Pre-Employment ADR Waivers

Alan Alonso and his wife applied for jobs with Huron Valley Ambulance Incorporated, were hired, and used the company's alternative dispute resolution (“ADR”) program on multiple occasions. But when the results of the last step of the ADR program did not go Alan's way, he sued in court. The Michigan Eastern District Court found that the ADR program was binding, but the Sixth Circuit found these well-educated employees did not knowingly waive their right to sue in court ' and therefore denied enforcement of the company's alternative dispute resolution system. In light of this decision, general counsel for companies with ADR programs should ask themselves if their waiver needs to be knowingly executed and what steps should be taken to ensure it is binding. This article addresses these issues.

Alonso v. Huron Valley Ambulance Incorporated

In Alonso v. Huron Valley Ambulance Incorporated, (No. 09-1812, 6th Cir., 2010), Alonso signed an employment agreement/application during his brief interview. In part, it provided that all employment-related disputes would be exclusively subject to the Company's internal Grievance Review Board (“GRB”) which was a binding arbitration system not subject to any court proceeding. It also limited the statute of limitations to six months. No explanation of how the GRB operated was offered until a month after Alonso was hired. At that time, he signed a document saying he would familiarize himself with the program, but his post-hire assent to the program was not obtained. The terms of the underlying ADR program itself were not unique or troubling to the courts.

'Knowing and Voluntary' Standard Not Met

The Sixth Circuit in Alonso, without discussion, found the exclusive nature of the GRB would be enforceable only if it was signed “knowingly and voluntarily.” The test for knowing and voluntary waivers considers the following factors:

• The experience, background and education of the applicant;
• The amount of time the applicant was given to consider the waiver;
• Clarity of the waiver;
• Consideration offered for the waiver; and
• Totality of the circumstances.

The court found that the time to consider the waiver and the clarity of the waiver were the employer's main failings in this case. As is typical in a recruiting setting where the applicant fills out the application immediately before the interview, Alonso was allowed very little time to consider what he was waiving. In fact, he was directed to sign the waiver form where indicated without any explanation of what he was waiving. Beyond the time constraints, Alonso was not told exactly what ADR system would apply, he was not informed how it worked, and he was not told the significance of the shortened statute of limitations. Finally, the court focused on the company's failure to tell him if and how he could revoke his waiver. (In fact, there was no provision for revoking the waiver.) This fact falls under the totality of the circumstances factor. For all these reasons, the Sixth Circuit found this waiver was unenforceable.

Alonso Is a Minority Decision

Reading Alonso, one would assume the majority of circuit courts apply the knowing and voluntary standard in assessing the enforceability of an ADR waiver. However, this standard has only been explicitly embraced by the Sixth and Ninth Circuits. In the Third, Fourth, Fifth, Seventh, Eighth, Eleventh and D.C. Circuits, courts simply apply the “fundamental principles of contract law.” This is a much lower standard. The Eleventh Circuit summarized the countervailing view held by these Circuits:

[T]he [Federal Arbitration Act]'s plain language is clear that arbitration agreements are enforceable except for state-law grounds for ordinary revocation. 9 U.S.C.
' 2. In keeping with this language, this Court has previously applied a standard contract analysis, rather than a heightened “knowing and voluntary” standard, in evaluating the enforceability of an arbitration agreement. Specifically, this Court has explained that having made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue. Thus, unless Congress has clearly expressed an intention to preclude arbitration of the statutory claim, a party is bound by its agreement to arbitrate.

***

Our conclusion is consistent with the decisions of many of our sister circuits. See American Heritage Life Ins., 294 F.3d at 711 [Fifth Circuit] (holding that parties' arbitration agreement, which stated that the right to a trial and to a jury were waived, validly waived those trial rights, and rejecting arguments that a heightened “clear and unmistakable” or “voluntary, knowing, and intelligent” standard applied to the waiver); Sydnor, 252 F.3d at 307 [Fourth Circuit] (holding that “the right to a jury trial attaches in the context of judicial proceedings after it is determined that litigation should proceed before a court,” and the fact that the parties agreed to waive their right to a jury trial did not require the court to evaluate the arbitration agreement under a more demanding standard); Koveleskie, 167 F.3d at 368 [Seventh Circuit] (evaluating arbitration agreement under general contract principles and rejecting Seventh- and Fifth-Amendment waiver arguments because there was no constitutional right to a jury trial for claims subject to the arbitration clause and the arbitral forum adequately protects an employee's substantive and procedural statutory rights); Seus, 146 F.3d at 183-84 [Third Circuit] (holding that applying a heightened knowing-and-voluntary standard to arbitration agreements would be inconsistent with the FAA and Gilmer).

