Many companies, concerned about the cost and timeliness of court litigation, have adopted policies requiring that disputes with discharged employees must be submitted to arbitration. The employee agrees to the arbitration provision as a condition of employment.
A recent decision of the Michigan Court of Appeals suggests that employers need to check their arbitration agreements to make sure that they will not have to simultaneously deal with both court litigation and arbitration. In Riley v Ennis, a former employee sued her supervisor for personal liability for discrimination. Her former employer was not a party to the lawsuit. The Court of Appeals ruled that the arbitration agreement only applied to claims against the employer, because only the employer and the employee were parties to the arbitration agreement.
The Court of Appeals stated, “a party cannot be required to arbitrate an issue that the party did not agree to submit to arbitration. … Although plaintiff’s claims against [her supervisor] might be interwoven with her claims against [her employer], because plaintiff and [her employer] did not agree to give [the employer’s] agents the protection of the arbitration provision in the employment contract with respect to their own potential individual liability, we conclude that defendant [the individual supervisor] cannot compel arbitration.”
The agreement could have required the arbitration of claims against individuals, as well as the company. This arbitration agreement did not state that it covered claims against individual supervisors or corporate officers. The arbitration agreement also did not state it applied to any dispute arising out of the employment relationship.
In light of the Court of Appeals’ decision in Riley v Ennis, you should check your arbitration agreement to make sure whether it would require the arbitration of claims against individual corporate officers, agents or supervisors. Otherwise, the company might have to deal with both a lawsuit in court and an arbitration proceeding.
To download a PDF of the Court of Appeals’ decision click here.
This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.
