Page 11 - Litigation

NYLJ.COM |
Litigation | MONDAY, NOVEMBER 14, 2016 | S11
compel arbitration under the Federal Arbitra- tion Act of claims that included workplace dis- crimination: the Southern District of New York in Gateson v. ASLK-Bank, N.V.9 and the Appel- late Division, First Department, in DiBello v. Salkowitz.10 In both of those cases, however, the plaintiff-former employee sued both the signatory employer and the non-signatory senior employees and, in addition to the dis- crimination claims, asserted contract-relat- ed claims against the non-signatory senior employees.11 If the plaintiff invokes provisions of the contract in his or her claims, it is fair that the plaintiff should be held to the terms of that contract, including the arbitration clause. But it is more dif cult to justify compelling the plaintiff into arbitration in an action against a non-signatory that includes only claims for sexual harassment or discrimination that do not rely on the contract.
Persuasive decisions under the Federal Arbitration Act from courts outside New
The general rule is that a party cannot be compelled to arbi- trate a dispute he or she did not agree to arbitrate. Non-sig- natory senior employees who are sued for sexual harassment or discrimination, however, often seek to rely on an agency theory as an exception to this general rule.
York hold that senior employees cannot compel arbitration of non-contract-based claims simply because the claims arose in the context of their agency for a company that signed an arbitration agreement with the plaintiff. For example, the Fifth Circuit in Westmoreland v. Sadoux—a fraud action by former minority shareholders against individual owners of entities that were par- ties to a shareholders agreement containing an arbitration clause—held that “a nonsig- natory cannot compel arbitration merely because he is an agent of one of the signa- tories.”12 The court held, in contrast, that a non-signatory may enforce an arbitration agreement under an estoppel theory when the plaintiff “is suing in reliance upon that contract,” because the estoppel doctrine is “effective in preserving the distinctions between broad readings of the reach of an arbitration clause and our formal insistence upon con ning the obligations to the parties of the contract.”13
In McCarthy v. Azure, the First Circuit held that a non-signatory corporate of cer could not compel arbitration of claims arising from the alleged failure of his company to follow through on its obligations under a stock pur- chase agreement.14 The court relied on the distinction between personal capacity claims and of cial capacity claims, and held that the former include claims alleging ultra vires conduct or “tort suits in which a corporate of cer or agent, though operating within the scope of corporate authorization, through
his or her own fault injures another to whom he or she owes a personal duty.”15 Claims for sexual harassment or discrimination would seem to fall within these “personal capacity” categories.
In both Westmoreland and McCarthy, the courts emphasized that arbitration is a crea- ture of contract and that, rather than ex post facto relying on an agency theory to permit a non-signatory to enforce the company’s arbi- tration agreement with the plaintiff, the more appropriate course is to seek to negotiate an arbitration clause at the outset that covers claims against individuals. In Westmoreland, the Fifth Circuit stated:
Directly put, the courts must not offer contracts to arbitrate to parties who failed to negotiate them before trouble arrives. To do so frustrates the ability of persons to settle their affairs against a predictable backdrop of legal rules— the cardinal prerequisite to all dispute resolution.16
Similarly, in McCarthy, the First Circuit stated:
[T]he best preventative is to act before, rather than after, the fact; to be blunt, judicial juggling is far less effective ano- dyne than skillful drafting of contract documents in the rst instance. A cor- poration that wishes to bring its agents and employees into the arbitral tent can do so by writing contracts in general, and arbitration clauses in particular, in ways that will specify the desired result.17
The reasoning of Westmoreland and McCarthy is particularly compelling in the context of claims for sexual harassment or discrimination. Arbitration restricts sub- stantial rights to which a plaintiff-employ- ee otherwise would be afforded in a court proceeding, including the right to have his or her claims decided by a jury. Addition- ally, as the Equal Employment Opportunity Commission has recently found, mandato- ry arbitration in the employment context undercuts public policy interests because it can prevent employees from learning about similar claims of other employees, impede the development of the law, and weaken an employer’s incentive to comply with the law.18 When signing an employment agreement containing a standard arbitration clause, a prospective employee understand- ably may not realize that he or she could be waiving the right to sue non-signatory individuals in court for sexual harassment or discrimination, even when such claims would not constitute a breach of any terms and conditions contained in the employ- ment contract. Requiring that the arbitra- tion clause specify that sexual harassment and discrimination claims, including those asserted against a company of cer or other manager, will be subject to arbitration gives the prospective employee (at least in theory) the opportunity to make an informed deci- sion before entering into the employment relationship.19
A clear and specific arbitration clause would also bene t employers. Any ambiguity concerning the scope of, or the persons cov- ered by, the arbitration clause could spawn a good faith legal challenge that » Page S15
Founders and pioneers in the industry. In business for over 16 years.
THE ETHICAL AND RESPONSIBLE CHOICE
LAWCASH
THE NATION’S PREMIER PRE-SETTLEMENT
FUNDING COMPANY
VOTED #1 LITIGATION FUNDING PROVIDER BY THE NEW YORK LAW JOURNAL FOR THE FOURTH STRAIGHT YEAR
Voted #1 Litigation Funding Provider for 2015
New York Law Journal | New Jersey Law Journal | Connecticut Law Tribune
PRE-SETTLEMENT FUNDING | SURGICAL FINANCING SETTLED-CASE FUNDING
1-800-LAWCASH www.LAWCASH.com
26 Court Street ● Suite 1104 ● Brooklyn, NY 11242
For voting TASA Best Overall Expert Witness Provider and Best Expert Witness Referral Service
●
®
800-523-2319 | [email protected] | TASAnet.com
Visit TASAnet.com to view free, expert-led webinars and our new e-Discovery solutions and services.