Caley v. Gulfstream Aero. Corp., 428 F.3d 1359, 1373 (11th Cir. Ga. 2005)(internal quotations and citations omitted)

As the Supreme Court has yet to rule on this issue, a definitive resolution does not exist. For now, employers must look to the law in the applicable Circuit for guidance on the standard to be applied. Practically speaking, if the Circuit applies contract principles, most ADR agreements will be enforceable. The keys to enforceability under the lower standard focus on avoiding extreme issues such as duress and fraud.

The Multitude of Solutions

1. Know the Standard That Applies in Your Circuit

While not all the Circuits have spoken, many of them have taken a stand; make sure you know what standard applies. If it is the fundamental principles of contract law, you need not heed most of the following suggestions. However, if the knowing and voluntary standard applies, you should give serious consideration to all of the following steps. Of course, all of this is subject to the Supreme Court and the undecided Circuits making a decision.

2. Explain the Waiver in Detail

Alonso argued that he didn't know exactly what he was getting into, and he was right. You can avoid this by explaining the program. Add a reference in your application to a document that fully explains your ADR program and tell all applicants who enter your building where this document resides. You literally could have it in the waiting room where applicants wait for their interview and your receptionist or a memo attached to the application form could explain this. If applicants often file their application on-line, you could grant access to the ADR program on-line.

Another strategy is to explain the ADR program as a benefit. Explain that your team uses it to resolve any disputes quickly and easily. Explain that you even offer it to applicants because we want everyone associated with our company to know we are open and fair in all dealings with our team. Such a positive spin will make executing some of the other suggestions easier.

3. Offer Adequate Time to Consider the Waiver or a Time Period in Which the Waiver Can Be Revoked

If applications are filed online, the applicant should have plenty of time to consider its meaning. However, applications completed on-site are a different story. You could offer the applicant more time to consider the application after the interview, but this seems very odd and may cause some applicants to question the wisdom of working for your company. Another alternative is to “pitch” your applicant on the idea that you want them to understand the opportunity you are offering and make sure they are interested. Therefore, tell applicants to go home, consider what you've said, and call you with any questions. Now comes the hard part: if you have already sold the ADR program as a benefit to applicants and employees, you can add that if the applicant decides the ADR program is not a benefit for them, they can opt out and just let you know within a week. Opting out will have no impact on their application. If you take this last step, your ADR program should be “bullet-proof” based on the Alonso court, but applicants may opt out of coverage and that is a bad result. Therefore, you may want to just allow the applicant to call with questions and not offer an option to opt out.

4. Alternatively, Upon Hire, Have Your Employees Sign a New ADR Waiver

While this will not help with a pre-employment dispute, most cases involve post-hire issues and this can address that fully. In the post-hire arena, you can ensure the applicant has plenty of time to consider the waiver and has full access to all the terms of the program.

5. Ensure That the Waiver Is Understandable

This final point should be obvious although sometimes hard to follow. The program documents and verbal explanations need to be easily understood. Make this judgment based on the education of your applicant pool. Also, make sure your applicants speak the language you use; if not, consider a written translation of what you are saying.

Conclusion

The Alonso case is hopefully an aberration that the Supreme Court will correct, but until then, additional steps may be needed to enhance the likelihood that your ADR program is enforceable. If your company is committed to the program, General Counsel must take the steps needed to ensure enforceability.

Robert G. Brody is the founder of Brody and Associates, LLC. The firm represents management in employment and labor law matters and has offices in Westport, CT, and New York City. He may be reached at [email protected].

