Incorporation of Collective Bargaining Agreement on Routine Form Insufficient to Create Arbitration Agreement

[author: Liz Kramer]

This is unheard of!  There were two circuit court decisions finding no binding agreement to arbitrate in a single week.  (The first is here.)  In this new decision from the Third Circuit, an employer’s submission of forms to a union fund along with fringe benefits is held insufficient to compel that employer to arbitration with the fund.

In New Jersey Regional Council of Carpenters v. Jayeff Construction Corp., 2012 WL 3984454 (3d Cir. Sept. 12, 2012), the employer was a construction company whose employees were mostly not members of a union.  However, it employed some members of the local carpenters union.  For those union employees, it paid their benefits into the union fund.  Each time it sent those payments, it used a form provided by the fund, and the form included this language “[t]he Employer hereby acknowledges his or its agreement to the Collective Bargaining Agreement [CBA].”   The employer never signed the CBA, however. 

After an audit, the fund assessed the employer about a quarter of a million dollars.  When the employer would not pay, the fund started an arbitration proceeding, based on the arbitration agreement in the CBA.  The employer refused to participate in the arbitration, arguing it never signed the CBA or otherwise agreed to arbitrate with the fund.  After a hearing in which only the fund presented, the arbitrator awarded almost $400,000 to the fund.  The fund then attempted to confirm the arbitration award.

The courts refused to confirm the arbitration award.  Both the district court and the appeals court found that the forms submitted by the employer were not sufficient to create a binding agreement to arbitrate.  Furthermore, the employer had not done anything else to show it intended to be bound by the CBA.  The court also noted that the fund’s own actions showed it had not believed the employer was bound by the CBA.

This opinion is important for at least two reasons.  First, it serves as a reminder that not all attempts to incorporate terms and conditions (including arbitration provisions) into form contracts will succeed.  And second, it shows there are two ways to respond if a party finds itself the recipient of an arbitration demand when it believes there is no binding arbitration agreement.  It can either immediately start a court proceeding seeking a declaration that there is no valid agreement to arbitrate and an injunction against the arbitration proceeding.  E.g.UBS Fin. Servs., Inc. v. Carilion Clinic,2012 WL 3112010 ( E.D. Va. July 30, 2012).  Or, it can do what Jayeff did here, which is to clearly lodge an objection to the authority of the arbitration, refuse to participate, and then wait to object until after it the arbitrator has issued its award.

Published In: Alternative Dispute Resolution (ADR) Updates, General Business Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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