Sixth Circuit Supports Arbitration Program

November 19, 2007

Last week, the Sixth Circuit Court of Appeals issued a decision further supporting an employer’s use of arbitration agreements. In Seawright v. American General Financial Services, Inc., the Court held that continuing to work can, in some circumstances, act as an acceptance of an employee dispute resolution program which had been unilaterally established by the employer and which required arbitration of employment related disputes.

The fact intensive case was decided under both the Federal Arbitration Act and Tennessee contract law. The employer, American General, announced the program in a bulletin, mailed a letter to all employees, and held informational meetings regarding the new program. The employee, Lisa Seawright, signed a form indicating that she had attended the informational meeting and had received all the materials which clearly provided that continuing to work would be considered as an acceptance of the new program. Ms. Seawright continued working for American General for six years after implementation of the program.

Citing the “national policy of favoring arbitration,” the Court held that under Tennessee’s law of contract formation, American General’s employee dispute resolution program was enforceable as it was neither procured through unfair means nor substantively unfair to employees. There were two months between the announcement of the program and when it went into effect. This gave Ms. Seawright ample time to consult an attorney and helped her make a knowing and voluntary waiver of her right to sue. Additionally, the Court held that under state law, acceptance of a written agreement can be performed by action, and neither state law nor the FAA requires an agreement to arbitrate to be signed. Finally, the Court paid close attention to the fact that while American General retained the right to unilaterally change or terminate the program, it was required to give 90 days notice prior to termination and agreed to be bound to the program for all known disputes arising before the date of termination.

Stating that courts should place agreements to arbitrate on the same footing as all other contracts and only void those which are unconscionable, the Sixth Circuit has affirmed that employee dispute resolution programs are enforceable and that employers and employees should decide what rules will govern their employment relationship.

If you have any questions or would like additional information regarding the subject of this advisory, please feel free to contact any attorney in the Labor and Employment Department at Frost Brown Todd.

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