Archive for August, 2011
Arbitration agreements are effective mechanisms to resolve employment disputes more efficiently and affordably than traditional litigation. They are becoming standard practice in most at-will employment situations, and for good reason. They provide a simple and informal way to resolve employment disputes, as they are relatively inexpensive, more expedient, and reduce legal costs by avoiding the expense of litigation. Most employers have either already implemented an arbitration agreement program for their employees or have considered it. But are they enforceable?
The answer, fortunately, is yes, but it is important to keep in mind the most basic characteristic of arbitration agreements—they are contracts. Both Federal and State laws foster a strong policy favoring arbitration, but each provides that the enforceability of agreements requiring arbitration for work-related disputes will be determined by applicable state law regarding contract principles. For instance Kentucky law, similar to most states, provides that written agreements to submit to arbitration are “enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract”. In essence, if the agreement constitutes a valid contract, then it is an enforceable arbitration agreement. But what are the grounds that exist for the revocation of a contract—an arbitration agreement?
The majority of published case law suggests that arbitration agreements are most commonly challenged on the basis that they lack mutuality of contract, lack adequate consideration for the contract, or are unconscionable. These tripping blocks can be easily avoided by drafting a carefully-worded arbitration agreement and providing employees ample notice and opportunity to review the agreement.
Some things to keep in mind in drafting and implementing arbitration agreements:
Both parties to the contract must be mutually bound to arbitrate—the agreement must not permit the employer to litigate, while limiting the employee to arbitration as his or her only means for dispute resolution. In addition, an employer can take certain actions to make contracts with their employees more mutual. For example, the contract may provide that both the employee and the employer share the same right to select or reject the arbitrator; the employer will pay for arbitration expenses; the arbitration will be held at a place agreed upon or convenient to the employee; and that the employee is guaranteed the right to an attorney throughout arbitration.
At will employment can be conditioned upon the employee’s acceptance of an arbitration agreement, but such acceptance must be knowing and voluntary. An employer and employee are mutually waiving the write to pursue their claims and defenses in Court, it is important that the employer ensure that the employee has notice of the agreement, understands it, and knowingly assents to it. Employers should keep in mind factors such as the employee’s background and knowledge, the amount of time the employee has to decide whether to sign or assent to the agreement, the clarity of the waiver, consideration for the waiver, and the circumstances surrounding the waiver. It is not required that the waiver be made expressly or even signed as an employee can assent through action, such as by remaining employed. However, it is important that the employee be made fully aware of the agreement.
Consideration is especially important in determining the enforceability of a particular arbitration agreement. The presence of adequate consideration is a prerequisite for finding any contract enforceable. In the employment context, “[a]greements to arbitrate as a condition of employment constitute consideration and are enforceable under the Federal Arbitration Act.” Mutuality and consideration are closely related, for “even if the arbitration agreement was not a condition of employment, an arbitration clause requiring both parties to submit equally to arbitration constitutes adequate consideration.” The adequacy of the consideration is based on the mutual obligation held by both parties. Where “both are equally bound and obligated to arbitrate disputes,” the agreement is enforceable. Where parties are held to equal standards and are given comparable rights under the terms of the contract, arbitration clauses are more likely to be enforced.
Even where mutuality and consideration are found, to be enforceable the arbitration clause must not be found to be unconscionable. Contracts which do not include unreasonable or oppressive terms, and which are entered into under conditions favorable to the employee’s ability to fairly consider his options before signing [or assenting] are generally found to be conscionable and therefore enforceable. An employer who seeks to include an arbitration clause in employment contracts should inform employees that their signature is not required to bind them, and that continued work and acceptance of employment benefits will be deemed as accepting and entering into an agreement to arbitrate. Be careful, however, that you don’t overreach with the agreement. Because the employer is the drafter of the agreement and can demand acceptance as a condition of employment, it is important not to limit the rights and remedies available to employees through arbitration. The contract terms should allow for an employee to pursue all remedies he/she may have against the employer, but require those remedies to be pursued only through arbitration. The inclusion of fair contract terms, combined with conditions and circumstances amenable to the employee’s ability to make a sound decision, will increase the likelihood that an arbitration agreement will be upheld.
