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Arbitration clause ruling against employer could breed new level of caution

Arbitration clause ruling against employer could breed new level of caution

A federal judge's ruling that invalidated an employee arbitration agreement because it was ambiguous is likely to spur employers to design such agreements more carefully, an expert says.

U.S.-based mortgage loan officers of Madrid-based Banco Santander S.A. filed suit against the bank and its affiliates last June alleging the bank failed to pay them and more than 1,000 other workers minimum wages and overtime under the U.S. Fair Labor Standards Act and New Jersey's wage-and-hour law

The loan officers alleged that on weekdays they worked on mortgage files from home before their workday started; that their lunch breaks were frequently interrupted to handle customer services issues; and spent additional time working after the bank closed during the week and on weekends. They allege they were never compensated for the extra hours worked.

In Donna Ranieri et al. v. Banco Santander S.A. et al., the bank filed a motion to compel individualized arbitration and to dismiss the lawsuit based on agreements the mortgage loan officers had signed.

The bank argued that the employees were obligated to arbitrate the issues under an employment letter and mortgage development officer agreement the employees were required to sign.

The signatures, though, were directly under a boldfaced sentence that said, “I certify, by my signature below, that I have received a copy of the mortgage sales commission plan, which has been provided to me.”

But the employees' signature alone did not necessarily bind them to the agreements, U.S. District Court Judge Madeline Cox Arleo ruled last week in a Newark, New Jersey, hearing.

“Typically, a party's signature on an agreement objectively manifests assent to agree to the entire contract,” the judge ruled. “But the (mortgage development officer) agreement's ambiguous language makes this case atypical because the purpose of the signature can be construed in more than one way.”

Pointing out the signature was just above the line referring to the commission plan, the judge said: “On one hand, plaintiffs' signatures could memorialize only that they received the plan; on the other hand, the signatures could represent their assent to agree to the terms of the (mortgage development officer) agreement, as well as confirmation that they received the plan.

“Defendants do not cite to, nor is the court aware of, any cases where a signature served to bind a party under such ambiguous circumstances,” the judge ruled in rejecting the bank's bid to have the claims arbitrated individually and returning the case for additional action.

Reacting to the ruling, Harris S. Freier, a partner at law firm Genova Burns L.L.C. in Newark, it is significant “because federal courts have recently been very pro-arbitration and have been mandated to be so by the Supreme Court.”

Mr. Freier said the rulings include the Supreme Court's December 2015 decision in DirecTV Inc. v. Amy Imburgia et al., in which the high court held that a California state court's refusal to enforce an arbitration clause in a contract between El Segundo, California-based DirecTV and its customers conflicted with the Federal Arbitration Act.

“It is very rare” for a federal court to rule an arbitration clause in an employment agreement is invalid, although there has been some “pushback” in state courts, Mr. Freier said. On the other hand, the National Labor Relations Board has issued rulings that contend these agreements are an unfair labor practice because they prevent employees from engaging in concerted activity.

“One of the ways employers have tried to get around the NLRB's rulings is to be very careful with the language” of their arbitration clauses. This ruling will encourage them to be even more careful, “with a particular focus on what's right above the signature line,” he said.

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