Labor & Employment Law Daily If a district court finds dispute as to employee’s agreement to arbitrate, FAA requires immediate trial on that issue
Tuesday, July 28, 2020

If a district court finds dispute as to employee’s agreement to arbitrate, FAA requires immediate trial on that issue

By Marjorie Johnson, J.D.

The district court erred in simply denying the employer’s motion to compel arbitration and ordering the parties to proceed on the merits since if the employee did in fact agree to arbitrate, the employer was entitled to have the case arbitrated.

Having found triable issues existed as to whether an employment-discrimination plaintiff agreed to mandatory arbitration of his claims, a federal district court erred in denying the employer’s motion to compel arbitration before definitively resolving the disputed issue before proceeding to litigation on the merits, the D.C. Circuit held in deciding this issue of first impression. Because Section 4 of the Federal Arbitration Act instructs a district court to proceed summarily to trial on the issue of arbitrability if it is in dispute, the lower court’s denial of the employer’s motion was vacated and remanded with instructions to hold the motion in abeyance pending “prompt resolution of whether the parties agreed to arbitrate” (Jin v. Parsons Corp., July 24, 2020, Henderson, K.).

Arbitration agreement. After the long-time employee filed this lawsuit alleging employment discrimination, the employer moved to stay judicial proceedings and to compel arbitration. The company claimed that it instituted a dispute resolution program in 1998 that included an arbitration agreement, and that when it updated the program in 2012, it sent an email notifying employees about the changes. The email also asked employees to complete a certification indicating their receipt of the agreement and stated that if they did not sign the arbitration agreement, continued employment after the effective date would constitute acceptance.

Employee denies receipt. The employer claimed that it sent the email to the employee four times and that while he never signed the agreement, he remained employed for several years thereafter. To support its allegation, the company submitted asworn declaration by its HR director and its email records. In response, the employee claimed to have no recollection of the initial dispute resolution program or the agreement and denied having received any emails about the agreement in 2012 or having ever reviewed or signed the agreement at any point.

Motion to compel denied. The district court denied the employer’s motion, concluding that there was a triable issue as to the employee’s intent to be bound by the agreement. But instead of holding a trial limited to resolving that issue, the court ordered the employer to answer the complaint on the merits and directed the parties to confer regarding discovery.

Jurisdiction. At the outset, the D.C. Circuit rejected the argument that the employer’s appeal was analogous to an interlocutory appeal of a denial of summary judgment. Rather, its jurisdiction of an immediate appeal was supported because “the district court’s denial of the motion to stay proceedings and compel arbitration purported to conclude the gateway inquiry into whether the dispute should be arbitrated and signaled the beginning of the merits litigation.” As other circuits have held, Section 16 “allows for appeal of orders denying motions to compel arbitration even when the issue of arbitrability has not been finally decided.”

FAA’s trial provision. Having confirmed jurisdiction, the D.C. Circuit concluded that the district court erred in its application of Section 4 of the FAA by failing to try the issue of arbitrability once it found that a genuine dispute existed as to whether the employee assented to the arbitration agreement. Specifically, Section 4 provides that if, in considering a motion to compel arbitration, the district court determines that “the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.” Depending on whether the factfinder finds that an agreement to arbitrate was made, the case will either proceed before the court on the merits or the parties will be ordered to arbitrate.

Must resolve whether agreement existed. The court cannot simply deny the motion to compel arbitration and order the parties to proceed on the merits because if the parties did in fact agree to arbitrate, the party seeking to compel arbitration is entitled to have the case arbitrated. Writing for the Tenth Circuit in a similar case interpreting Section 4, then-Judge Gorsuch explained that a district who had found triable issues as to whether the parties agree to arbitrate, “was in no position to deny a motion to arbitrate. It had to move promptly to trial of the unresolved factual questions surrounding the parties’ claimed agreement to arbitrate.”

Gateway issue. However, if the district court determines as a matter of law that the parties did or did not agree to arbitrate, it may grant or deny a motion to compel arbitration without proceeding to a Section 4 trial. Indeed, that is why the circuit initially analyzes a motion to compel arbitration like a motion for summary judgment. However, unlike a standard motion for summary judgment, a motion to compel arbitration “cannot simply be denied if the district court determines a genuine dispute of material fact exists.” The arbitrability of a dispute is a “gateway” issue which cannot be postponed while allowing the case to proceed on the merits. Rather, Section 4 makes clear that the parties are entitled to have the correct venue—court or arbitration—established at the outset.

Proper procedure. Accordingly, the D.C. Circuit held that a district court, upon finding that a genuine dispute of material fact exists as to “the making of the arbitration agreement,” including whether the parties assented to the agreement, should proceed summarily to trial solely on the issue of arbitrability. Deciding this issue of first impression. the D.C. Circuit held that pursuant to Section 4 of the FAA, the proper procedure for a district court to follow is to hold the motion to compel in abeyance pending resolution of the dispute on arbitrability. That way, the motion remains pending until the arbitrability issue is decided and once the final decision is reached, that decision is appealable.

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