Please ensure Javascript is enabled for purposes of website accessibility

Employment ADR: Fourth Circuit Compels Arbitration Despite Insurer's Contract (Web)

The Fourth U.S. Court of Appeals reinforced that state law claims are arbitrable under a valid and enforceable agreement, even where an employer concedes that the agreement using its employment dispute resolution program is an adhesion contract. American General Life Insurance Co. v. Wood, Docket No. 04-2252 (Nov. 14, 2005)(available at

Plaintiff Wood filed a motion in West Virginia state court against his employer, American General Life and Accident Insurance Company, a Nashville, Tenn.-based unit of American International Group Inc., claiming sex discrimination and wage law violations. In response, American General filed asked a federal district court in Charleston, W. Va., to compel arbitration of the claims under the Federal Arbitration Act.

The district court found that the claims were arbitrable under a valid and enforceable arbitration agreement.

Last month, the Fourth U.S. Circuit Court of Appeals affirmed the district court's holding that state law claims are arbitrable under a valid and enforceable agreement.

American General constructed an Employee Dispute Resolution Program to resolve all employment-related conflicts between employees and the insurer, according to the opinion, “through a four-option process.” The four options are an open-door policy, an employee relations conference, mediation and arbitration.

Wood and other employees received a packet detailing the procedure. Wood asserted that the employees were instructed that they had to sign the packet’s forms without being given the time to read them. Wood claimed that he was not told that by signing he would waive his right to bring any employment-related disputes to a court.

“In fact,” stated Wood in court materials quoted in the Fourth Circuit opinion, “I was told the opposite.”

Under FAA Section 2, a written arbitration award is valid, irrevocable, and enforceable, unless certain grounds exist at law or in equity for the award’s revocation. "A party can compel arbitration if he establishes: (1) the existence of a dispute between the parties, (2) a written agreement that includes an arbitration provision which purports to cover the dispute, (3) the relationship of the transaction, which is evidenced by the agreement, to interstate or foreign commerce, and (4) the failure, neglect or refusal of the defendant to arbitrate the dispute." [Citations omitted.]

The district court concluded that the agreement was an adhesion contract, in which American General forced its employees to accept its program or else face termination. But the district court also noted that giving up the right to sue under the law did not make the agreement unenforceable under West Virginia law.

The Fourth Circuit noted that it is not enough for the weaker party to refer to power imbalance in the bargaining process; the party also must identify the contract’ s unfair terms. Arnold v. United Companies Lending Corp., 204 W. Va. 229, 511S.E. 2d 854, 860-61 (W. Va. 1998); Troy Mining, 346 S.E. 2d at 753

The opinion says that American General acknowledged that the agreement was an adhesion contract. So, “the critical issue is whether Wood has sufficiently identified unfair terms in the Agreement itself in order to establish its unconscionability.”

Wood claimed that the agreement unconscionably deprives him of his state constitutional rights to West Virginia judicial forums and a jury trial.

But Wood's contention expresses a general antipathy to arbitration already considered and rejected by the Supreme Court and the Fourth Circuit. Moreover, Wood did not provide a state law ground on which the agreement could be invalidated. He failed to demonstrate that arbitration would "prohibit or substantially limit a person from enforcing and vindicating rights and protections or from seeking and obtaining statutory or common law relief and remedies afforded under the Human Rights Act or Wage Collection and Payment Act." [Citations omitted.]

--Prepared by: Zoltan Elek, CPR Intern