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Employees Accepted Arbitration Program by Failing to “Opt-Out”

Many companies have adopted programs that call for disputes with their employees to be resolved by an arbitrator, rather than a judge or a jury.  As we have reported previously on this blog, the courts (led by the U.S. Supreme Court) have generally supported those programs.  But as a condition of enforcing arbitration agreements, the courts have consistently required that all of the hallmarks of a valid contract be present, including the employee’s acceptance.  A recent decision by a federal court in St. Louis demonstrates the latitude that judges may give employers in establishing their employees’ agreement to arbitrate claims.

In a case called Karzon v. AT&T, Inc. d/b/a Southwestern Bell Telephone Co., Inc., an employer adopted an arbitration program and notified its workforce through an email with a link to the agreement.  The employer gave the employees approximately two months to “opt out” of the arbitration program, and if they did so, they would retain the right to resolve any disputes in court.  Any employee who did not opt-out by the deadline, however, was agreeing to arbitrate any future disputes.  The employee in this case did not opt-out.  When his employment was later terminated, the employee filed a lawsuit in the Eastern District of Missouri, alleging that he was discharged because of his religion and national origin.  Relying on the arbitration agreement, the employer asked the court to order that the dispute be resolved by an arbitrator.  The employee opposed the employer’s motion, arguing that his failure to opt-out was not a legally binding “acceptance” of the terms in the arbitration agreement. The federal court disagreed, holding that an offer may be accepted “by the offeree’s conduct or failure to act.”

Takeaway:  Employers may attempt to increase participation rates in voluntary arbitration programs by using an “opt-out” system, rather than relying on affirmative signatures by their employees.  Note, however, that the court in Karzon was influenced by the employer’s efforts to ensure that employees knew the consequences of inaction.  Those steps included the following:

  • The employer’s notice to the employees contained the text “REVIEW REQUIRED.”
  • Each employee was required to enter his unique username and password to access the arbitration agreement.
  • The notice emphasized the deadline for opting out, and it provided a link to opt-out.
  • The notice made clear that there would be no adverse consequences for opting out, and it explained the ramifications of failing to opt-out.
  • All employees were asked to review the arbitration agreement and click a “Review Completed” button, regardless of whether they decided to opt-out.

If you are an employer considering an arbitration program with an “opt-out” approach, you should ensure that it includes similar elements.  Note also that there are a number of other important elements to consider when crafting an enforceable arbitration agreement.  If you have questions about your arbitration agreement, or need assistance evaluating or implementing an arbitration program, please contact one of our specialists at Spencer Fane.