Remember, when drafting your arbitration agreement, make sure your agreement does not limit your employee’s substantive rights and remedies, and make sure the agreement mutually and equally obligates you and the employee to arbitration. When entering into arbitration agreements with your employees, give them ample time to review the agreement and explain to them that by continuing and accepting the benefits of their employment they are agreeing to the contract. And most importantly, consult with your legal team regularly to ensure that you have drafted and are implementing a binding and enforceable arbitration agreement.
This article is intended as a summary of newly enacted federal law and does not constitute legal advice. Special thanks to Allison Bosserman, Law Clerk, for contributions to this article.
 See Seawright v. American General Financial Services, Inc., 507 F.3d 967 (6th Cir. 2007).
 Kentucky Revised Statutes 417.050
 Id; see also Morrison v. Circuit City Stores, Inc., 317 F.3d 646. 668 (6th Cir. 2003).
 See Seawright, 507 F.3d at 974.
 Kruse v. AFLAC Int’l, Inc., 458 F.Supp.2d 375, 385 (E.D.Ky. 2006).
 Seawright, 507 F.3d at 972.
 See Shadeh v. Circuit City Stores, Inc., 334 F.Supp.2d 938, (W.D.Ky. 2004).
A Shift in Focus: How Recent Amendments to 29 CFR § 825.303 Could Impact Employee Notice Requirements Under the FMLA Leave Provisions
A little more than two years has passed since the United States Department of Labor (“DOL”) promulgated significant changes to the Family Medical Leave Act (“FMLA”). The revisions, which went into effect on January 16, 2009, touched on a number of FMLA provisions, including the employee notice requirements in 29 C.F.R. § 825.303 et. seq.
Though the impact of these revisions remains somewhat unsettled due to the minimal number of decisions in cases citing to the new regulations, several recent court decisions have discussed and interpreted the revised language and in doing so have provided guidance as to the potential effect of the new language. As set forth below, in light of these courts’ interpretations of the revisions, employers would be wise to reexamine their employee notice policies.
The Revised Language -
Among other things, the DOL revised the language of the statute as it pertains to unforeseeable leave; i.e., cases in which an employee does not provide the 30 day notice of their need for FMLA leave as required by 29 C.F.R.§ 825.302 due to an emergency or other unforeseen circumstances.
Prior to the DOL revisions in 2009, 29 C.F.R. § 825.303(a) stated that: “When the approximate timing of the need for leave is not foreseeable, an employee should give notice to the employer of the need for FMLA leave as soon as practicable under the facts and circumstances of the particular case. It is expected that an employee will give notice to the employer within no more than one or two working days of learning of the need for leave, except in extraordinary circumstances where such notice is not foreseeable.” (emphasis added).
The revised 29 C.F.R. § 825.303(a) now states: “When the approximate timing of the need for leave is not foreseeable, an employee must provide notice to the employer as soon as practicable under the facts and circumstances of the particular case. It generally should be practicable for the employee to provide notice of leave that is unforeseeable within the time prescribed by the employer’s usual and customary notice requirements applicable to such leave.” (emphasis added).
Though on its face this change in wording might not appear to be significant, as set forth below, the way in which courts are interpreting the revised language indicates that the new provisions may end up having a significant impact on how employers should handle their employee notice policies going forward.
Recent Judicial Interpretation – As noted, the revisions are relatively new and, as such, very few courts have had the opportunity to review and interpret the changes. Accordingly, employers have been left to wonder what impact the revisions will have on their operations.
