Litigation Over the Execution of Arbitration Agreements

By Ted Olsen

Many employers require their employees to sign pre-dispute arbitration agreements as a condition of employment.  Assuming that the arbitration systems contain various legal protections for employees, these agreements are legally enforceable and can effectively preclude court litigation.

Recently, however, there have been a number of court decisions nullifying employers' arbitration agreements on the grounds that the employers cannot prove that the employees signed or otherwise agreed to the arbitration agreement.  Two court cases illustrate this.

In the first case, Kerr v. Dillard Store Services, Inc., Civil Action No. 07-2604-KHV, --- F. Supp. 2d --- (D. Kan. Feb. 17, 2009), the Court rejected the employer's contention that a former employee's race discrimination and retaliation claims had to be decided in arbitration because the employer could not prove satisfactorily that the former employee had actually executed her electronic arbitration agreement through its intranet computer system.  Dillard's electronic database indicated that someone on the plaintiff's account had executed her agreement to arbitrate and had opened an e-mail confirming her execution of the agreement.  On the other hand, the plaintiff denied having executed the arbitration agreement (and even knowing how to access the intranet) and the company's lack of safeguards on employee passwords left open the possibility that someone else had accidentally or intentionally executed the agreement.

Dillard's intranet system was the only way an employee could execute an arbitration agreement.  To execute the agreement, an employee had to enter his or her Social Security number or associate identification number, enter his or her secure password, and click "accept" at the bottom of the arbitration agreement screen.  A few minutes later, the employee was sent an e-mail message asking him or her to respond by e-mail if he or she denied executing the agreement, and stating, "If you fail to deny that you signed your arbitration agreement, you will be deemed to have agreed and signed it personally by electronic signature."

Although the Dillard's intranet was to be accessed by an employee using a unique, confidential password he or she created, supervisors were able to log into an employee's account by resetting the employee's confidential password and logging in under the employee's default password.  Plaintiff testified that, on one occasion, a store secretary who was showing her how to access her account reset Ms. Kerr's password and used the default password.  Plaintiff credibly said that she was not familiar with the intranet and merely stood at the side as the secretary entered her account. 

The Court basically ruled that the company's electronic database proved that someone had executed the plaintiff's arbitration agreement, but did not prove that plaintiff had personally executed the agreement.  Without such personal execution, under governing Kansas law, the existence of the arbitration agreement could not be proven and the agreement was without effect.

In the second case, the Third Circuit Court of Appeals, in Kirleis v. Dickie, McCamey & Chilcote, P.C., Case No. 07-3504, --- F.3d --- (3d Cir. Mar. 24, 2009), refused to compel the arbitration of sex discrimination, retaliation and hostile work environment claims by a former attorney of the law firm because she did not explicitly enter into an agreement with her firm to arbitrate disputes.  The arbitration provisions were contained in the firm's corporate bylaws, and despite the fact that she had been at the firm for 19 years and had been a shareholder of the firm for nine years, she did not receive a copy of the bylaws and had never been advised of the arbitration provision. Moreover, she had never signed any arbitration agreement, and had never agreed to arbitrate her claims.

The fact that the attorney had received compensation, benefits and perquisites pursuant to the bylaws did not mean that she assented to the arbitration provision, the Court held.  Likewise, the attorney's participation in various shareholder functions did not mean that she had assented to arbitration disputes.  This was not a case where an employee said she did not recall signing an arbitration agreement.  In this instance, the employee denied receiving or signing an arbitration agreement.  This also was not a case where an employee was provided with policies and rules, but declined to read them.  Here, the employee was not provided with the arbitration provision.  Finally, the Pennsylvania legal rule that members of corporations are presumed to understand corporate bylaws was not adequate to satisfy the requirement that arbitration agreements be explicit. 

Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.

© 2009 Sherman & Howard L.L.C.                                                       June 5, 2009