Sixth Circuit finds that Domino's Pizza can arbitrate to determine whether it must arbitrate employee claims
On June 17, 2020, the Sixth Circuit Court of Appeals found that in a case involving whether franchise agreements violate antitrust laws, an arbitrator– not a court – was the proper party to resolve a dispute between a former employee of a Domino’s Pizza franchise and Domino’s Pizza (Domino’s). Blanton v. Domino's Pizza Franchising LLC, No. 19-2388 (6th Cir. 2020).
Domino Pizza operates many of its restaurants through a franchise model. While each franchise is an independently owned and managed business with a separate legal identity, Domino’s still controls certain aspects of each franchise. In the underlying case, Domino’s allegedly required its franchises to agree not to solicit or hire employees from other franchises without the prior consent of their employer.
Derek Piersing, the appellant in the Blanton case, was first employed at a Domino’s franchise in Washington state in the fall of 2014. In 2018, Piersing sought a second job from a different Domino’s franchise in his area. When he was hired by the second franchise, Piersing signed an arbitration agreement, which required him to arbitrate a wide array of issues related to his employment. That agreement also specified that the arbitration would be conducted according to the American Arbitration Association National Rules for the Resolution of Employment Disputes (the “AAA Rules”). Around the same time in 2018, however, Piersing learned that he had been fired from the first franchise. According to Piersing, the first franchise fired him because it thought that its franchise agreement with Domino’s required it to do so in order to allow him to work at the second franchise.
Piersing and another plaintiff filed a class action against Domino’s, alleging that the company’s franchise agreement violated federal antitrust law as well as state law. In response, Domino’s moved to compel arbitration under the Federal Arbitration Act. Piersing and his fellow plaintiff opposed the motion, arguing that Domino’s could not enforce the arbitration agreements because Domino’s had not signed the agreements (only their franchises had). The district court ordered the plaintiffs to go to arbitration anyway, finding that both Piersing and his co-plaintiff had agreed to arbitrate not only the merits of certain claims but also threshold questions about the agreements themselves.
On appeal, the Sixth Circuit sided with the district court finding that the language of the arbitration agreement and the relevant case law showed that Piersing agreed to arbitrate “arbitrability” of his claims. In other words, the arbitration agreement itself required that an arbitrator be the party to properly determine whether Pierson’s underlying dispute can or cannot be settled by arbitration.
In order to determine questions of “arbitrability,” there must be “clear and unmistakable” evidence that the parties agreed to have an arbitrator decide such issues. In his arbitration agreement with Domino’s, Piersing agreed that the American Arbitration Association would administer the arbitration and the arbitration will be conducted in accordance with then-current AAA Rules. Those AAA Rules provide that the “arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” Following Supreme Court precedent, the Sixth Circuit asserted that the AAA Rules provide that arbitrators have the power to resolve “arbitrability” questions. By finding that the incorporation of the AAA Rules (or similarly worded arbitral rules) into the agreement provides “clear and unmistakable” evidence that the parties agreed to arbitrate “arbitrability”, the Sixth Circuit has joins eleven out of twelve of the other Circuit Courts of Appeal in reaching this same result.
The proper forum for adjudicating a dispute – whether arbitration or a court – can have a material impact on the prospective outcomes of a particular dispute. This opinion reiterates the importance of the binding nature of agreements and how they may impact adjudication of future disputes. Franchise agreements are replete with arbitration provisions. And, depending on how those agreements are drafted, an arbitrator may be the sole party to determine what claims are actually proper for arbitration.