Although not expressly dealing with the current version of 29 C.F.R. § 825.303(a), a few recent appellate-level rulings have discussed the revised regulations and have offered their interpretation of what the impact might be.
Saenz v. Harlingen Medical Center, L.P., 613 F.3d 576 (5th Cir. 2010)
In Saenz, the employer had a written policy requiring employees to provide a third party FMLA administrator with notice of intent to use FMLA leave within two (2) days after their last absence. An employee who requested intermittent leave was terminated and denied her FMLA rights because, though her mother contacted the employer directly within two days, she did not contact the third party administrator until five days after the leave. In applying the old regulation, the Fifth Circuit Court of Appeals found that the employee’s notice was sufficient even though it did not entirely conform to the employer’s written policy requiring notice within a two day period.
Importantly, the court indicated that the outcome may have been just the opposite had the new regulation been applied. The court stated that “the revisions to 29 C.F.R. § 825.303 – arguably increases the duties imposed upon employees seeking FMLA leave.” Thus, because the employee failed to provide notification to her employer “within the time prescribed by the employer’s usual and customary notice requirement,” the court instructed that under the new regulation the employer likely would have been entitled to a summary judgment.
Brown v. Automotive Components Holdings, LLC, 622 F.3d 685 (7th Cir. 2010)
In Brown, the Seventh Circuit Court of Appeals undertook a comparison of the two versions of the regulation. There, an employee failed to contact the employer until nine days after she learned of her need for extended leave. Applying the old rule, the Seventh Circuit found that the employee was expected to provide notice within two working days of learning of the need for the leave, and, consequently, the employer was entitled to summary judgment.
As in Saenz, however, the court found that application of the revised regulation would have necessitated a different analysis. To wit, the court indicated that in its view, the revised language effectively diminishes the effect of the rigid two-day standard and instead focuses on the requirements of the employer’s own policy. Although this would have had no effect on the outcome in Brown, the court’s emphasis on the employer’s policy is clear.
Scobey v. Nucor Steel-Arkansas, 580 F,3d 781 (8th Cir. 2009).
It is worth mentioning that the revisions to 29 C.F.R. § 825.303 may also impact the type of notice that is required. In Scobey, the Eighth Circuit Court of Appeals noted that under the former version of 29 C.F.R. § 835.305, an employee’s notice “need not explicitly assert rights under FMLA or even mention the FMLA.” Thus, the old rule’s standard for notice was more generous to the employee.
However, the Eighth Circuit went on to indicate that the recent amendments to 29 C.F.R. § 825.303(b) effectuate a more stringent notice standard:
“[T]he employee must specifically reference either the qualifying reason for leave or the need for FMLA leave. Calling in “sick” without providing more information will not be considered sufficient notice to trigger an employer’s obligations under the Act. The employer will be expected to obtain any additional required information through informal means. An employee has an obligation to respond to an employer’s questions designed to determine whether an absence is potentially FMLA-qualifying.” Scobey at 785.
Although we have seen few, if any, post-revision judicial opinions applying the current version of 29 C.F.R. § 825.303, the above cases offer a glimpse into how courts may approach the issue in future litigation. As the opinions in Saenz, Brown and Scobey indicate, under the revised version of 29 C.F.R.§ 825.303, where leave is not foreseeable, an employee must provide prompt, adequate notice and must strictly comply with their employer’s usual procedures for requesting unforeseeable leave.
Consequently, employers would be well served to implement or revise their employee leave policies to include specific employee notice requirements.
W. Chapman Hopkins is an associate with McBrayer, McGinnis, Leslie & Kirkland, PLLC. Mr. Hopkins concentrates his practice in employment law, equine law and litigation. He is located in the firm’s Lexington office and can be reached at firstname.lastname@example.org or at (859) 231-8780.
This article is intended as a summary of newly enacted federal law and does not constitute legal advice. Special thanks to Emily Grant, Law Clerk, and Andrew Trimble, Law Clerk, for contributions to this article.