Employees of Nationwide Motor Sales Corp. in Timonium, Md., will be able to sue the company and its owners in federal court and not seek an arbitrator, the 4th U.S. Circuit Court of Appeals has ruled.
The 3-0 decision April 25 came after employees at Nationwide, which retails new and used vehicles, filed a lawsuit in district court claiming "fraudulent payment practices that reduced employees' sales commissions and final paychecks." Nationwide, in response, filed to compel arbitration in accordance with its employee handbook, which contains an arbitration agreement requiring all disputes between employees and the company to be settled using an arbitrator.
According to the opinion, the employees claimed the arbitration agreement was invalid because of a modification clause in the handbook that said Nationwide "retains the right to change, abolish, or modify the Handbook's policies, procedures, and benefits." Maryland law states arbitration clauses are invalid if the employer has the ability to "alter, amend, modify, or revoke the Arbitration Policy ... at any time with or without notice."
Nationwide claimed the modification clause did not apply to the arbitration agreement, saying it applied only to procedures, policies and benefits.
The circuit court sided with the employees.
"The better reading of the Receipt is that 'personnel policies, procedures and company benefits' encompasses all sections of the Handbook, including those 'specially' acknowledged in the Receipt like the Arbitration Agreement," the opinion read. "Because the Modification Clause gives Nationwide the right to change or abolish those policies, procedures, and benefits without notice, the Arbitration Agreement is illusory under Maryland law."
Plaintiffs attorney Brian Markovitz wrote in an email to Automotive News that the 4th Circuit was upholding Maryland law.
"What makes this an important decision is that the waiver and the agreement were separate, which is why I believe the Fourth Circuit published the decision," Markovitz wrote. "I think in layman's terms the Court was recognizing that drafters of arbitration agreements have to actually commit to arbitration. Drafters can't have it both ways by waiting to see whether court or arbitration works out better."
Nationwide attorney William Murphy declined to comment.
The employees' suit may now proceed to federal court.