Case Summary: Seawright v. Amer. Gen. Fin. Serv. Inc., et al., 507 F.3d 967 (6th Cir. 2007)

Issue: The Sixth Circuit Court of Appeals faced the issue of whether continued employment constituted acceptance of a mandatory arbitration agreement, and whether the arbitration agreement was enforceable.

Rule: In the absence of evidence that assent to an arbitration agreement was procured through unfair means or that the agreement itself was substantively unfair, courts should enforce mandatory arbitration agreements on the same basis as any other agreement that employers require as a condition of employment.

Facts: Lisa Seawright was employed by American General Financial Services (AGF) from November of 1978 until April of 2005, when AGF terminated her employment. Seawright filed a lawsuit in the United States District Court for the Western District of Tennessee, alleging that her dismissal was in violation of state anti-discrimination law and the Family and Medical Leave Act. AGF moved to compel arbitration, proferring an arbitration agreement to which AGF claims Seawright agreed. Seawright denied that she agreed to arbitration.

In April of 1999, AGF began notifying its employees that it would be implementing an Employee Dispute Resolution (EDR) Program. Employees were informed through a "Home Office Bulletin" that was circulated to all company offices, including the office where Seawright was employed as a branch manager. AGF also mailed letters to all employees informing them that the EDR would become effective on June 1, 1999, and that it would be the sole means of resolving employment-related disputes. AGF also held group informational meetings to explain the program. In June of 2001, AGF mailed its employees another letter reminding them that the EDR program was still in effect, and explaining how to locate additional information.

The letters sent to employees in June of 2001 included a statement that "[s]eeking, accepting, or continuing employment with AGF means that you agree to resolve employment related claims against the company or another employee through this process instead of the court system." [1]

Shortly after her termination in April of 2005, Seawright filed suit, and AGF responded with a motion to compel arbitration. In her answer, Seawright acknowledged the facts regarding the EDR Program, but argued that she did not assent to the EDR Program and there was no bargained-for exchange; she did not enter into a written agreement as required by the Federal Arbitration Act; and in the alternative, the arbitration agreement was void because it is an adhesion contract, or unconscionable. The District Court decided in favor of Seawright, holding that there was no bargained-for exchange, and receipt of information and acknowledging the EDR Program was not tantamount to assent. [2] AGF then appealed, and the Sixth Circuit Court of Appeals reversed.

Discussion: On appeal, Seawright made four arguments based on state contract law: that there was no valid arbitration agreement because she did not actually consent to the EDR Program; there was no valid arbitration agreement because there was no consideration; even if there had been assent and consideration, the arbitration agreement was unenforceable because it was illusory; and alternatively, the arbitration agreement was unenforceable because it was an unconscionable contract of adhesion.

The written materials accompanying the arbitration agreement clearly stated that continued employment after the effective date would constitute the employee's acceptance of the arbitration agreement. Seawright expressed a valid assent when she continued to work for AGF, as it is established in Tennessee law that continued employment can constitute acceptance of a contract. As to the issue of consideration, under Tennessee law, "[m]utuality of promises is 'ample' consideration for a contract." [3] Therefore, because both employer and employee were equally obligated to arbitrate disputes, that was enough to ensure mutuality of obligation, and thus constitute consideration. For a contract to be valid, it must not be illusory; that is, it must impose genuine obligations on both parties. Although AGF reserved the right to terminate the EDR Program at any time, it also agreement to be bound by the terms of the agreement for 90 days after giving reasonable notice of termination and as to all known disputes arising before the termination date. This is a real obligation on AGF's part, so the contract was not illusory. Seawright's final contract-based argument is that the arbitration agreement was an unconscionable adhesion contract since it was entered into with unequal bargaining power. However, "[m]ere inequality in bargaining...is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context." [4] In order for an adhesion contract to exist, there must be the absence of a meaningful choice for the party occupying the weaker bargaining position, which in Tennessee necessitates a showing that the employee would be unable to find suitable employment elsewhere if she refused to sign the agreement. This was not the case here. Furthermore, unequal bargaining power does not make an agreement procedurally unconscionable, as Seawright claimed.

Seawright also made a fifth argument that a federal court cannot compel arbitration pursuant to the Federal Arbitration Act because the arbitration agreement at issue was not written as required by the FAA. However, under the FAA, arbitration agreements need only be written; they need not necessarily be signed. The EDR Program pamphlet, which was sent to all employees of AGF, constitutes a written agreement, including the provision that continued employment would constitute acceptance. Other circuits have agreed on this point.

Seawright failed to demonstrate any state grounds upon which the agreement would be void or unenforceable, and failed to demonstrate the agreement did not comply with the FAA. In the absence of evidence that assent to the arbitration agreement was procured through unfair means or that the agreement itself was substantively unfair, courts should enforce mandatory arbitration agreements on the same basis as any other agreement that employers require as a condition of employment.

[1] Seawright v. Amer Gen. Fin. Serv., 507 F. 3d 967, *4 (6th Cir. 2007).

[2] Id. at *5 (citing Seawright v. Amer. Gen. Fin. Serv., No. 06-2239 DV 4 (W.D. Tenn. Dec. 22, 2006)).

[3] Id. at *13-14 (quoting Rodgers v. Southern Newspapers, Inc., 379 S.W.2d 797, 800 (Tenn. 1964)).

[4] Id. at *16 (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 (1991).