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Fourth Circuit Won't Extend Arbitration Agreement With Parent Company

    Client Alerts
  • June 25, 2018

Last month’s U.S. Supreme Court decision in Epic Systems Corp. v. Lewis confirmed employers’ ability to avoid class and collective action claims through the use of mandatory arbitration agreements with employees. This month, the Fourth Circuit Court of Appeals (which includes North Carolina and South Carolina) reminded employers that choose to use arbitration agreements of the need to pay careful attention to their language in order to avoid losing these legal protections.
In Weckesser v. Knight Enterprises S.E., LLC, a technician filed a class action wage claim in South Carolina, alleging that the company misclassified him and similarly situated workers as independent contractors. The defendant moved to compel individual arbitration, relying on an agreement signed with the technician that precluded class action claims. The district court denied the motion on the basis that the arbitration agreement named the defendant’s parent corporation and not the actual company for which the plaintiff performed services.
On appeal, the Fourth Circuit affirmed this decision, rejecting the defendant’s claim that the wrong name on the agreement resulted from a drafting error. The two companies had distinct names, and the arbitration agreement also contained a venue provision that selected the parent company’s separate location. The court also declined to accept the defendant’s argument that it was a third-party beneficiary to the agreement between the plaintiff and its parent corporation. To the extent that the agreement contained ambiguities, the Fourth Circuit interpreted them against the defendant, which had written the document.
Employers that decide to use mandatory arbitration agreements should carefully draft them to minimize the potential for legal challenges based on technicalities. The agreements should be balanced, meaning that they should not try to restrict employees’ substantive legal remedies or contain burdensome cost-shifting measures. Given the hostility of some judges to mandatory arbitration of employment claims, careful construction of the arbitration agreements can avoid a threshold battle over the propriety of the document’s terms.