Fourth Circuit Declines to Compel Arbitration Due to Missing Arbitration Agreements

The Fourth Circuit Court of Appeals recently declined to compel arbitration in a Fair Labor Standards Act (FLSA) class action with respect to more than 70 employees for whom the defendant employer could not produce signed arbitration agreements due to apparent poor record-keeping.

April Hill worked for Employee Resource Group LLC (collectively with other defendants "ERG"), which operated Applebee's restaurants in several states. Hill filed a putative FLSA class action. In response, ERG moved to enforce arbitration agreements it purportedly had with all its employees. In support of that motion, ERG submitted agreements containing arbitration clauses for a number of employees. It also admitted, however, that it could not locate signed arbitration agreements for a number of plaintiffs, including Hill. It therefore submitted an affidavit from its director of human resources, David Bates. Bates averred that all ERG employees are required to sign agreements containing arbitration clauses when they are hired, described the training that managers received requiring them to have new employees sign such agreements, and explained that the fact that some agreements could not be found was the result of record-keeping errors.

The district court granted ERG's motion to compel arbitration with respect to the employees for whom ERG had produced signed arbitration agreements, but denied it with respect to the more than 70 other employees for whom ERG could not produce such agreements.

The Fourth Circuit affirmed. Applying state law that required a heightened standard for establishing the existence and terms of a contract through parol evidence and the summary judgment standard, the court concluded that no reasonable trier could conclude that ERG had presented sufficient evidence with respect to the individuals for whom it could not produce signed arbitration agreements. Bates' affidavit described ERG's general human resources policies. It did not describe the actual hiring process experienced by the class members in question. Nor was there any other evidence describing the processes for those employees. The arbitration agreements ERG produced for some 780 other employees did not cure this deficiency. ERG argued that the large number of agreements confirmed Bates' sworn statement that all employees signed arbitration agreements. There was no evidence, however, of how many employees ERG had during the relevant time period. It could have been 900 or 9,000, which doomed ERG's argument.

Hill v. Employee Resource Group, LLC, No. 18-2009 (4th Cir. June 9, 2020).