Employer’s Failure to Respond Waives Written Arbitration Agreement

13 May 2019 Labor & Employment Law Perspectives Blog
Author(s): Carrie Hoffman

Employers with mandatory arbitration agreements should be careful to reaffirm their commitment to such agreements in light of the Adock v. Five Star Rentals/Sales, Inc. case. In Adock, which was decided by Texas’ Fourth Court of Appeals in San Antonio, the plaintiff sent a pre-litigation demand letter to his former employer, asserting a claim for worker’s compensation retaliation. In that letter, the employee demanded to know whether there was an arbitration agreement between him and his former employer. The letter further informed the company that Adock would pursue claims in court if there was no arbitration agreement. The employer failed to respond and Adock went on to file a lawsuit in court. 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 refused, claiming 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 entered into an 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 the letter that provided Five Star 30 days to provide a copy of a signed agreement to arbitrate or 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 time frame, 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 The later agreement, the court found, superseded the original agreement to arbitrate.

Most courts generally agree that silence will not be considered acceptance of contractual terms unless one of four conditions exist:

(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 or her 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 or she 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 the company prevailed in Adock, these principles can just as easily be applied to stymie the efforts of an employer that wishes to compel arbitration. Therefore, companies that desire to enforce existing arbitration agreements need to review their files and respond to informal inquiries about the existence of such agreements or they will potentially waive their right to enforce them. This holds true even in situations where the mandatory arbitration clause is in a commercial contract. All companies should take steps to respond to demands about the existence of an arbitration agreement.

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