Can non-signatories be bound by your arbitration agreement? Recent ruling says “yes.”
In a recent win for employers, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit highlighted how companies can use “incorporation by reference” to enforce arbitration agreements against workers who did not sign the agreements.
Shawn Michael Ford, a safety consultant in the oil and gas industry, was hired by Bedrock PC 1009, LLC, a consulting firm that provides staffing services to ConocoPhillips. Mr. Ford sued ConocoPhillips under the Fair Labor Standards Act, claiming that he and other consultants were misclassified as independent contractors and that he should have received overtime pay for weeks in which he worked more than 40 hours. Mr. Ford did not sue Bedrock PC or its parent company, Bedrock Petroleum Consultants LLC.
The companies sought to compel Mr. Ford to arbitrate his claims, arguing that he was bound by an arbitration agreement included in a Master Services Agreement between ConocoPhillips and Bedrock. A federal judge in Texas denied the motions, and the companies appealed to the Fifth Circuit.
The Fifth Circuit’s analysis
The central legal issue was whether a non-signatory, ConocoPhillips, could compel Mr. Ford to arbitrate based on agreements to which only Mr. Ford and Bedrock PC were parties. The Fifth Circuit panel focused on the “incorporation by reference” doctrine, which under Texas law holds that a signed contract can incorporate an unsigned document by reference, provided that the signed document “plainly refers to [the unsigned document].”
In vacating the district court decision, the panel found the following to be particularly important:
- Ford had signed a Master Consulting Agreement with Bedrock PC, which said that Mr. Ford was “made aware” that the Bedrock parent had a Master Services Agreement with ConocoPhillips. Mr. Ford’s agreement said that if Mr. Ford was hired, he “agree[d] to the provisions of the MSA as Bedrock’s contractor.” It also listed “the relevant MSA” as a document “incorporated by reference” into Mr. Ford’s agreement. The panel found that this language created a “contractual link” between the Master Consulting Agreement, to which Mr. Ford was a party, and the Master Services Agreement between the companies.
- The Master Consulting Agreement between Mr. Ford and Bedrock PC also required Mr. Ford to “assume toward Bedrock all the obligations and responsibilities that Bedrock assumes toward [ConocoPhillips] as set forth in the relevant MSA.” The MSA required Bedrock to ensure that any personnel performing work for ConocoPhillips execute a specific arbitration agreement, which was attached as an exhibit to the MSA.
Because Mr. Ford’s agreement with Bedrock PC incorporated by reference the Master Services Agreement and the arbitration agreement, the panel concluded that Mr. Ford was bound by the arbitration agreement. The panel vacated the lower court ruling and remanded the case.
Implications for employers
This decision is a crucial reminder for businesses and employers that contract law doctrines can expand the enforceability of arbitration agreements beyond individuals who signed the agreements. By carefully drafting agreements and ensuring that pertinent documents, such as arbitration agreements, are incorporated by reference into agreements with individual workers, companies can improve their chances of getting lawsuits sent to arbitration.
