The Third Circuit allows two employees to sue their employer in court even though the company’s dispute resolution policy requires binding arbitration because they objected to the policy at the time of adoption.
On October 18, 2016, the Third Circuit held that two employees could sue their employer in federal court even though the company’s dispute resolution policy required binding arbitration because these employees objected to the policy at the time of its adoption. The decision reverses the district court, which had dismissed plaintiffs’ ADEA and VII claims in light of their coverage by the policy. The case is Scott v. Education Management Corporation, No. 15-2177.
FACTS AND REASONING
Plaintiffs Scott and Jones worked as Assistant Directors of Admissions at the Art Institute of Pittsburgh, a subsidiary of Education Management Corporation (“EDMC”). Plaintiffs filed virtually identical Charges with the EEOC, claiming they were subject to unfair performance evaluations on the basis of their age. Additionally, Jones alleged discrimination on the basis of race. After Scott and Jones filed their charges, EDMC instituted a company-wide alternative dispute resolution (“ADR”) policy, which included final binding arbitration. The policy was designed to establish arbitration as the exclusive means by which all work-related disputes would be resolved, including disputes sounding in “discrimination, harassment, retaliation, wrongful termination or other alleged unlawful treatment under state, local, or federal law.”
Plaintiffs’ attorney emailed EDMC on behalf of Jones, suggesting the policy was “illegal” and violated Title VII. Plaintiffs then amended their EEOC complaints to include a retaliation claim on the basis of institution of the ADR policy. After requesting Right to Sue letters from the EEOC, plaintiffs filed complaints in federal court, alleging violations of the ADEA, Title VII as well as Pennsylvania common law. The district court dismissed both cases with prejudice, holding that the claims fell within the scope of the ADR policy. The district court further reasoned that plaintiffs manifested assent to the policy by continuing to work after it was instituted.
On appeal, the Third Circuit rejected the reasoning on mutual assent. EDMC argued that an employee assents when the employee continues to work for the employer. The court disagreed, reasoning that plaintiffs promptly voiced their specific objection to and rejection of the ADR policy, which precluded assent to the policy. The court held that on these facts, the plaintiffs’ continuing to work did not manifest assent to the policy. The court also stated that Pennsylvania law would dictate the same holding.
Although the Third Circuit designated the decision as “not precedential,” employers can expert plaintiffs’ counsel to rely on the decision as persuasive authority. The impact of the decision will play out in the years to come, but the case indicates the Third Circuit may not be as deferential to agreements to resolve disputes through arbitration or mediation as other appellate courts. On the other hand, the case is easily cabined on its facts and is likely only applicable to post-hoc changes meant to defeat judicial resolution of existing disputes. There are parallels in other areas of law. For example, then-Chancellor, now Chief Justice Leo Strine, has suggested that a company’s post-hoc enactment of forum selection clauses to defeat jurisdiction of actual or threatened shareholder litigation would be unenforceable because application would be unreasonable. See Boilermakers Local 154 Ret. Fund v. Chevron Corp. (“Chevron”), 73 A.3d 934 (Del. Ch. 2013).
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