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Sixth Circuit Bails Out Employer’s Questionable Drafting: Arbitration Clause Enforced Despite Lack of Mention of Survival

Posted by Eric Parzianello on April 13, 2014

The Sixth Circuit Court of Appeals recently bailed out an employer from some questionable drafting in its professional services contracts.  As a result, multiple former workers were required to arbitrate their claims individually as opposed to a class.

In Huffman v. Hilltop Companies LLC, the plaintiffs were hired by Hilltop to review the files of mortgage loans originated by PNC Bank. For over a year, they regularly worked in excess of forty hours per week but were not paid at overtime rates because they were classified as independent contractors – a classification the plaintiffs believed was erroneous.

One paragraph of their 24 paragraph Professional Services Contract contained the following arbitration clause:21.  ARBITRATION. Any Claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by binding arbitration administered by the American Arbitration Association (“AAA”) in accordance with its Commercial Arbitration Rules and its Optional Procedures for Large, Complex Commercial Disputes. The … arbitration and all related proceedings and discovery shall take place pursuant to a protective order entered by the arbitrators that adequately protects the confidential nature of the parties’ proprietary and confidential information.

A separate paragraph containing the survival clause read as follows:

22. SURVIVAL. Paragraphs 4, 5, 6, 7, 8, 9, 10. 11, 12, 14, 17, and 22 shall survive the expiration or earlier termination of this Agreement.

The plaintiffs’ contracts were terminated and they later filed suit in federal court alleging a violation of the Fair Labor Standards Act.  The employer argued that the plaintiffs were required to arbitrate their claims; the plaintiffs argued that the arbitration clause expired when the contracts were terminated since it wasn’t one of the twelve paragraphs listed in the survival clause.

The federal district court agreed with the plaintiffs.  It ruled that there was a “clear implication” that the parties intended the arbitration clause to expire with the agreement since 12 of the 24 paragraphs in the contracts were identified in the survival clause – and the “Arbitration” paragraph was not one of them. 

However, the Court of Appeals reversed.  It held that there is a strong presumption in favor of arbitration.  It found that the plaintiffs’ interpretation that the arbitration clause terminated upon the contract’s termination depends on a “strained reading” of the contract.  The listing of half of the contract’s paragraphs in the survival clause was apparently not enough for the Court:  it stated that “if the survival clause listed twenty-three of the agreement’s twenty-four clauses—all but the arbitration clause—that might constitute a clear implication, and yield a different result.”

The Court then not only held that the multiple plaintiffs were required to arbitrate but that they could not proceed as a class in arbitration.  Though the contract and the arbitration clause did not address classwide arbitration, the court held that the plaintiffs must proceed individually in the absence of a specific authorization to do so.  Despite this ruling, an employer would best be served by an explicit reference that an arbitration provision survives termination and a specific prohibition against classwide arbitration.  

Eric A. Parzianello
eparzianello@hspplc.com
313-672-7300

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One Response to “Sixth Circuit Bails Out Employer’s Questionable Drafting: Arbitration Clause Enforced Despite Lack of Mention of Survival”

  1. michae1803 said

    The title on this article says it all: the 6th Circuit “bailed out” the employer’s clause. But is this the province of the federal courts? Moreover, the complex arbitration rules of teh AAA have nothing to do with employment litigation. This is but another example of federal appellate judges trying to rid their dockets of those pesky employment law cases, shedding their federal law enforcement responsibilities and delegating it to private arbitrators. (By the way, I am a private arbitrator.)

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