7th Circuit Upholds Employee Arbitration Agreement

On August 19, 2019, the 7th Circuit affirmed an order of the district court that granted an employer's motion to compel arbitration pursuant to an employee arbitration agreement that required arbitration of employment-related disputes.  Gupta v. Morgan Stanley Smith Barney, LLC, et al., No. 18-3584 (7th Cir. 8/19/2019).  The plaintiff filed a lawsuit against his former employer for employment discrimination and retaliation.  The company moved to compel arbitration.  It argued that the employee agreed to arbitrate the employment claims after he did not opt out of the company's arbitration agreement.  The plaintiff contended that during his employment, he never saw an arbitration offer or agreed to arbitrate employment-related disputes.

The plaintiff had signed an employment agreement that contained an arbitration clause agreeing to arbitrate any dispute, claim, or controversy that may arise between he and the company.  The company also administered an employee dispute resolution program, which it amended to compel mandatory arbitration of all employment-related disputes, including discrimination claims.  The company sent an email to the account of each of its employees to announce the amended program, including to the plaintiff.  The email indicated that if the employee did not opt out of the program, continued employment would reflect that the employee consented and agreed to the terms of the arbitration agreement and dispute resolution program guidebook.  The plaintiff did not submit an opt-out form.  The district court found that his receipt of the email, combined with his continued employment and failure to opt out of mandatory arbitration, established an agreement to arbitrate. 

The appeal involved the Federal Arbitration Act, which reflects a liberal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract.  The Act mandates enforcement of valid arbitration agreements.  Although it requires arbitration agreements to be in writing, it does not required them to be signed.  The Act also extends to employment contracts.  Nonetheless, courts cannot require a party to submit a dispute to arbitration unless she has agreed to do so.  Courts apply state-law principles of contract formation to determine whether a valid agreement to arbitrate exists and whether the claims at issue fall within the scope of that agreement.  Illinois contract law applied to this case, which requires only a manifestation of mutual assent between two or more persons.  Under Illinois contract law, offer, acceptance, and consideration are the main elements of a contract.  The plaintiff did not dispute that the email was an offer, but argued that he never accepted the offer.  He contended that an employer cannot form a contract by an employee's silence simply by proving email delivery of an offer and a failure to opt out.  The question on appeal was whether the plaintiff's silence and inaction after the email constitute acceptance of the proposed arbitration agreement.  A party may assent to the terms of a contract by virtue of her acts and conduct, even if she has not signed the contract.  An offeror may construe silence as acceptance if reasonable.  The 7th Circuit concluded that the conduct of the parties in this case demonstrated mutual assent to mandatory arbitration.  The company reasonably construed the plaintiff's silence as acceptance of the arbitration agreement, after he was given a clear offer, a reasonable opportunity to opt out, and repeated instructions that silence and continued employment reflect acceptance.

The 7th Circuit also held that the plaintiff's claims for discrimination and retaliation were within the scope of the arbitration agreement, because each of the claims was expressly designated as a covered claim in the agreement.  A valid arbitration agreements covered the plaintiff's claims; therefore, the district court correctly compelled arbitration of those claims.