbitra- tion agreements that rely on unilateral offers and tacit acceptance as presumptively valid and enforceable. 17 As one New York district court, invoking “time honored” principles of contract law, recently declared: “[N]o unilateral conduct of the offeror, regardless of how extensive or well-intentioned, can ever be the basis for the creation of a binding agreement in the face of an offeree’s utter silence and inaction.” 18 Underlying this divergence of opinion among the judicial circuits is a basic legal question: what constitutes adequate proof that the employee was aware that a certain course of conduct would be understood as binding acceptance of the employer’s offer—in other words, what constitutes “minimally suffi cient notice of the contractual nature of the [arbitration offer]”? 19 Here the signature comes back into play, as most courts are willing to deem an employee’s signed acknowledgement of receipt of the arbitration policy or “opt out” materials, or even just a signed employment application referencing such a policy, to be suffi - cient evidence that the employee had suffi cient notice that continuing Employee Relations Law Journal 3 Vol. 34, No. 1, Summer 2008 Employee Silence and the Mandatory Arbitration Contract to work or failing to opt out would be taken as a binding agreement to arbitrate. 20 Yet, even where the employee has not signed any acknowl- edgement or receipt, courts may still fi nd that the employee agreed to arbitration simply by continuing to work if the employer offers evidence that the employee was otherwise on notice of the terms of the offer, or else if the employee simply fails to deny being on notice. 21 THE JUDICIAL SPLIT OVER WHETHER NOTICE IS SUFFICIENT The determination of whether notice was adequate may depend on how the court allocates the burden of proof, and courts have taken different approaches on that issue. 22 For example, the Seventh Circuit, citing its own precedent holding that the party opposing arbitration has the burden of challenging the existence of an agreement, ruled that an employee who offered an affi davit denying that she ever received or read a brochure announcing the employer’s binding arbitration pro- gram, failed to carry her burden of proof, where the employer provided several affi davits stating that it had included the brochure in every employee’s paycheck.23 As the court explained, “The issue then is not whether [the employee’s] denial of having received notice of the policy is suffi cient to avoid arbitration, but whether she produced suffi cient evidence to raise a factual issue concerning whether she and Pinkerton are bound by a contract to arbitrate.”24 By contrast, a New York district court invoked Supreme Court dicta to the effect that arbitration should be limited to those disputes that parties have agreed to arbitrate, implicitly shifting the burden to the employer: “[A]n employee cannot be compelled to arbitrate a dispute in the absence of an agreement to do so.” 25 Similarly, other courts have invoked state contract law to place the burden on the employer seeking to compel arbitration, requiring “clear and unmistakable” evidence of the employee’s agreement to arbitrate. 26 Thus, even the purely factual question of notice forces courts to weigh the federal pro-arbitration con- tract policy against state-by-state rules on basic contract formation—and any other state policies that inform those state rules.
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