Alan Alonso and his wife applied for jobs with Huron Valley Ambulance Incorporated, were hired, and used the company's alternative dispute resolution (“ADR”) program on multiple occasions. But when the results of the last step of the ADR program did not go Alan's way, he sued in court. The Michigan Eastern District Court found that the ADR program was binding, but the Sixth Circuit found these well-educated employees did not knowingly waive their right to sue in court ' and therefore denied enforcement of the company's alternative dispute resolution system. In light of this decision, general counsel for companies with ADR programs should ask themselves if their waiver needs to be knowingly executed and what steps should be taken to ensure it is binding. This article addresses these issues.

Alonso v. Huron Valley Ambulance Incorporated

In Alonso v. Huron Valley Ambulance Incorporated, (No. 09-1812, 6th Cir., 2010), Alonso signed an employment agreement/application during his brief interview. In part, it provided that all employment-related disputes would be exclusively subject to the Company's internal Grievance Review Board (“GRB”) which was a binding arbitration system not subject to any court proceeding. It also limited the statute of limitations to six months. No explanation of how the GRB operated was offered until a month after Alonso was hired. At that time, he signed a document saying he would familiarize himself with the program, but his post-hire assent to the program was not obtained. The terms of the underlying ADR program itself were not unique or troubling to the courts.

'Knowing and Voluntary' Standard Not Met

The Sixth Circuit in Alonso, without discussion, found the exclusive nature of the GRB would be enforceable only if it was signed “knowingly and voluntarily.” The test for knowing and voluntary waivers considers the following factors:

• The experience, background and education of the applicant;
• The amount of time the applicant was given to consider the waiver;
• Clarity of the waiver;
• Consideration offered for the waiver; and
• Totality of the circumstances.

The court found that the time to consider the waiver and the clarity of the waiver were the employer's main failings in this case. As is typical in a recruiting setting where the applicant fills out the application immediately before the interview, Alonso was allowed very little time to consider what he was waiving. In fact, he was directed to sign the waiver form where indicated without any explanation of what he was waiving. Beyond the time constraints, Alonso was not told exactly what ADR system would apply, he was not informed how it worked, and he was not told the significance of the shortened statute of limitations. Finally, the court focused on the company's failure to tell him if and how he could revoke his waiver. (In fact, there was no provision for revoking the waiver.) This fact falls under the totality of the circumstances factor. For all these reasons, the Sixth Circuit found this waiver was unenforceable.

Alonso Is a Minority Decision

Reading Alonso, one would assume the majority of circuit courts apply the knowing and voluntary standard in assessing the enforceability of an ADR waiver. However, this standard has only been explicitly embraced by the Sixth and Ninth Circuits. In the Third, Fourth, Fifth, Seventh, Eighth, Eleventh and D.C. Circuits, courts simply apply the “fundamental principles of contract law.” This is a much lower standard. The Eleventh Circuit summarized the countervailing view held by these Circuits:

[T]he [Federal Arbitration Act]'s plain language is clear that arbitration agreements are enforceable except for state-law grounds for ordinary revocation. 9 U.S.C.
' 2. In keeping with this language, this Court has previously applied a standard contract analysis, rather than a heightened “knowing and voluntary” standard, in evaluating the enforceability of an arbitration agreement. Specifically, this Court has explained that having made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue. Thus, unless Congress has clearly expressed an intention to preclude arbitration of the statutory claim, a party is bound by its agreement to arbitrate.

***

Our conclusion is consistent with the decisions of many of our sister circuits. See American Heritage Life Ins., 294 F.3d at 711 [Fifth Circuit] (holding that parties' arbitration agreement, which stated that the right to a trial and to a jury were waived, validly waived those trial rights, and rejecting arguments that a heightened “clear and unmistakable” or “voluntary, knowing, and intelligent” standard applied to the waiver); Sydnor, 252 F.3d at 307 [Fourth Circuit] (holding that “the right to a jury trial attaches in the context of judicial proceedings after it is determined that litigation should proceed before a court,” and the fact that the parties agreed to waive their right to a jury trial did not require the court to evaluate the arbitration agreement under a more demanding standard); Koveleskie, 167 F.3d at 368 [Seventh Circuit] (evaluating arbitration agreement under general contract principles and rejecting Seventh- and Fifth-Amendment waiver arguments because there was no constitutional right to a jury trial for claims subject to the arbitration clause and the arbitral forum adequately protects an employee's substantive and procedural statutory rights); Seus, 146 F.3d at 183-84 [Third Circuit] (holding that applying a heightened knowing-and-voluntary standard to arbitration agreements would be inconsistent with the FAA and Gilmer).

