Don’t ruin your arbitration agreements by doing this…

Some of you require your employees to sign agreements requiring them to arbitrate employment claims — other than claims of sexual harassment or abuse, of course.

But what happens if your employees later sign another agreement — a severance agreement, for example — that doesn’t contain an arbitration provision?

One got its answer the hard way with a class-action lawsuit.

Last night, after the Nets drubbed my Sixers, I tried to distract myself by watching YouTube unboxing videos reading this recent Third Circuit decision. It involves an employee who:

1. entered into an arbitration agreement with his employer in 2012,
2. later signed a separation agreement in 2019 in connection with a reduction in force, and
3. then brought a class-action lawsuit against his employer for violating the Age Discrimination in Employment Act.

It’s not clear how the lawsuit will survive, given that the separation agreement contained a general release. (Perhaps, the employee opted to revoke just his ADEA release.) But that’s beside the point.

What’s critical here is that the separation agreement did not contain an arbitration provision. However, the agreement did state that it “set forth the entire agreement” concerning his separation of employment and “any other promises or representations, written or oral, are replaced by the provisions of this document and are no longer effective unless they are contained in this document.”

Based on the foregoing, the District Court concluded that it could not compel arbitration because the 2019 separation agreement superseded the 2012 arbitration agreement.

On appeal, the Third Circuit agreed. Both documents covered termination of employment, the later separation agreement contained “the entire agreement” between the parties, and it “replaced” the earlier arbitration agreement. Therefore, the employer could not compel arbitration. Instead, it must face a class-action lawsuit.

The reality is that this situation will rarely arise. So, I feel sorry for the employment lawyer who drafted the separation agreement. That will be a tough one to explain to the boss.

Companies should make sure that if employees sign arbitration agreements, any subsequent agreements concerning the same subject matter (e.g., employment-related claims) should expressly reiterate or otherwise preserve the duty to arbitrate employment claims.