Employer’s Failure to Respond Waives Written Arbitration Agreement

08 May 2019 Consumer Class Defense Counsel Blog
Author(s): Carrie Hoffman

Employers with mandatory arbitration agreements should be careful to re-affirm their commitment to such arbitration agreements in light of a recent state court decision in Texas, Adock v. Five Star Rentals/Sales, Inc., No. 04-17-00531-CV.  The plaintiff in Adock was a former employee of Five Star, and he sent a pre-litigation demand letter to his former employer asserting a claim for worker’s compensation retaliation. Adock also demanded to know whether there was an arbitration agreement between himself and his former employer.  The letter informed the former employer that Adock would pursue claims in court if there was no arbitration agreement.  Five Star failed to respond and Adock filed a lawsuit.  As part of discovery, the former employer produced an employment contract that contained a mandatory arbitration provision.  Adock informed Five Star he wanted to move the dispute to arbitration, but Five Star claimed Adock had waived his right to arbitrate by initiating state court litigation.

In ruling on the pending motion to compel arbitration by Adock, the court found that the parties had superseded their earlier arbitration agreement by entering into a new agreement not to arbitrate, and that Adock waived his right to arbitrate by invoking the judicial process.  The Texas appellate court reviewed general contract principles in reaching its decision.  In doing so, the Court was persuaded that Adock’s letter provided Five Star thirty days to provide a copy of a signed agreement to arbitrate and that the failure to do so would be considered an agreement to resolve the dispute in court.  Based on Five Star’s failure to provide Adock a copy of the arbitration agreement within the specified demanded timeframe, the Court found that the parties “entered into a subsequent agreement not to arbitrate.”  The later agreement, the Court found, superseded the original agreement to arbitrate. 

Generally, silence will not be considered acceptance of contractual terms unless one of four conditions exist. See National Union Fire Insurance Co. v. Ehrlich, 122 Misc. 682 (N.Y. App. Div. 1924).

(1) Silence will constitute acceptance if the offeree gives the offeror the impression that silence will be considered an acceptance.

(2) Silence will constitute acceptance where the offeror has told the offeree that silence will constitute acceptance.

(3) Silence will constitute acceptance where an offeree improperly exercised dominion over goods sent to him for approval or inspection.  In such an instance, the offeree is contractually bound to buy the goods at the stated price.  The offeree will be forced to buy the goods even if he never had any intention of buying them in the first place.

(4) Late acceptance of an offer has the legal weight of a counteroffer.  In other words, where an offeror makes an offer to an offeree and the offeree accepts in an untimely manner, that acceptance is not a valid acceptance.

While in Adock the former employer no longer wanted to participate in arbitration, the case is a cautionary tale for companies that do want to enforce existing arbitration agreements.  They should review their files and respond to informal inquiries about the existence of such arbitration agreements or they will potentially be deemed to have nullified their earlier agreement, or possibly have waived their right to enforce an arbitration agreement.  This holds true even in situations where the mandatory arbitration clause is in a commercial contract.  Therefore, all companies should take steps to respond to demands about the existence of an arbitration agreement.

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