The Eleventh Circuit Upholds A Broad Arbitration Agreement
By Bruce S. Harrison and Traci L. Bach
Appeared in Bender's Labor & Employment Bulletin, December 2005
Introduction
In Caley v. Gulfstream Aerospace Corp., the Eleventh Circuit Court of Appeals upheld an employer’s dispute resolution policy as the exclusive method for resolving certain employment-related disputes with employees. The Plaintiff-employees' challenge was dismissed because the Court found that their continued employment after receipt of the policy constituted assent to the dispute resolution policy's terms.
Background
During the summer of 2002, Gulfstream Aerospace Corporation (“Gulfstream”) adopted a dispute resolution process (“DRP”) as its exclusive method for resolving employment-related disputes between itself and its employees employed at its Savannah , Georgia , facility. Gulfstream published the DRP in several ways: (1) the DRP, an explanatory cover letter, and a question and answer form about the DRP were sent to each employee to each employee’s address-on-file with the human resources department; (2) the DRP was posted on the intranet, distributed electronically in Gulfstream’s management newsletter; and (3) a notice about the DRP was placed on thirteen billboards Gulfstream’s Savannah facility. The cover letter accompanying the DRP explained that the DRP would be a condition of continued employment and that continued employment would constitute acceptance of the policy.
The DRP was comprised of a four-level dispute resolution process: (1) human resources review; (2) management panel review; (3) mediation; and (4) arbitration. Under the DRP, employees had to submit a “covered claim” to the next level within thirty days of a determination or the claim would be considered waived. A “covered claim” was defined as one regarding or arising from the employment relationship. The DRP provided examples of covered claims, such as termination, discrimination and harassment based upon legally protected characteristics or whistleblowing, state or federal Family and Medical Leave acts, workplace accommodation relating to physical or mental disabilities, tort claims, claims for violation of public policy, and claims based upon express or implied contract. The DRP also named certain types of excluded claims, including those relating to a company benefit plan, workers’ compensation or unemployment claims, claims under the National Labor Relations Act, claims relating to patents or inventions, and claims that do not relate to the employee’s work relationship with Gulfstream.
The DRP provided that Gulfstream retained the right to modify or terminate the DRP with thirty days’ notice.
The Cases Below
In 2003, the same attorneys filed two separate complaints seeking damages and equitable relief against Gulfstream and its parent company. In one complaint, plaintiffs, on behalf of an estimated class of two hundred employees, alleged that they had been deliberately mischaracterized as exempt and denied overtime pay for hours worked in excess of forty per week, in violation of the Fair Labor Standards Act. In the second complaint, plaintiffs, on behalf of an estimated class of one hundred employees, alleged violations of the ADEA and ERISA, as well as Georgia law contract claims and individual claims of race discrimination, a retaliation claim, a gender discrimination claim and a FLSA retaliation claim.
Gulfstream and its parent filed motions to compel arbitration and to dismiss the lawsuits. Defendants also moved to treat the two separate complaints as related cases. The United States District Court for the District of Georgia granted both motions. Plaintiffs appealed to the Eleventh Circuit Court of Appeals.
The Eleventh Circuit’s Analysis
The Court first considered the validity of the DRP under the Federal Arbitration Act (“FAA”). The FAA provides for the enforceability of employment contracts, except those involving transportation workers, including compulsory arbitration agreements which require an employee to arbitrate rather than litigate employment-related claims. While the FAA gives arbitration agreements the same force and effect as other contracts, state law generally governs whether an enforceable agreement to arbitrate exists.
The Court rejected the plaintiffs’ argument that the DRP is not an “agreement in writing,” as required by the FAA, because it was not signed by both parties. The Court pointed out that the FAA requires only that an agreement to arbitrate be “written,” not that it be signed by both parties. The Court found sufficient that the DRP was in writing, and that it included an explanation that it was a contract concerning covered claims between the employer and employee with continued employment as the manner of acceptance.
The Court went on to address the plaintiffs’ substantive arguments. First, the Court rejected the plaintiffs’ argument that the DRP should not serve as a valid waiver of their Seventh Amendment and statutory trial rights, including access to the courts and the right to a jury trial. The plaintiffs argued that the waiver should be subject to a heightened “knowing and voluntary” standard since it served to waive any right to a jury trial. The Court held that the waiver of a jury trial and consent to the arbitral forum contained in DRP was governed by contract principles, not the heightened knowing and voluntary standard plaintiffs sought, even though the covered claims include federal statutory claims that generally involve the right to a jury trial. Arbitration agreements such as the DRP are “valid, irrevocable and enforceable,” unless grounds exist in law or equity to revoke them. Therefore, in order to nullify the DRP, plaintiffs would have to show fraud, duress or some other misconduct or wrongful act recognized by the law of contracts. The Court also noted that the Supreme Court has recognized that an agreement to arbitrate is a submission to an arbitral forum rather than to a judicial one that does not result in the waiver of substantive statutory rights.
The Court concluded ultimately that the DRP was a binding contract between Gulfstream and the plaintiffs under Georgia contract law. The Court rejected plaintiffs’ four-part attack on the DRP as a valid contract. First, the plaintiffs argued that there was no valid offer of the DRP because, by the DRP’s terms, Gulfstream could modify it at any time so any promise was illusory. The Court rejected this argument because Gulfstream could modify the DRP only with notice, and, in any event, Gulfstream was bound by the version of the DRP in effect at the time an employee made a claim.
