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The Devil is in the Details: Arbitration Agreements Ruled Invalid Over Signatures

By: Michael J. Lorden

Employers, dust-off your arbitration agreements and take a second look at the signature line. Is it signed by both parties? Did the employer representative sign on behalf of the correct corporate entity? If the answer to either of these questions is “no,” then the arbitration agreement may be unenforceable.

Did the company sign the arbitration agreement?

The United States Fifth Circuit Court of Appeals recently held that an arbitration agreement – which was signed by the employee but not by the employer – was unenforceable.[1] The employer argued that its signature was unnecessary because the employer drafted the agreement and maintained the agreement as a business record. Thus, the employer contended, it intended to be bound by the arbitration agreement. The court rejected this argument, finding that such reasoning would allow an employer to “have it both ways – argue that it did not intend to be bound because it did not sign the agreement or it did because it kept the agreement and sought to compel arbitration.” Due to the absence of the employer’s signature, the court held that there was not a valid agreement to arbitrate and the employee could pursue her claims in federal court.

Assuming your company executed the arbitration agreement, was it signed on behalf of the correct entity?

Further, the U.S. Fourth Circuit Court of Appeals recently held that a subsidiary could not enforce an arbitration agreement when the document was signed by the parent corporation.[2] There, the plaintiff and the subsidiary’s representative, Vaughn, executed a “Services Agreement.” The plaintiff also signed an “Arbitration Rider,” which Vaughn executed on behalf of the parent corporation “d/b/a [the subsidiary].” The Fourth Circuit held that “the parties here must abide by what the agreement says. The Arbitration Rider binds [the plaintiff] and [the parent] to arbitration of their disputes…” Since the subsidiary was not named in the arbitration rider, the court held that it had no basis to compel arbitration, and the plaintiff could pursue his class-action wage claims in federal court.

These cases demonstrate that simple oversights can invalidate otherwise enforceable arbitration agreements. Employers should remind their representatives to countersign all employment agreements and ensure that the agreements include all the desired corporate entities. Failure to do so could invalidate the agreement.

[1] See Huckaba v. Ref-Chem, L.P., No. 17-50341 (5th Cir., June 11, 2018).

[2] See Weckesser v. Knight Enterprises S.E., LLC, No. 17-1247 (4th Cir., June 12, 2018).