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E-Mailed Arbitration Clause Ineffective; Beware The Force When Viewing Movies Online

June 7, 2005

E-MAILED ARBITRATION CLAUSE INEFFECTIVE

According to the federal appellate court for the First Circuit, an employer cannot, via hyperlinks attached to an all company e-mail, institute a policy requiring employees to waive their right to sue over employment disputes, and submit to arbitration. According to the court, the e-mail did not "raise a red flag vivid enough to cause a reasonable employee to anticipate the imposition of a legally significant alteration to the terms and conditions of his employment."

The case began in April 2001, when General Dynamics president, Gerard DeMuro sent a company-wide e-mail informing employees of a new dispute resolution policy. The e-mail explained the four-step company policy which was developed to handle legal issues arising out of workplace disputes. The e-mail described the last step as arbitration.

The court found that the e-mail message was noteworthy for the items it did not discuss:

  • It did not mention how an employee's rights would be affected;
  • It did not specify that the agreement to arbitrate "workplace disputes" included claims giving rise to federal statutory claims;
  • It didn't explain that the policy covered all employees who continued their employment after the effective date of the policy, which was the day after the e-mail was sent.


According to the court, when the e-mail encouraged employees to "review the enclosed materials carefully," it was referring to two hyperlinks at the bottom of the message. The first link was labeled "Brochure," and clicking on it provided access to a two-page brochure detailing how the policy worked. The second link was entitled, "Handbook," and provided access to a dispute resolution handbook.

Although the court noted that the company did post the policy on its Intranet, the e-mail did not require a response acknowledging receipt of the policy, or signifying that a recipient had read and understood its terms. While General Dynamics set up a tracking log to monitor whether each employee opened the e-mail, it did not take any steps to record whether its employees clicked on either of the links.

The plaintiff, who used the e-mail system daily, did open and read the e-mail shortly after it was delivered. General Dynamics, however could not produce any evidence that he ever read or saw the brochure, handbook, or policy before he was terminated. When he subsequently brought a suit under the Americans with Disabilities Act, General Dynamics argued that he was required to arbitrate under the revised company policy.

According to the court, the issue was not whether the employee could waive the right to sue under the federal statute. The only question was whether the e-mail "waiver" was effective under the circumstances. That question depended on whether, under the totality of the circumstances, the employer's communications to its employees afforded "minimal level of notice" sufficient to apprise reasonably prudent employees that continued employment would effect a waiver of their right to pursue a claim in a judicial forum.

The court noted that the fact that the communication was delivered via e-mail did not, in itself affect the creation of the contract agreeing to arbitrate. Citing the federal E-SIGN statute, the court noted that a contract or other record cannot be denied enforceability solely because it is in electronic form.

The court also pointed out that historically e-mails were a preferred method of communication within General Dynamics. But the court noted that the company did not normally use e-mail to handle personnel matters. Typically, for personnel matters, the company used conventional writings that required the employee's signature on a piece of paper, which was then placed in a personnel file. Unfortunately for General Dynamics, it could not demonstrate that it had ever relied on either an e-mail or an intranet posting to introduce a contractual term that was to become a condition of continued employment.

According to the court, General Dynamics could have prevailed had it simply required a response to the e-mail. Signing an acknowledgement or clicking on a box on a computer screen are "acts associated with entering into contracts," the court said. Requiring an affirmative response would have signaled that the message was contractual in nature. But the "no response required" format disguised the importance of the communication.

The content of the communication did not clarify things, according to the court. Again, this had much to do with what was not in the notice. The e-mail did not state directly that the policy contained an arbitration agreement that waived the employee's rights, nor did it highlight the significance of the policy change.

The court found that a reasonable employee could have read the e-mail announcement and concluded that the policy presented an optional alternative to litigation, rather than a mandatory replacement for it.

The message is that in communications, clarity and specificity are essentials whatever the medium!


BEWARE THE FORCE WHEN VIEWING MOVIES ONLINE

Some Star Wars fans looking for a sneak preview of "Star Wars Episode III: Revenge of the Sith" found that an entirely different force was with the them when federal agents, in a series of raids that took place May 25, executed search warrants against 10 leading members of an advanced peer-to-peer network used to swap movies.

The raids targeted users of BitTorrent technology, a relatively new form of file-sharing designed to ease the bandwidth demands required for downloading large files. Instead of downloading an entire file from one user's computer, BitTorrent snatches bits and pieces of the desired file from a number of peers and then reassembles them. For the system to work, BitTorrent relies on a central "tracker server" to coordinate the uploading and downloading of packets.

Federal agents seized control of that server. Users attempting to log onto the Elite Torrent network received the following greeting: "This Site Has Been Permanently Shut Down by the Federal Bureau of Investigation and the U.S. Immigration and Customs Enforcement."

Elite Torrent attracted more than 133,000 members and facilitated the distribution of nearly 18,000 titles. The file for the latest Star Wars movie was available on the network more than six hours before it was first shown in movie theaters. Over the next 24 hours, users of the network downloaded the film more than 10,000 times, according to the Justice Department. The Justice Department also could assert the Family Entertainment and Copyright Act of 2005, a federal law that imposes criminal penalties for willful copyright infringement arising from making available a pre-release work on a computer network, where the person knows, or should have known, that the work is intended for commercial distribution.

Despite the high price of movie tickets (not to mention popcorn) it may still be worth a trip to the local Cineplex to catch the latest release.

If you have questions about any of the above information, please contact Jack Greiner at 513-629-2734 or jgreiner@graydon.com.

This Newsletter is a periodic publication of Graydon Head & Ritchey LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own advisor concerning your situation and any specific legal question you may have.