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Michigan Court of Appeals: Agreements to Arbitrate Must Provide Clear Notice of Waiver of Discrimination Claims

A recent Michigan Court of Appeals case emphasizes the importance for employers in carefully drafting arbitration agreements, to ensure that clear notice is provided to an employee that he or she is waiving the right to litigate statutory discrimination claims in court. In the case, Shaya v. City of Hamtramck, plaintiff Steve Shaya was employed by the City of Hamtramck as its Director of Public Services under a written employment agreement. Shaya was later terminated by the City, based on allegations of malfeasance in the performance of his duties. Shaya sued in state court, alleging ethnicity discrimination in violation of Michigan’s Civil Rights Act (CRA) and its Whistleblowers’ Protection Act (WPA).

In Michigan, pre-dispute agreements to arbitrate statutory employment discrimination claims are enforceable if they meet three conditions: 1) the parties agreed to arbitrate the claims; 2) the statute in question does not prohibit arbitration agreements; and, 3) the agreement does not waive the substantive rights and remedies of the statute and the procedures are fair. The procedural fairness condition has several additional requirements; the most pertinent here is that clear notice must be provided to the employee that he or she is waiving the right to bring statutory discrimination claims in court.

The arbitration agreement at issue in Shaya contained broad language stating that, “Any controversy or claim arising out of or relating in any way to this agreement shall be settled exclusively by arbitration…” It also stated that, “[t]his agreement [to arbitrate] . . . specifically, includes, but is not limited to, all claims that this agreement has been interpreted or enforced in a discriminatory manner.” The Court of Appeals found that the language in Shaya’s written agreement failed to provide adequate notice because it did not “reference plaintiff’s right to pursue a statutory discrimination claim.” Instead, the language seemed to be limited to claims alleging that the agreement itself was interpreted or enforced in a discriminatory manner and not claims that the employee (and his employment) was subject to discrimination. As such, the plaintiff’s CRA and WPA claims (analyzed similarly for the purposes of arbitration agreements) could be litigated outside of arbitration.

The clear notice requirement is not new. The concern here is whether subsequent courts might apply its reasoning beyond statutory discrimination claims to other types of employment claims. Taken to the extreme, this could lead to a burdensome requirement that employers include a laundry list of statutory claims subject to arbitration in an agreement. That said, the case arguably has limited application due to the unique language of the arbitration provision at issue. Nevertheless, employers should be cautious not to make the same mistake as the employer did here - arbitration agreements are a valuable tool for employers and should always be drafted or reviewed with the help of legal counsel.

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