Over the past week, our wrongful termination and employment discrimination attorneys have blogged about the problems that arbitration agreements cause for employees and possible ways to fight your way out of them. (See Arbitration Agreements Are Bad For Employees; Am I Stuck With An Arbitration Agreement?). Today, we are going to look at an example presented in the United States Court of Appeals for the Fourth Circuit’s holding in Siobhan v. RPS Holdings, LLC, No. 22-1027, 2024 WL 208147 (4th Cir. Jan. 19, 2024).
In the world of employment law, ambiguity can be a tricky adversary, especially when it comes to arbitration agreements. Take the recent case of Siobhan James against RPS Holdings, LLC, where the line between an enforceable arbitration agreement and the lack thereof blurred into a legal labyrinth.
Siobhan, an exotic dancer at the Capital Cabaret Gentlemen’s Club in Morrisville, North Carolina, found herself at the center of a putative class action against her employer, PRS Partners, LLC, d/b/a Capital Cabaret (PRS). Alleging violations of the Fair Labor Standards Act (“FLSA”) for minimum wage and overtime violations, Siobhan sought to bring justice not just for herself but for all exotic dancers at Capital Cabaret.
PRS, however, threw a curveball by filing a motion to compel arbitration. They claimed Siobhan’s claims were subject to arbitration based on an agreement between the parties. The alleged agreement, a document signed by Siobhan, mandated arbitration for all employment claims. The district court found PRS failed to establish a clear contractual link between Siobhan and PRS. The catch? The arbitration alleged agreement didn’t explicitly mention PRS or dba for Capital Cabaret. Instead, it only stated that Siobhan had to arbitrate claims that she had against “Cap Cab.” Despite PRS’s arguments that “Cap Cab” was synonymous with “Capital Cabaret,” the court demanded more clarity and supporting evidence.
To add a layer of complexity, the district court pointed out that, under North Carolina law, a business entity operating under an assumed name must file a certificate identifying that name. Records showed that a different entity, “RPS Holdings, LLC” (RPS), had filed such a certificate indicating it does business under the assumed name “Capital Cabaret.” PRS’s failure to establish a concrete connection between “Cap Cab” and RPS, resulted in the district court denying the employer’s motion to compel arbitration.
RPS appealed. While the United States Court of Appeals for the Fourth Circuit did not rule in favor of compelling arbitration, it did hold that the issue should have been resolved by trial.
How does compelling arbitration work?
The Federal Arbitration Act (“FAA”), and specifically § 4 of the FAA, provides a legal avenue for a party seeking enforcement of an arbitration agreement. Under this law, the party can file a complaint or motion with a district court to compel arbitration based on the terms outlined in the parties’ agreement. The FAA sets forth specific criteria that the moving party must establish to obtain a court order compelling the other party into arbitration: (1) the presence of a dispute between the involved parties, (2) the existence of a written agreement containing an arbitration provision applicable to the dispute, (3) a connection between the transaction outlined in the agreement and interstate or foreign commerce, and (4) the defendant’s failure, neglect, or refusal to engage in arbitration.
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How are ambiguous or unclear terms resolved in an employment arbitration agreement?
Focusing on the second element, when faced with ambiguous or unclear terms in an employment arbitration agreement, courts typically apply general principles of contract interpretation. Courts may look at the intent of the parties, industry practices, and the agreement’s overall context to resolve ambiguity. If that does not resolve the issue, ambiguities will be interpreted against the party that drafted the agreement, which is almost always the employer. However, this standard may vary based on state law or specific provisions within the agreement. It’s crucial for employees to seek legal guidance to navigate through the intricacies and ensure their rights are protected under applicable statutes.
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Who decides what ambiguous or unclear terms mean in an employment arbitration agreement – a judge or a jury?
The resolution of ambiguous or unclear terms in an employment arbitration agreement is typically decided by a judge, not a jury. Courts have the authority to interpret contracts and determine the meaning of contractual terms. This emphasizes the importance of crafting clear and precise language in arbitration agreements, as the ultimate interpretation may rest in the hands of a judicial authority.
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Who decides whether an employment arbitration agreement was actually agreed to – a judge or a jury?
According to the FAA, when there’s a question about whether the arbitration agreement was properly made, the court must quickly proceed to trial on that issue as required by 9 U.S.C. § 4. In such cases, courts follow the summary judgment standard, meaning they decide whether a trial is needed only if there are real and important factual disputes. The party seeking to compel arbitration continues to carry the burden of proving the existence of a valid contract to arbitrate the dispute. Importantly, under the FAA, the trial will be resolved by the trier of fact – which can be either a judge or a jury. The default trier of fact is a judge, but any party can request that the issue be resolved by the jury by making a jury demand. The jury demand must be honored.
In Siobhan, the Fourth Circuit Court of Appeals held that the sloppily identified “Cap Cab” was an issue of formation and not ambiguity. In doing so, the Court of Appeals held:
Under North Carolina law, the “mistaken use of [a corporate] name is ordinarily not material if the parties really intended [to reference] the corporation by its proper name.” See Tomika Invs., Inc. v. Macedonia True Vine Pentecostal Holiness Church of God, Inc., 524 S.E.2d 591, 594 (N.C. Ct. App. 2000). “If the [corporate] name is expressed in the written instrument, so that the real name can be ascertained from it, this is sufficient; but if necessary, other evidence may be produced to establish what corporation was intended.” Id. (explaining that the record showed that the defendant understood that it was “dealing with” a corporation named “Tomika Investment” even though the corporation was incorrectly labeled as “Tomika Investments, Inc.” instead of “Tomika Investment Company”).
In the present case, the district court correctly observed that RPS failed to submit evidence that affirmatively established that “Cap Cab” was an abbreviation for RPS’s assumed name, “Capital Cabaret.” Nonetheless, we conclude that a fact finder faced with the present record could have reached the conclusion that “Cap Cab” was “Capital Cabaret” and that, therefore, the court was compelled to conduct a trial under § 4 of the FAA. See Rowland, 993 F.3d at 258.
As such, the case will be remanded to the trial court for a trial. If no jury demand was made, the District Court will hold a trial to gather the same evidence that has already been submitted and likely make the same determination. If a jury demand was made, RBS will get the opportunity to convince a jury that everyone understood that “Cap Cab” meant “Capital Cabaret.”
One of the big take-aways should be that between the initial motion work, appeal, and forthcoming trial, the employer likely will spend close to $100,000. Typically, when facing that much cost, the parties should use that opportunity to discuss settling the case.
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What should I do if the company I worked for tries to block my wrongful termination claim by claiming there is an arbitration contract?
If your employer attempts to thwart your wrongful termination claim by asserting the existence of an arbitration contract, swift action is crucial. Consultation with an experienced employment attorney is paramount to understanding your rights, assessing the validity of the arbitration agreement, and determining the best course of action. At Spitz, The Employee’s Law Firm, we offer a free initial consultation to discuss the specifics of your case. Our commitment to your rights is underscored by our no fee guarantee – you don’t pay unless we win. Choosing Spitz ensures you have dedicated advocates on your side, ready to navigate the complexities of employment law and fight for the justice you deserve.
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