Employment Law Daily HR’s conclusory statement didn’t establish employer’s right to enforce arbitration agreement in which it was not named
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Tuesday, June 26, 2018

HR’s conclusory statement didn’t establish employer’s right to enforce arbitration agreement in which it was not named

By Marjorie Johnson, J.D.

An employer not identified by name in an employee’s arbitration agreement could not compel arbitration of an employee’s FLSA collective action, agreed the Seventh Circuit, upholding a lower court decision that the employer failed to establish its right to enforce the agreement. Specifically, the employer failed to convince the appeals court that the district court misunderstood the nature of its relationship with the entity that was named in the agreement. Though it argued that the two names referred to the same entity, the district court did not clearly err in finding that an HR director’s affidavit was too conclusory in this regard and in considering the company’s corporate website to determine that it failed to establish that its right to enforce the agreement (Goplin v. WeConnect, Inc., June 21, 2018, Barrett, A.).

Other entity named in agreement. The employee brought this collective and class action against WeConnect, Inc., asserting violations of the FLSA and Wisconsin’s wage-hour law. When he began working for WeConnect, he signed an arbitration agreement called the “AEI Alternative Entertainment Inc. Open Door Policy and Arbitration Program.” The agreement never mentioned WeConnect and only referred to an entity named AEI throughout.

Relying on the agreement, WeConnect filed a motion to dismiss and compel arbitration. It attached an affidavit from its HR director which stated, among other things, that “I am employed by WeConnect, Inc.—formerly known as Alternative Entertainment, Inc. or AEI—as Director of Human Resources.” In response, the employee argued that WeConnect could not enforce the arbitration agreement because it was not a party to the agreement.

Company website. In support of his contention that AEI and WeConnect were two distinct legal entities, the employee specifically directed the court to language on the employer’s website, which stated: “WeConnect formed when two privately held companies, Alternative Entertainment, Inc. (AEI) and WeConnect Enterprise Solutions, combined in September 2016 … Working together, AEI and WeConnect Enterprises could be as nimble as the next great technological innovation required. Our founders … saw that we were stronger together. And we officially became one company, WeConnect.”

Name change or merger? In contrast, WeConnect argued that the two were not different legal entities, but rather two names for the same legal entity. Specifically, it argued that AEI was the company’s original name and WeConnect was its new name, emphasizing that the HR director’s affidavit referred to WeConnect as a company “formerly known” as AEI. It contended that because this was a name change and not a merger, a contract with AEI was a contract with WeConnect.

In ruling that WeConnect failed to demonstrate that it was a party to the arbitration agreement, the district court discounted the HR director’s affidavit as conclusory and noted that its own website indicated that “AEI ceased to exist in September 2016, when it merged with WeConnect Enterprise Solutions to form WeConnect, Inc.” Finding that “AEI isn’t just another name for WeConnect,” it denied WeConnect’s motion to compel arbitration.

Too late to consider additional evidence. In its motion for reconsideration, WeConnect attached more substantial evidence—including some corporate-form documents and affidavits from its lawyer and CEO—to support its claim that AEI had undergone a name change rather than a merger. Denying the motion, the district court refused to consider this evidence since it was neither newly discovered nor unknown, and could have easily been produced in its original motion. On appeal, the Seventh Circuit also declined to consider that evidence.

Okay to consider corporate website. The Seventh Circuit also rejected WeConnect’s contention that the district court erred by considering its website. Specifically, the employer argued that the court violated the rules of judicial notice by relying on information it found in the course of its own internet research, emphasizing the Seventh Circuit’s warning that “it is especially important for parties to have the opportunity to be heard prior to the taking of judicial notice of websites.” However, WeConnect incorrectly averred that the website was the determinative factor in the district court’s decision.

Rather, the district court found that the company failed to meet its burden of establishing its right to enforce the arbitration agreement entered by AEI since the only evidence it introduced of its relationship to AEI was one sentence in its HR director’s affidavit, which the court found was insufficient proof that WeConnect and AEI were different names for the same entity. Though it viewed the website as confirmation that the entities were distinct, the court’s opinion made clear that it would have reached the same result even without the website.

Moreover, the district court did not violate the rules of judicial notice by reviewing the company’s website because, contrary to WeConnect’s assertion, it did not engage in its own internet research to find the website. Rather, the employee cited its website in his briefing. And though WeConnect argued that it did not have the opportunity to put its website language in context for the court, it could have done so in its reply brief but failed to do so. Finally, the statements at issue were WeConnect’s own assertions, not potentially unfamiliar information posted on third-party websites.

Court considered evidence before it. In sum, had WeConnect introduced the strongest evidence of its relationship with AEI from the beginning, it may have convinced the district court that the two names referred to the same entity. Instead, it relied on a conclusory sentence in its HR director’s affidavit to establish the corporate relationship between WeConnect and AEI. Based on the evidence at hand, the district court’s finding was not clearly erroneous.

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