Party Agreement in Arbitration Disputes

Employers have the burden to prove a valid and enforceable agreement to arbitrate.

by Michael R. Lied, Howard & Howard Attorneys PLLC

Want to stay out of court? For most businesses, the unequivocal answer is yes. For many years, businesses have entered into agreements with employees, customers and others which require disputes to go to arbitration, not litigation. Most businesses appreciate the privacy, the lack of jury trial and relatively cheaper costs of arbitration.

Schockley v. Primelending
A recent federal appellate case reminds us there must be an agreement to arbitrate. In Schockley v. PrimeLending, former employee Jennifer Schockley sued PrimeLending, claiming it had violated the Fair Labor Standards Act. When PrimeLending asked the court to compel arbitration, the federal district court refused, concluding there was no agreement to arbitrate. It determined that the arbitration provision contained in the PrimeLending handbook addendum and the “delegation” provision in that addendum were not enforceable contracts.

By way of background, PrimeLending maintained a computer network which contained employment-related information and was accessible by its employees. Schockley accessed the section of the network related to employment information, using a computer mouse to click and open various company documents, including the handbook. When an individual clicked on the handbook, the system automatically generated an acknowledgment of review, as well as a popup window containing a hyperlink to open the full text of the handbook. However, Schockley did not recall reviewing the handbook and PrimeLending provided no evidence that she ever opened or reviewed its full text.

The handbook contained a provision, specifically including the Fair Labor Standards Act, which subjected disputes to arbitration and another which delegated to an arbitrator (and not any court or agency) the exclusive authority to resolve any claim relating to the arbitration clause.

The district court refused to compel arbitration, noting that a party seeking to enforce any part of an arbitration agreement, including a delegation provision, must prove that the agreement was validly formed under state contract law. The court determined that furnishing an employee a handbook that could be modified unilaterally by PrimeLending did not constitute an offer. Even if it was an offer, Schockley’s review of the handbook did not constitute acceptance of the offer.  

A Matter of Contract Law
The appeals court agreed. While arbitration agreements are favored under federal law, arbitration is still a matter of contract law. Parties cannot be compelled to arbitrate unless they have contractually agreed to be bound by arbitration. PrimeLending had the burden to prove a valid and enforceable agreement to arbitrate.

Missouri law, like virtually every other state, requires: 1) an offer; 2) acceptance; and 3) consideration in order to form a valid and enforceable contract. The appeals court found the provision delegating authority to an arbitrator to be crucial in its interpretation. If this provision was invalid, PrimeLending’s request to compel arbitration failed. Even assuming that the delegation provision of the handbook constituted an offer, the critical question was whether Schockley objectively manifested an intent to be bound to the arbitration provision. As mentioned, Schockley did not remember reviewing the handbook, nor was there evidence establishing that she actually did. According to the court, PrimeLending “at best” could show that Schockley acknowledged the existence of a delegation provision.

As the court noted, Schockley may have reviewed the delegation clause, but it was equally possible that she never even saw it. The computer-generated acknowledgment did not create an unequivocal acceptance; therefore, no contract was created. Without acceptance, no contract was formed as to the delegation provision either. This left the entire arbitration agreement open to review by a court. The arbitration provision’s validity required the same proof of the elements of a valid contract. The terms of the arbitration provision were presented in the handbook by the same hyperlink mechanism and therefore failed for the very same reasons—an absence of proof by Schockley of acceptance of an agreement to arbitrate.

Old-School Lessons
What is the lesson for employers? Consider going “old-school.” Provide a written copy of the arbitration agreement and have the individual actually sign an acknowledgment of receipt and review of the arbitration provision. PM

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