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First Circuit Enforces Workplace Arbitration, Even Without a Signed Arbitration Clause

Sunday, January, 13, 2013


In a case that is extremely important for matters concerning workplace arbitration, the First Circuit court has ruled that arbitration is required in workplace disputes for certain franchisees, even in cases for which the franchisees had not signed an arbitration agreement.  This ruling was given to overturn a previous ruling issued by the district court, which stated that there should be a special heightened notice requirement for arbitration clauses, without which arbitration cannot be enforced.    

The specific circumstances leading up to this decision were that Coverall North America, Inc. contracted out commercial janitorial jobs to franchisees.  These franchisees brought a series of claims against Coverall that included misrepresentation, breach of contract, failure to pay wages due, and deceptive and unfair business practises.  Some of the franchisees had signed an agreement with Coverall that all disputes would be handled through workplace arbitration; however, some did not.  In 2011, the district court ruled that the arbitration agreements could not be enforced for the franchisees who had not signed the original Janitorial Franchise Agreement containing the arbitration clause, since many had not even received copies of the contract.  They had, however, received copies of the Transfer Agreement, which referred to this original Franchisee contract and its terms.   

However, the First Circuit court overturned this ruling on grounds that the Transfer Agreements stated that the franchisees who had not signed the original arbitration agreement "succeed to all of Franchisee's rights and obligations under Franchisee's Janitorial Franchise Agreement," or "become liable with the Franchisee for all of the obligations imposed by the Janitorial Franchise Agreement." Thus, the original Janitorial Franchise Agreement, which contained the arbitration clause, was referred to in a document they signed.

What this means for employers is that while it is always best to have an employee sign the arbitration agreement itself, it is possible to enforce arbitration if the employer has incorporated the arbitration agreement by reference in another document that has been given to the employee.