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  • Writer's pictureRobert Lusk

Michigan Supreme Court Announces New Standard for Arbitration of Employment-Related Cases

Lichon v Morse and its companion case, Smits v Morse, are two sexual harassment cases filed against prominent plaintiffs’ attorney Michael Morse. The two cases are similar in many respects. Both plaintiffs were employees of the law firm owned and operated by Michael Morse. Both employees alleged Michael Morse sexually harassed them at work and work-related events, both physically and verbally. And, most significantly, both employees were subject to extremely broadly worded arbitration clauses. Based on these clauses, two Circuit Court Judges, one in Wayne County and one in Oakland County, dismissed their lawsuits in favor of arbitration. The Michigan Court of Appeals, in a split decision, reversed on the grounds the sexual assaults described in the complaints were not “related to” their employment. The Michigan Supreme Court, also in a split decision, vacated the Court of Appeals decision in favor of a new standard for evaluating whether claims asserted in a complaint are “related to” employment.

The Court majority’s analysis noted, correctly, that Michigan public policy favors arbitration, in general. The Court then moved to interpreting the arbitration agreement at issue which, like most employment-related arbitration clauses, required the parties to arbitrate issues “relative to employment” or “related to employment.” Next, relying almost entirely on a decision from the Eleventh Circuit Court of Appeals, the Court interpreted “related to,” in the employment context, to refer to whether the same claim could be maintained outside the employment context. This was necessary, the Court asserted, to prevent the “absurdity” of an arbitration clause from barring a party from litigating any matter against another party. The Court declined to explain why this result was absurd if, in fact, the parties had agreed to it.

The Court referred to the Eleventh Circuit’s decision in Doe v Princess Cruise Lines, Ltd, 657 F3d 1204 (CA 11, 2011) as a model of the correct application of its new rule. Plaintiff in Doe was drugged and raped by her co-workers. When she reported the rape, her supervisors refused to permit her to seek medical treatment, forced her to continue to work, and required her to submit to repeated questioning about the incident. She was not permitted to leave the ship for three weeks and, when she was, her blood and rape kit samples as well as her medical records were incinerated. Against this background, plaintiff filed a 10-count complaint against her employer. Five of her claims arose from her status as a seaman. The other five were common law tort claims. The Eleventh Circuit, applying the test adopted by the Michigan Supreme Court, held the first five claims, which could not be brought except for the fact she was employed by defendant, were subject to arbitration. However, the second five claims, which could be brought regardless whether she was employed by defendant, were not subject to arbitration.

In conclusion, the Court remanded the cases back to the Circuit Courts to apply the new test to the allegations in plaintiffs’ complaints. The Court also permitted plaintiffs to consider amending their complaints in light of the newly announced standard.

The dissent, by Justices Viviano and Zahra, objected to the Court’s approach on several grounds. Among other things, the dissent noted the results in future cases will be unpredictable and that the majority had engaged in common-law rulemaking that sought to find or formulate what the court thinks is the best rule for the circumstances rather than enforcing the agreement freely entered into by the parties.

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