Contract Documents.jpgArbitration agreements are common in the employment relationship. And employers understand that normally an employee must sign such an agreement in order for it to be enforceable. But what happens if your company’s policy is to require employees to arbitrate a dispute unless the employee takes some action to opt-out of the employment arbitration agreement?

A recent employment dispute arising out of a Michigan federal district court answers this question and is a reminder that sometimes simpler is – if not better – more cost effective. 

Employment Discrimination Lawsuit Filed and Employer Moves to Arbitrate it.

Specifically, in Tillman v Macy’s, Inc (2013), the former employee represented herself in filing an employment discrimination lawsuit alleging that Macy’s discriminated against her on the basis of her race in violation of Title VII when it terminated her employment in 2009.

Macy’s responded by filing a motion to compel arbitration and stay the lawsuit pending arbitration, based on what Macy’s claimed was an agreement entered into by the parties to participate in a binding dispute-resolution program.  Macy’s argued that Tillman assented to participation in the program and therefore that suit in federal court was impermissible. 

The problem Macy’s faced in making this argument, however, was that Tillman did not sign an agreement to resolve employment disputes through binding arbitration or to otherwise waive her right to a jury trial. Instead, Macy’s had communicated to Tillman an offer to enter into a binding arbitration agreement and communicated that it was up to her to take certain steps to opt out of the arbitration agreement.

District Court’s Order Denying Arbitration is Reversed.

The district court rejected Macy’s position. However, on appeal, the Court reversed the decision and compelled Macy’s and its former employee to arbitrate the dispute.    

In reaching this decision, the court found that the employer had provided sufficient notice of its offer to enter into an arbitration agreement and plaintiff had accepted by continuing her employment and by not following the steps to opt out of the arbitration. Thus, arbitration should have been required, even in the absence of an agreement to arbitrate that was signed by the plaintiff-employee.

The Take-away for Employers

In reading the Macy’s opinion one point that jumped out was the convoluted nature of its process for binding employees to arbitration; A lot of paper and HR efforts went into putting employees like Tillman on notice that unless they opted out of the arbitration agreement, she would be bound by it.

On top of that effort, Macy’s ending up spending significant legal fees in order to convince a court – which it failed to do at the trial level – that its efforts and procedures applicable to its arbitration process were, taken together, sufficient to create an enforceable arbitration agreement despite having no signed arbitration agreement.  

While Macy’s employment arbitration opt-out procedure was ultimately upheld in favor of the employer, the legal fees and effort at the HR level can’t be ignored. In fact, the court noted that the employer could have avoided expending those resources as well as avoiding the risks inherent in the opt-out arbitration procedure:  

Tillman’s conduct following the communication of the offer objectively suggests that she accepted the arbitration agreement by continuing her employment without returning an opt-out form.

We recognize that opt-out schemes for accepting arbitration contain a risk greater than in opt-in systems that some employees do not know what they have agreed to. Cases like this one would likely be fewer if companies like Macy’s would use an opt-in system. But we cannot say that under Michigan law an opt-out system is inherently insufficient, and under the facts of this case a contract was created.

Is arbitration right for your company? Maybe not with recent changes to Michigan courts that are resulting in shorter litigation time-lines and measures intended to reduce the cost of litigation. 

For more information about these changes, as well as arbitrating employment disputes or implementing an arbitration procedure into your company’s HR procedures, contact Jason Shinn. Mr. Shinn is a Michigan employment attorney. Since 2001, he has represented manufacturers and closely held businesses in complying with or, if necessary, litigating federal and Michigan employment laws.