“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.” — Lewis Carroll, Through the Looking Glass
I’ll admit that I double-checked the language in my standard arbitration clause this week. On June 11, 2018, the Fifth U.S. Circuit Court of Appeals voided an arbitration agreement between an employee and her Odessa-based employer because the company never signed the arbitration agreement.
Kimberly Huckaba, a former employee of Ref-Chem, L.P., sued the company in the U.S. District Court for Midland, Texas, alleging she was terminated after complaining of sexual harassment by a co-worker. Ref-Chem moved to dismiss and compel arbitration, supporting its motion with an arbitration agreement signed by Ms. Huckaba. The signature block for the company was unsigned. Based on the existence of the arbitration agreement signed by the employee, the District Court granted Ref-Chem’s motion to compel and dismissed the case pending arbitration.
On appeal, the Fifth Circuit panel ruled unanimously that the arbitration agreement was invalid. The operative language in the agreement stated:
The organization referred to above (“Employer”) and the Employee, whose signature is affixed hereto, (“Employee”), mutually recognize that there are many advantages to using mediation and arbitration to settle any and all legal disputes and claims, including, but not limited to, all those arising from or in the course of employment. … In consideration of these many benefits, the mutual agreement of both parties to the binding arbitration provisions, the continuation of the employment relationship and other consideration, the sufficiency of which is hereby acknowledged by Employee, the parties hereto mutually agree that this document shall govern the resolution of all claims and disputes between them.
In addition, the agreement stated that “[b]y signing this agreement the parties are giving up any right they may have to sue each other” and that the agreement “may not be changed, except in writing and signed by all parties.”
An Empty Signature Block
It was undisputed that Ms. Huckaba signed the agreement, but her employer did not. However, Ref-Chem submitted an affidavit from its human resources director stating that (1) Ref–Chem kept Huckaba’s signed arbitration agreement in her personnel file as a business record; and (2) pursuant to the agreement, Ref–Chem “voluntarily agreed to arbitrate any disputes between” itself and Huckaba.
The Fifth Circuit held that the intent of the parties, as expressed in the plain language of the agreement, “clearly indicates an intent for the parties to be bound to the arbitration agreement by signing” (emphasis added). Circuit Judge Jennifer Walker Elrod, writing for the panel, stated that although a signature block by itself is insufficient to establish the parties’ intent to require signatures, the agreement in this case went further by containing language specifying that the parties needed to sign the agreement to give it effect or modify it. “Thus, the question of Ref-Chem’s intention is answered by the agreement it drafted.”
The Fifth Circuit distinguished In re Halliburton, a 2002 Texas Supreme Court case that held an arbitration agreement that was not signed by either party was still valid as a matter of law because the employer provided notice of the agreement and the employee accepted the agreement by continuing to work after receiving the notice. Unlike Halliburton, the agreement in Huckaba did not state that submission to arbitration was a term of employment and that commencing work constituted acceptance and bound the parties. The Huckaba agreement stated only that continued employment constituted consideration for the agreement. Thus, according to the Fifth Circuit, while continued employment could be consideration for the agreement, it did not evidence acceptance (which required the employer’s signature).
The Fifth Circuit concluded with this admonition to the employer: “We give meaning to the words Ref-Chem used in its agreement. And because Ref-Chem did not sign the agreement, neither party is bound.”
Key takeaways from Huckaba
- Although arbitration is favored in Texas and the Fifth Circuit, the policy favoring arbitration is not without limits.
- Words matter. And centuries-old canons of contract construction still matter. When an employer uses specific language in an agreement it drafts, courts will give meaning to those words and construe the agreement in favor of the non-drafting party.
- What may be glossed over as boilerplate language can mean the difference between enforcement and invalidity. Key language in the Huckaba agreement included the phrases “whose signature is affixed hereto,” “by signing this agreement the parties are giving up” rights, and the agreement may not be modified “except in writing and signed by all parties.”
- Review and update your form contract language regularly, especially in light of key judicial rulings. An agreement that might have appeared enforceable last week may be circling the drain this week.
- Employers may want to conduct a contract audit for signatures on key agreements. Over the years, I’ve seen many arbitration agreements and noncompete agreements that aren’t signed. Many employers argue that the agreement was “accepted by performance.” That argument may not fly after the Fifth’s Circuit’s ruling in Huckaba.