The Sixth U.S. Circuit Court of Appeals recently upheld a trial court's order to use the American Arbitration Association's (AAA) rules for selecting an arbitrator after severing an unenforceable arbitrator selection clause from an employment related arbitration agreement.
The Sixth U.S. Circuit Court of Appeals recently upheld a trial court's order to use the American Arbitration Association's (AAA) rules for selecting an arbitrator after severing an unenforceable arbitrator selection clause from an employment related arbitration agreement. See McMullen v. Meijer, Inc. (Jan. 13, 2006). In this case, the employee challenged the arbitrator selection clause because it permitted the employer to chose a panel of arbitrators from which the parties would select an individual to arbitrate the employee's termination. In 2004, the Sixth Circuit held that this clause was unenforceable and remanded the case to the trial court to determine whether the clause could be severed from the arbitration agreement.
The trial court determined that the arbitrator selection clause was severable from the arbitration agreement and that, without the objectionable clause, the agreement was enforceable. Although the agreement did not contain a severability provision, the trial court held that the parties clearly intended arbitration to be the method for resolving employment related disputes based on the language of the arbitration agreement.
After determining that the agreement was enforceable, the court had to decide what method the parties should use to select an arbitrator. The court asked the plaintiff's attorney whether, hypothetically, he would prefer to use the AAA's procedures for choosing an arbitrator or have the court appoint one pursuant to the Federal Arbitration Act. The plaintiff's attorney choose the AAA procedures. In light of this response and language in the arbitration agreement committing the parties to conduct arbitration in accordance with the AAA's Employment Dispute Resolution Rules, the court held that the parties should use the AAA's rules governing the selection of an arbitrator.
The Sixth Circuit affirmed the trial court's determination that the arbitrator selection clause was severable and the court's use of the AAA's rules for selecting an arbitrator.
Employers' Bottom Line:
This case illustrates several useful principles for employers considering implementing an arbitration agreement or those evaluating the enforceability of an existing agreement. First, courts do not enforce arbitration agreements that allow the employer to unilaterally choose the arbitrator or the panel from which the arbitrator will be chosen. Some circuits or state courts may apply a "blue pencil" approach and strike the unenforceable clause while leaving the arbitration agreement otherwise enforceable, even in the absence of an express severability provision. However, the safer approach is to include a severability provision in the agreement. If a severability provision is not included in the agreement, the language of the agreement should clearly demonstrate the parties' choice of arbitration including reference to Provider rules as the method for resolving employment related disputes.
If you have any questions regarding arbitration agreements or the use of alternative dispute resolution methods in resolving employment related disputes, please contact the Ford & Harrison attorney with whom you usually work or John Allgood, 404-888-3832.