Federal Courts Uphold Arbitration Agreements Via Email

Recently, federal district courts in New York and New Jersey turned aside employee attacks on arbitration agreements challenged on the grounds that the employer’s communication of its arbitration policy via email was inadequate. The courts in both Lockette v. Morgan Stanley and Schmell v. Morgan Stanley held that the employees’ assertions that they never saw the email forwarding the terms of the arbitration agreement were insufficient to overcome the employer’s evidence that the email had been delivered to the employees’ email inboxes.

Lockette

John Lockette sued Morgan Stanley in federal court in New York after Morgan Stanley terminated his employment in 2016. Lockette alleged he had been the victim of race discrimination and retaliation in violation of federal law. The company moved to compel arbitration. Prior to 2015, the company had in place an internal dispute resolution program entitled “CARE” (Convenient Access to Resolutions for Employees) for employees registered with FINRA, who could select, but were not required to select, arbitration as a means of resolving statutory discrimination claims. In 2015, however, the company expanded the CARE program to cover all employees and to require the arbitration of employment claims, including discrimination claims, among others. Under the terms of the expanded program, an employee’s continued employment would be considered his or her acceptance to be covered by the program unless the employee affirmatively elected to opt out of the program. An election to opt out would not adversely affect employment status. The company notified employees of the expansion of the CARE program through an email to each employee’s individualized work email account. The email’s subject line read, “Expansion of CARE Arbitration Program,” and the body of the email described the changes to the program, with links to the arbitration agreement and a CARE guidebook.

In response to Morgan Stanley’s motion before Judge Koeltl in the district court to compel arbitration, Lockette maintained that there was no binding agreement to arbitrate because he had not seen the email prior to his termination and that, in any event, the email was misleading and otherwise inadequate to provide notice of the company’s changes to the CARE program. He also argued he was given no consideration for his agreement to arbitrate. Judge Koeltl rejected each of these arguments.

Judge Koeltl noted that New York law contains a presumption that a party has received an email when it is delivered to the party’s email address in accordance with regular office procedures. To rebut this presumption, Lockette was required to produce admissible evidence showing that the email was not sent or was not received. Lockette could not rebut the presumption of receipt merely by asserting he had not received the email when it was sent. Moreover, the company adduced evidence that the email was addressed and delivered to Lockette’s assigned email account, was not located in his spam folder, and did not trigger a “bounceback” email indicating it was not delivered or undeliverable, and that Lockette was actively using his email account at the time the email was sent. Thus, the court found that Lockette received the email. Because Lockette had not availed himself of the opt-out procedure described in the email, Judge Koeltl concluded Lockette was bound by the arbitration agreement. In addition, the court found, given the subject line of the email, its content, and the links in the email to the arbitration agreement and the CARE guidebook, the email sufficiently described the terms of the company’s dispute resolution program. Finally, the court held that, under New York law, the company’s continued employment of Lockette, an at-will employee who could have been terminated at any time, constituted adequate consideration for the arbitration agreement. Thus, the court sent the parties to arbitration.

Schmell

Craig Schmell, a former Senior Vice President of Morgan Stanley, sued the company in New Jersey federal district court alleging he was terminated in violation of the New Jersey Law Against Discrimination. Morgan Stanley moved to compel arbitration under the CARE arbitration program at issue in Lockette. As in Lockette, the terms of the program were sent to Schmell via email. Judge Thompson denied the motion and ordered limited discovery on the issue of whether Schmell had notice of the arbitration agreement. After that discovery was completed, Morgan Stanley renewed its motion to compel arbitration.

Judge Thompson recognized that the contract law of the relevant state – in this case, New Jersey – determines whether there is an agreement to arbitrate. On the issue of whether Schmell had been given adequate notice of the arbitration agreement, Judge Thompson noted that the parties did not dispute that the email containing the terms of the arbitration program was sent to Schmell, in the sense that the email appeared in Schmell’s inbox, Schmell was required to review all work email as a condition of his employment, and Schmell was working the day the email was sent and, on that day, answered emails sent both before and after the one in question. In light of these facts, the court held that Schmell had notice of the email. In response to Schmell’s claim that he never read the email in which the agreement was sent and did not recall reviewing it, the court ruled: “The fact that the email appeared in Plaintiff’s inbox, combined with the expectation that Plaintiff would read his email, is sufficient to indicate that Plaintiff had notice of the [Arbitration] Agreement.” Thus, the court granted the employer’s renewed motion to compel arbitration.

Conclusion

Lockette and Schmell make clear that email may be a legally acceptable means of transmitting to employees an arbitration policy or revisions to an existing policy. Nevertheless, employers must keep in mind that they must comply with relevant state contract law with regard to the proofs needed to establish that (a) the email was received, (b) the email gave the employees adequate notice of the terms of the arbitration policy, and (c) the employees received adequate consideration for their agreement to arbitrate.

For answers to any questions regarding this blog or with regard to arbitration agreements generally, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.