Employer’s Failure to Retain Arbitration Agreements Dooms Motion to Compel Arbitration of FLSA Claims
Hill v. Employee Resource Group, LLC - Fourth Circuit Court of Appeals
Facts: Employee Resource Group, LLC, Neighborhood Hospitality Inc. and WV Neighborhood Hospitality LLC (collectively referred to as “ERG”) owned and operated a group of Applebee’s restaurants in a few states. April Hill (“Hill”) worked for ERG. Hill proceeded to file a putative class action against ERG on the grounds that ERG failed to pay employees minimum wage in violation of the Fair Labor Standards Act (“FLSA”) and that ERG failed to timely pay wages within the timeframe required following voluntary separation (in violation of the West Virginia Payment Collection Act.) ERG subsequently field a motion to enforce arbitration. However, ERG did not attach any signed arbitration agreements to its motion. Rather, ERG included a copy of its Dispute Resolution Program booklet that contained an arbitration provision, a copy of a class action opt-in list filed by Hill with annotated “check marks” identifying FLSA opt-in plaintiffs for whom ERG had arbitration agreements (along with a note that arbitration agreements apparently did not exist for at least 60 opt-in plaintiffs), along with an affidavit from ERG’s Director of Human Resources attesting to the fact that all ERG employees are expected to sign arbitration agreements before starting their employment.
Hill opposed ERG’s motion on the grounds that ERG was unable to establish the existence and terms of arbitration agreements for at least 60 opt-in plaintiffs, including herself. Further, Hill argued that the Director of Human Resources failed to establish the existence of the arbitration agreements themselves. ERG thereafter filed two notices, one that included 780 arbitration agreements and another that contained six different versions of ERG’s Dispute Resolution Program booklets (which contained arbitration agreements.) The district court granted ERG’s motion to compel arbitration only “as to potential class members for whom signed [arbitration] agreements have been produced.” The district court denied ERG’s motion to compel arbitration as to any class member for which ERG had not produced a signed arbitration agreement, holding that “[w]ithout testimony from those directly involved in the asserted formation of the contract or a written, signed copy of the contract, there is little evidence to support a finding that the contract exists.” The subsequent order from the district court noted that there were 71 opt-in plaintiffs for whom no arbitration agreements were produced, 61 opt-in plaintiffs for whom arbitration agreements were produced, and 177 opt-in plaintiffs for whom the parties disputed whether arbitration agreements were produced (as only a portion of the employment or arbitration agreements had been produced.) ERG proceeded to appeal the district court’s ruling to the Fourth Circuit Court of Appeals.
Holding: The Court of Appeals recognized that the Federal Arbitration Act (“FAA”) authorizes claims to be arbitrated, with Section 4 of the FAA providing that a party can move to compel arbitration. Whether an arbitration agreement exists is something for a district court, rather than an arbitrator, to decide. A court should consider whether there are “sufficient facts” in the record to support a party’s denial of an agreement to arbitrate. In making this determination, the Court of Appeals recognized that it should look at West Virginia law (as this is where Hill’s agreement was formed.) Under West Virginia law, a “high degree of proof from one seeking to establish a lost instrument is required,” with the “proponent of a lost or missing instrument” needing to “prove its existence and contents with clear and conclusive evidence.” Kentucky, Ohio, and Virginia (the other states where ERG operated) have similarly heightened standards of proof.
Based upon the facts in the record, the Court held that ERG failed to meet its burden to establish the existence of an arbitration agreement between itself and Hill (or the 71 opt-in plaintiffs.) The affidavit from the Director of Human Resources, submitted by ERG in district court, was not found to be convincing. Of note, there was no evidence presented from any ERG employee that personally oversaw the onboarding process for Hill or the 71 opt-in plaintiffs. Therefore, ERG could not establish via clear and convincing evidence that it saw Hill or the 71 opt-in plaintiffs execute arbitration agreements. Further, “[a] human resource official’s expectations or assumptions about what happened during a hiring process conducted by individual managers on many dates, in many locations,” is of little probative value.
The Court was further unswayed by ERG arguing that a case from the Fifth Circuit Court of Appeals, which enforced a motion to compel arbitration when an arbitration agreement could not be produced, should control this dispute. For starters, the Fifth Circuit applied Mississippi law (which had a lower burden of proof for lost or destroyed documents) which differed from the burden of proof on ERG in this case. As well, in the Fifth Circuit case, an affidavit was submitted by an individual that attested to the fact that arbitration agreements were required. In this case, the Director of Human Resources was found to be removed from the day to day operations (including the onboarding of new hires) and therefore could not meet the burden of proof by simply attesting to what were the expectations or assumptions that arbitration agreements were required to be signed before employment began.
Judgment: The Fourth Circuit Court of Appeals affirmed the dismissal of of the employer’s motion to compel arbitration for those opt-in plaintiffs for whom the employer could not produce signed arbitration agreements on the grounds that the employer had failed to meet its burden to show that these opt-in plaintiffs had agreed to have their FLSA claims submitted to arbitration, rather than litigated in court.
The Takeaway: There are a few things that I will repeat until I am blue in the face: 1) employers and employees alike should always document an employment situation as it occurs. Whether that documentation relates to employee misconduct, disciplinary actions taken by employers, complaints made to employers about harassment in the workplace, etc., a contemporaneous record can prove vital if litigation later arises. As for 2) retain, retain, retain. Going hand in hand with 1), employers in particular should take steps to ensure they retain employment contracts, arbitration agreements, waivers, etc. Failure to do so, such as in this case, can prove detrimental when trying to enforce a document that no longer exists.
In addition, as the Court of Appeals noted, the burden of proof of establishing the validity of a missing document can often depend upon what state’s (or circuit’s) law applies. Had this case been pending in the Fifth Circuit, it is possible that ERG would have been found to have met its burden and the motion to compel arbitration as to Hill and the 71 opt-in plaintiffs would have been enforced. Unfortunately for ERG, when applying the laws of West Virginia, Kentucky, Ohio, and Virginia, the higher burden of proof for lost or destroyed documents was a burden that ERG could not meet.
Majority Opinion Judge: Per curiam
Date: June 9, 2020
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