Antitrust Law Daily Former Domino’s employee must arbitrate claims based on franchisees’ no-poach policy
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Thursday, June 18, 2020

Former Domino’s employee must arbitrate claims based on franchisees’ no-poach policy

By Nicole D. Prysby, J.D.

The former employee agreed to arbitrate questions of arbitrability when he signed an agreement that provided that arbitration will be conducted in accordance with AAA Rules.

A former Domino’s franchisee employee must allow an arbitrator to decide the arbitrability of his claims that the franchisor and its affiliates used no-hire clauses in franchise agreements in an antitrust conspiracy to not compete for labor, held the Sixth Circuit Court of Appeals. The employee sued Domino’s and its affiliates (together, Domino’s) but did not name the franchisees as defendants. When Domino’s sought to compel arbitration of the claims, he argued that Domino’s couldn’t enforce the arbitration agreements because the company hadn’t signed the agreements (only their franchises had). The Sixth Circuit held that the employee had agreed to allow an arbitrator to decide questions of arbitrability, based on the inclusion of language stating that the arbitration will be conducted in accordance with American Arbitration Association (AAA) Rules. While the AAA Rules do not explicitly state that only arbitrators may decide questions of arbitrability, it is implied and the AAA Rules are best read to give arbitrators the exclusive authority to decide questions of arbitrability. That conclusion was further supported by the fact that when the parties signed the agreement in 2018, almost every circuit court in the country had held that the AAA Rules gave arbitrators the exclusive authority to arbitrate arbitrability (Blanton v. Domino's Pizza Franchising LLC, June 17, 2020, Thapar, A.).

A former employee of Domino’s franchisees alleged that the franchisor and its affiliates used franchise agreements to orchestrate a conspiracy among their franchisees to not compete for labor, unreasonably restraining competition for Domino’s franchise employees, resulting in depressed wages, benefits, and mobility. He sued Domino’s (bringing claims under the Sherman Act, Clayton Act, and state law), but did not name the franchisees as defendants in the putative class action. Domino’s sought to compel arbitration of the claims. The employee opposed the motion, arguing that Domino’s couldn’t enforce the arbitration agreements because the company hadn’t signed the agreements (only their franchises had). But the district court ordered the employee to go to arbitration anyway, finding that he had agreed to arbitrate not only the merits of certain claims but also threshold questions about the agreements themselves. The employee appealed.

The Sixth Circuit held that the employee had agreed to allow an arbitrator to decide questions of arbitrability. The agreement provided that the AAA would administer the arbitration and the arbitration will be conducted in accordance with then-current AAA Rules. Those Rules provide that the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement. The court found that to be "clear and unmistakable" evidence that the employee agreed to arbitrate arbitrability. Precedent from the U.S. Supreme Court and other circuit courts dictated the same outcome. Eleven out of twelve of the court’s sister circuits to address the question found that the incorporation of the AAA Rules provides "clear and unmistakable" evidence that the parties agreed to arbitrate arbitrability.

The choice of law (state versus federal) did not change that outcome, according to the Sixth Circuit. And the court rejected the plaintiffs’ arguments as to why it should be the first circuit court in the country to find that the incorporation of the AAA Rules doesn’t provide "clear and unmistakable" evidence that he agreed to arbitrate arbitrability. The agreement contained no language that would require the court to first determine whether the agreement covered a particular claim before the arbitrator had any authority to address its jurisdiction. Carveout language in the agreement went to the scope of the agreement—a question that the agreement otherwise delegated to the arbitrator—not the scope of the arbitrator’s authority to decide questions of arbitrability.

The AAA Rules give arbitrators the power to rule on their own jurisdiction, including objections to the existence, scope, or validity of the arbitration agreement, and the real issue went goes to the arbitrator’s jurisdiction, the court explained. While the AAA Rules did not explicitly state that only arbitrators may decide questions of arbitrability, it was implied. For if a court ruled on the issue first, then that ruling could bind the arbitrator under the doctrine of res judicata. Therefore, the AAA Rules were best read to give arbitrators the exclusive authority to decide questions of arbitrability. That conclusion was further supported by the fact that when the parties signed the agreement in 2018, almost every circuit court in the country had held that this rule or similar ones gave arbitrators the exclusive authority to arbitrate arbitrability. And even if the employee could not be expected to read judicial decisions, he certified in his arbitration agreement that he had time to obtain advice from an attorney.

The employee argued that the court should distinguish his case because he was not a sophisticated party. But nothing in the Federal Arbitration Act purports to distinguish between "sophisticated" and "unsophisticated" parties. Finally, the plaintiffs’ policy concerns against arbitrating arbitrability were overstated, because arbitrators could quickly resolve frivolous motions.

This case is No. 19-2388.

Attorneys: Anne B. Shaver (Lieff Cabraser Heimann & Bernstein, LLP) for Derek Piersing. Norman M. Leon (DLA Piper LLP) for Domino’s Pizza Franchising LLC, Domino’s Pizza Master Issuer LLC and Domino’s Pizza LLC.

Companies: Domino’s Pizza Franchising LLC; Domino’s Pizza Master Issuer LLC; Domino’s Pizza LLC

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