Court Enforces Arbitration Agreement Incorporated Into “Notice to Employees”
The U.S. District Court for the Northern District of Texas compelled arbitration in a putative Fair Labor Standards Act class action based on language in a “notice to employees” that put the plaintiffs on notice that they were agreeing to arbitrate claims in an incorporated (and hyperlinked) arbitration agreement. The court also rejected various other defenses to arbitration raised by the plaintiffs in an attempt to avoid arbitration.
Cotton Patch Café LLC, a restaurant chain, hired Ian Norred to be a server when he was 17 years old. Cotton Patch also hired Rain Bennett when she was 18 years old. Norred and Bennett signed an electronic document titled “Notice to Employees” that contained a section titled “Arbitration Acknowledgment, Safety Pledge and Receipt” and another section titled “Agreement to Arbitrate.” The latter section provided, among other things: “I agree to use binding arbitration, instead of going to court, for any claims, including any claims now in existence or that may exist in the future” against Cotton Patch. It also referred Norred and Bennett to a hyperlink that read “View Agreement” where they could read the full arbitration agreement. The notice to employees also stated: “By my signature below, I acknowledge that I have received and read (or had the opportunity to read the … [a]rbitration [a]greement. …”
Norred sued Cotton Patch claiming that it had violated the Fair Labor Standards Act by not adequately compensating him and other similarly situated employees. Bennett joined Norred’s suit. Cotton Patch responded by seeking to invoke the arbitration provision. Norred and Bennett claimed that they were unaware of the terms of the agreement and could not have assented to them (because the terms were not in the notice to employees and were accessible by hyperlink). They also claimed that there was no valid agreement to arbitrate because the notice to employees did not indicate that Cotton Patch had offered consideration in exchange for the arbitration clause.
Applying Texas contract law, the Northern District of Texas concluded that a valid contract existed and that the contract included the notice to employees and arbitration agreement. The notice to employees contained sufficient language to incorporate the arbitration agreement by reference. The notice to employees was also clear on that point. The arbitration agreement was also supported by mutual consideration and was mutual, requiring all parties to arbitrate.
The court also rejected Norred and Bennett’s defenses. Norred and Bennett argued, among other things, that the contract was illusory because the agreement to arbitrate was unilateral and because Cotton Patch could unilaterally terminate the agreement. The court rejected that argument, noting that the agreement was mutual and Cotton Patch’s power to terminate the agreement did not apply to claims prior to termination. The court also rejected the argument that the language in the agreement established that it applied only to current employees (Norred and Bennett had previously stopped working at Cotton Patch.) Notably, the court rejected Norred’s argument that he was not bound by the agreement because he signed it while he was underage. Although it was true that a minor could repudiate a contract, he had to do so within a reasonable time after turning 18, which Norred did not do in this case. Finally, the court concluded that the agreement between Cotton Patch and Norred and Bennett was not unconscionable.
Norred v. Cotton Patch Café, LLC, No. 3:19-cv-01010 (N.D. Tex. Oct. 22, 2019).