Second, the plaintiffs argued that their continued employment did not constitute acceptance of the DRP. The Court noted that the DRP expressly provided that continued employment constituted acceptance of the DRP, and that, under Georgia law, a contract, including a contract of employment, can be accepted by performing an act, including remaining employed. In both the DRP itself and its accompanying coverletter, Gulfstream explained that continued employment constituted acceptance of the DRP. Therefore, the Court rejected the plaintiffs’ argument that continued employment was merely maintenance of the status quo because continued employment after the announcement of the DRP constituted acceptance of employment under changed circumstances.
Third, the plaintiffs argued that there was no “bargained for consideration” because the employees received nothing in return for the relinquishment of their right to a trial. The Court found that there was sufficient consideration, since, under Georgia law, mutual promises and obligations are sufficient consideration to support a contract, and Gulfstream agreed not only to arbitrate covered claims but also to pay associated arbitration and mediation costs.
Finally, the plaintiffs argued that the DRP was both procedurally and substantively unconscionable. The plaintiffs based their procedural unconscionability argument on the employees’ lack of bargaining power. The Court acknowledged that there was some bargaining disparity, but noted that inequality in bargaining power does not equate to unconscionability. The Court pointed out that the plaintiffs had shown “nothing so one-sided as to be unconscionable.” The DRP was presented to employees with clear terms and with an explanation concerning its importance.
The Court also rejected the plaintiffs’ assertions that the DRP was substantively unconscionable because of Gulfstream’s reservation of rights to sue and to modify the DRP, the prohibition on class actions, limitation on discovery, the “cloaking of DRP process in secrecy” and the one-way aspects of the process. In order to be an unconscionable contract under Georgia law, it must be “such an agreement as no sane mane not acting under a delusion would make and that no honest man would take advantage of.” Because both parties are required to arbitrate covered claims and neither party is forced to arbitrate non-covered claims, there is mutuality of promise. The Court explained that the limitation on the availability of certain litigation procedures, such as class actions and depositions, relates to the “simplicity, informality and expedition” of arbitration, and those types of limitation have been touted by the Supreme Court, rather than found to be unconscionable. The plaintiffs also challenged the DRP’s requirement that the parties may not disclose the arbitration transcript or the arbitrator’s award. The Court agreed that while the confidentiality provision may favor Gulfstream, it is not “so offensive” as to make the DRP unconscionable. Finally, the plaintiffs argued that “several asymmetries” in the process rendered it unconscionable: employees but not Gulfstream were required to exhaust steps prior to arbitration; employees but not Gulfstream had 30-day deadlines; and employees could not have counsel present during the first two internal steps of the process. The Court rejected these arguments because plaintiffs cited no Georgia law to support a finding that these provisions made the DRP unconscionable and because it found them to be reasonably designed to resolve claims as quickly and efficiently as possible.
Conclusion
Georgia employers with arbitration agreements satisfy the Eleventh Circuit’s requirements for an enforceable arbitration agreement, so long as: (1) employees are put on clear, written notice that the arbitration agreement is a contract and the manner in which they accept it, including continued employment; (2) employees are made aware that an agreement to arbitrate includes the waiver of jury trial; and (3) the employer agrees that modifications to the arbitration agreement be made in writing and that any disputes will be resolved in accordance with the policy in effect at the time of the dispute. In order to be enforceable, the agreement need not: (1) be in writing; nor (2) offer the same procedures as traditional litigation.
Caley, et al. v. Gulfstream Aerospace Corp., 2005 U.S.App. LEXIS 23518 ( October 31, 2005 ).
Id. at *2.
Id.
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Id. at *5.
Id. at **5-6.
Id. at *7.
Id. at *8.
Id.
Id.
Id. at *9.
Id.
Id.
Id. at *10 (citing 9 U.S.C. § 1, et seq.)
Id. at **10-11.
Id. at *12.
Id. at *13 (citing 9 U.S.C. § 2).
Id. at *16. The Court also noted that it could find no court decision which supported plaintiffs’ argument that a signature should be required. Id. at *17.
Id.
Id. at * 21.
Id. The Eleventh Circuit also noted that the Seventh Amendment does not provide the right to a jury trial; rather, it provides the right to have a jury hear a case once it has been determined that the case should proceed to trial. Id. at **23-24 (citing American Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 711 (5 th Cir. 2002; Sydor v. Conseco Fin. Svcs. Corp., 252 F.3d 302, 307 (4 th Cir. 2001)).
Id. at ** 22, 25-26.
Id. (citing 9 U.S.C. § 2). See also Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 627 (1985).
Id.
Id. at **22-23, citing Mitsubishi Motors, 473 U.S. at 628.
Id. at **29-30.
Id. at *30.
Id. at *31.
Id. at **32-33. The Court also noted that both the Fifth and Seventh Circuits have arrived at the same conclusion under similar circumstances, applying the laws of Mississippi and Louisiana and of Wisconsin , respectively. Id. at **34-35 (citing Marino v. Dillard’s, Inc., 413 F.3d 530, 532 (5 th Cir. 2005); May v. Higbee Co., 272 F.3d 757, 764 (5 th Cir. 2004); Tinder v. Pinkerton Sec., 305 F.3d 728, 730-33 (7 th Cir.2004).
Id. at *34.
Id. at **33-34.
Id. at *37.
Id. at *38.
Id. at **39-40.
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Id. at *41.
Id.
Id. at **42-46.
Id. at *42 (citing Hall v. Fruehauf Corp., 179 Ga.App. 362, 346 S.E.2d 582, 583 (Ga.Ct.App. 1986).
Id. at *43.
Id. at **43-44 (citing Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20, 31 (1991)).
Id. at *45.
Id.
Id. at *46.
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