Caley v. Gulfstream Aero. Corp. , 428 F.3d 1359, 1373 (11th Cir. Ga. 2005)(internal quotations and citations omitted)

As the Supreme Court has yet to rule on this issue, a definitive resolution does not exist. For now, employers must look to the law in the applicable Circuit for guidance on the standard to be applied. Practically speaking, if the Circuit applies contract principles, most ADR agreements will be enforceable. The keys to enforceability under the lower standard focus on avoiding extreme issues such as duress and fraud.

The Multitude of Solutions

1. Know the Standard That Applies in Your Circuit

While not all the Circuits have spoken, many of them have taken a stand; make sure you know what standard applies. If it is the fundamental principles of contract law, you need not heed most of the following suggestions. However, if the knowing and voluntary standard applies, you should give serious consideration to all of the following steps. Of course, all of this is subject to the Supreme Court and the undecided Circuits making a decision.

2. Explain the Waiver in Detail

Alonso argued that he didn't know exactly what he was getting into, and he was right. You can avoid this by explaining the program. Add a reference in your application to a document that fully explains your ADR program and tell all applicants who enter your building where this document resides. You literally could have it in the waiting room where applicants wait for their interview and your receptionist or a memo attached to the application form could explain this. If applicants often file their application on-line, you could grant access to the ADR program on-line.

Another strategy is to explain the ADR program as a benefit. Explain that your team uses it to resolve any disputes quickly and easily. Explain that you even offer it to applicants because we want everyone associated with our company to know we are open and fair in all dealings with our team. Such a positive spin will make executing some of the other suggestions easier.

3. Offer Adequate Time to Consider the Waiver or a Time Period in Which the Waiver Can Be Revoked

If applications are filed online, the applicant should have plenty of time to consider its meaning. However, applications completed on-site are a different story. You could offer the applicant more time to consider the application after the interview, but this seems very odd and may cause some applicants to question the wisdom of working for your company. Another alternative is to “pitch” your applicant on the idea that you want them to understand the opportunity you are offering and make sure they are interested. Therefore, tell applicants to go home, consider what you've said, and call you with any questions. Now comes the hard part: if you have already sold the ADR program as a benefit to applicants and employees, you can add that if the applicant decides the ADR program is not a benefit for them, they can opt out and just let you know within a week. Opting out will have no impact on their application. If you take this last step, your ADR program should be “bullet-proof” based on the Alonso court, but applicants may opt out of coverage and that is a bad result. Therefore, you may want to just allow the applicant to call with questions and not offer an option to opt out.

4. Alternatively, Upon Hire, Have Your Employees Sign a New ADR Waiver

While this will not help with a pre-employment dispute, most cases involve post-hire issues and this can address that fully. In the post-hire arena, you can ensure the applicant has plenty of time to consider the waiver and has full access to all the terms of the program.

5. Ensure That the Waiver Is Understandable

This final point should be obvious although sometimes hard to follow. The program documents and verbal explanations need to be easily understood. Make this judgment based on the education of your applicant pool. Also, make sure your applicants speak the language you use; if not, consider a written translation of what you are saying.

Conclusion

The Alonso case is hopefully an aberration that the Supreme Court will correct, but until then, additional steps may be needed to enhance the likelihood that your ADR program is enforceable. If your company is committed to the program, General Counsel must take the steps needed to ensure enforceability.

Robert G. Brody is the founder of Brody and Associates, LLC. The firm represents management in employment and labor law matters and has offices in Westport, CT, and New York City. He may be reached at [email protected].