Workplace Class Action Blog

Court Finds That Arbitration Agreement Does Not Violate The OWBPA And Is Not A Contract Of Adhesion

Posted in Class Action Litigation, Settlement Issues

Co-authored by Alex S. Drummond and Brandon L. Spurlock

Since the U.S. Supreme Court’s ruling last year in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), the use of arbitration agreements to resolve employment disputes has been hotly debated, both in federal courts and elsewhere. A federal district court in Virginia – in Bennett et al. v. Dillard’s, Inc., Civ. A. No. 3:10-CV-39-JAG (E.D. Va. Mar. 10, 2011) [link to ruling] (“Bennett”) – recently ruled that the Older Workers Benefit Protection Act, 29 U.S.C. § 626(f)(1) (the “OWBPA”), does not preclude an employer from compelling claims of age discrimination into an arbitral forum. In so holding, the Court in Bennett also rejected the notion that a pre-employment arbitration agreement prepared by an employer constitutes a contract of adhesion.

In Bennett, a group of four former employees of Dillard’s filed a multi-plaintiff lawsuit claiming they were unlawfully discharged in violation of the Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621 et seq. (the “ADEA”). Id. at 1. Each of the Plaintiffs had executed pre-dispute arbitration agreements that specifically encompassed claims of age discrimination. Id. at 2. Dillard’s moved to dismiss Plaintiffs’ complaint or, in the alternative, to compel arbitration. In response, Plaintiffs claimed that the OWBPA precluded pre-dispute arbitration agreements covering ADEA claims. 

The OWBPA provides that employees “may not waive any right or claim under [the ADEA] unless the waiver is knowing and voluntary.”  29 U.S.C. § 626(f)(1) (emphasis added). The OWBPA then imposes specific requirements that must be met before a waiver is deemed “knowing and voluntary,” including that employees must be given at least 21 days to consider the agreement and 7 days to revoke it.  29 U.S.C. § 626(f)(1) (A) through (H). The arbitration agreements signed by the Plaintiffs in Bennett did not meet these requirements.  Nonetheless, the Court held that the arbitration agreements did not violate the OWBPA. Relying heavily on the Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), Bennett held the OWBPA’s waiver requirements apply only to substantive rights. Id. at 4.

While this central holding is important, Bennett is instructive in another significant aspect. Since Stolt-Nielsen, plaintiffs in employment cases have attempted to distinguish the Supreme Court’s holding by contending that pre-employment agreements to arbitrate often are contracts of adhesion that should be construed against the employer. Accordingly, these plaintiffs argue that reading an assent to arbitrate class claims into pre-employment arbitration agreements is consistent with Stolt-Nielsen, even if the arbitration agreement is silent on the issue of class arbitration. Bennett deals a blow to this argument.

In Bennett, Plaintiffs argued the Dillard’s agreement was a contract of adhesion. Id. at 7.  The Court noted that a contract of adhesion involves an individual with no choice in the matter. Id. The Court reasoned that “Dillard’s employees had the option to work elsewhere, so the arbitration agreement is not a contract of adhesion or otherwise unconscionable.” Id. at 8.

Nonetheless, Bennett is not uniformly favorable to employers. In Bennett, Plaintiffs argued that arbitration did not provide an effective means of resolving their claims because they would need separate, individual arbitrations. Id. at 8-9. The Court, in dicta, noted that the Dillard’s agreement did not preclude “a single unified arbitration,” and opined that the case “appears to be a good candidate for a single arbitration.” Id.  Ultimately, the Court held that the time and effort needed for arbitration was not necessarily greater than the time for judicial proceeding. Id. at 9. More importantly, the Court never held or even suggested that a single arbitration was required in the face of silence.

For employers managing their risks of litigation, Bennett is significant in two ways. First, it reaffirms a line of cases finding that the OWBPA does not preclude arbitration of age discrimination claims under the ADEA, even if the underlying agreements do not comply with the OWBPA. Second, and more importantly, Bennett rejects the often advanced plaintiffs’ theory that pre-employment arbitration agreements are contracts of adhesion that must be construed against an employer. The holding in Bennett should be helpful to employers seeking to stave off class arbitrations where the agreements are silent on the issue.