A significant number of employers are opting to elect mandatory arbitration of potential disputes with employees as an alternative to state or federal courts. In some circumstances, arbitration can be quicker than litigation, and can avoid what companies see as biased or unsupported decisions by juries. A typical arbitration agreement would be a document signed by the employer and employee. However, with the prevalence of electronic personnel records systems, most of this paperwork has moved online. Last week, the Fourth Circuit Court of Appeals (which includes North Carolina, South Carolina, and Virginia), rejected the use of an arbitration agreement contained at the bottom of a long online employment application.

In Marshall v. Georgetown Memorial Hospital, the plaintiff first applied for employment with the hospital in 2016. At that time, she checked a box on the application agreeing to arbitrate any disputes with the employer. She failed a physical agility test and was not hired as a result. She reapplied for employment in 2020 and was again rejected due to the agility test. She initiated a class action lawsuit against the hospital, alleging that the test discriminated against women and persons with disabilities. The hospital moved to dismiss the lawsuit based on the 2016 arbitration agreement.

The Fourth Circuit rejected this argument, finding that the plaintiff was not placed on adequate notice that her second application would be subject to arbitration. The hospital contended that the 2016 agreement applied to any future applications, and that the 2020 application contained an arbitration clause at the bottom. It also noted that the application included a banner explaining that the application process was subject to the South Carolina Arbitration Act.

The court said that placement of the arbitration notice at the bottom of a long application did not place the plaintiff on reasonable notice that any dispute involving her 2020 application would be subject to arbitration. The 2016 notice did not adequately explain this, and the banner failed to direct the plaintiff to the arbitration language at the end of the application form.

Mandatory arbitration agreements can be included in online human resources documents. However, the employer should develop a process that requires the applicant or employee to affirm their understanding of this requirement. That acknowledgement needs to be prominent and written in plain language. It should clearly explain that the employee or applicant is giving up their right to pursue claims in court. Reliance on an earlier agreement risks a court concluding that burying the arbitration clause in online terms and conditions is insufficient to bind that individual.

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