Plaintiffs win arbitration choice-of-forum dispute

Many employment disputes are not resolved through arbitration, not lawsuits. This is because employees sometimes have to sign an agreement that says they cannot sue their employers in court and that the disputes instead must go to arbitration. The employer usually wins if the parties fight about the applicability of an arbitration clause. Not this case.

The case is Holick v. Cellular Sales of New York, decided on September 22. When plaintiffs first got involved with Cellular Sales, they were independent contractors and signed a "Compensation Agreement" that they could pursue any legal actions against Cellular in court. But in 2012, plaintiffs became employees, signing an "Employment Agreement" with management that said all disputes must be resolved at arbitration. Meanwhile, plaintiffs claimed that Cellular had misclassified them as independent contractors and not as employees prior to 2012. (Sometimes people who are designated by management as contractors are actually employees because management has control over their assignments and job duties). Does that dispute get resolved in court or at arbitration? The answer is court, which is the forum designated for resolving disputes during the time period (pre-2012) when the dispute arose.

This case is is tricky. Explaining that the plain language of the 2012 agreement is ambiguous, the Court says that no "provision of the contract states that the employer‐employee relationship commenced with the execution of the Compensation Agreement or otherwise uses language stating that the employment relationship replaced a prior contractual arrangement." So the Court looks to "parol evidence" (or evidence outside the language of the agreement) to decide the parties' intent in signing these agreements. The plaintiffs win, which means they can litigate the case in court. Judge Wesley writes:

Based on the parties’ conduct prior to executing the Compensation Agreements, the presumption of arbitrability is overcome because we find positive assurance that the arbitration clause’s scope—at least insofar as it concerns the promise to arbitrate matters arising out of, or in relation to Employee’s employment—is temporally limited. We reach this conclusion, in large part, based on the fact that when the Compensation Agreements were signed, the parties’ contractual positions changed in a way that impacted arbitrability. In the Sales Agreements, Defendants‐Appellants agreed with the Sales Companies that Pratt and Burrell were not employees of Cellular Sales.

However, about a year and a half later, Defendants‐Appellants agreed to employ Pratt and Burrell. This evolving business relationship is directly relevant to whether the parties intended to have an employment relationship prior to executing the Compensation Agreement. It would be inconsistent with the parties’ conduct to construe the Compensation Agreement, which referenced “employment,” to apply to a period when the parties themselves did not contemplate such a relationship. Defendants‐Appellants’ change in course is just the type of positive assurance required to show that the parties did not intend for the arbitration clause to cover the current dispute.