The Enforcement of an Employment Arbitration Agreement Following the Employee’s Termination

By: Jake Berger

In March 2020, two Celebrity Cruises Inc. (“Celebrity”) employees were fired while aboard a ship.[1]  Following their termination, due to the Covid-19 pandemic, the fired employees were unable to immediately disembark the ship and return home.[2]  While still aboard, they filed a lawsuit against Celebrity alleging false imprisonment and infliction of emotional distress.[3]  The district court ruled the case should be arbitrated as indicated in the employment contract between the employees and Celebrity.  The question was whether the plaintiffs’ claims were subject to that arbitration agreement following their termination.  The United States Court of Appeals unanimously stated that the “arbitration agreements the workers had signed only covered claims stemming from their employment and not the plaintiffs' claims of intentional wrongdoing that arose after they were fired.”[4]  If the employment agreement in a circumstance like this were to be upheld, and arbitration enforced, then the employee should expect the rest of the terms in the agreement, like wages, to be upheld.

Cruise employees are “at-will employees,” and thus can be terminated at any time, for any reason.  The industry practice is to terminate employees while docked at a foreign port and pay for the flight back to the employee’s home.  Once off the vessel, the terminated employee is no longer the responsibility of the cruise operator.[5]  This gray area appears when that industry standard is unable to be carried out by any extrinsic event that prevents disembarkment.  Now, the already terminated employee is aboard the vessel.  Is he to be treated as a guest?  An employee?  A trespasser?  How a court should classify the terminated employee while on the premises of the ship is the ultimate debate.  An arbitration clause is included in the employment contract and can “expire in three ways; automatically, upon the parties’ agreement, and by termination.”[6]  If the employment contract is void after termination, then should the content of the agreement be as well?

It is important to clarify which instances will mandate arbitration.  As recently as May 2022, in Franklin Dissolution L.P. v. Athenian Fund Mgt.,[7] an Ohio court determined the scope of an arbitration agreement when the management contract had previously been terminated.[8]  The Ohio court came to a different conclusion than the U.S. Court of Appeals in the Celebrity Cruise case.  It held that “a party does not waive enforcement of an agreement’s arbitration provisions simply because that agreement has been terminated.”[9]  The difference between the two cases is the scope of what “affairs and activities”[10] were to be arbitrated.  The substance of the claims in the Franklin case were covered by the arbitration agreement, thus the court imposed arbitration.  In Celebrity, the claims are too attenuated to be encompassed in the arbitration agreement.  “Studies have shown that most consumers have no idea that they’ve agreed to arbitration.”[11]  This lack of knowledge is sufficient for any claimant to argue that they did not believe actions following termination would be subject to the agreement, as was the case in Celebrity.

In March 2022, President Biden signed H.R. 4445 into law,[12] Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, allowing plaintiffs in workplace sexual harassment cases to arbitrate their claims or file in a U.S. Court.[13]  If the goal is to ensure an equitable hearing under state and federal laws, then an already terminated employee being kept against their will should be given the same opportunity for remedial action.  Generally, federal policy favors mandating arbitration agreements.[14]  A party may waive its rights to arbitration.[15]  Is terminating an employee a waiver of the right to arbitrate?

Inherent in both the cruise and aviation industry is one major denominator: employees may be abroad.  Intuitively, one would expect these global industries to be given their own regulations to abide by.  The status of a terminated employee throughout the duration of the expected trip could, and should, be a catalyst for reform.  The outcome should not vary by state: either require the agreement in its entirety to be upheld until the employee is able to vacate safely, or not.  Different interpretations will lead to confusion amongst both employers and employees, and it is unjust to mandate arbitration for one and give an option to another.

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[1] Daniel Wiessner, Workers Stranded on Celebrity Cruises Ship Can Sue in Court, Panel Rules, REUTERS (Aug. 5, 2022), https://www.reuters.com/legal/government/workers-stranded-celebrity-cruises-ship-can-sue-court-panel-rules-2022-08-05/ [https://perma.cc/68FD-C426].

[2] Id.

[3] Id.

[4] Id.

[5] Jim Walker, The 6 A.M. Knock, CRUISE LAW NEWS (Feb. 21, 2013),

https://www.cruiselawnews.com/2013/02/articles/crew-member-rights/the-6-am-knock/#:~:text=Employment%20on%20cruise%20ships%20is,the%20crew%20member%20is%20terminated. [https://perma.cc/DAC2-GFXQ].

[6] What Is An Employment Contract For a Definite Period? In Which Cases Is It Used, What Are The Formal Requirements and Limits?, Cukur Partners,  https://cukurpartners.com/what-is-an-employment-contract-for-a-definite-period-in-which-cases-it-is-used-what-are-the-formal-requirements-and-limits/ [https://perma.cc/R9QF-AY4N].

[7] Franklin Dissolution L.P. v. Athenian Fund Mgt., Inc., 2022-Ohio-623, appeal not allowed sub nom; Franklin Dissolution, L.P. v. Athenian Fund Mgt., Inc., 189 N.E.3d 824 (Ohio 2022).

[8] Joseph Apatov, Can I Enforce The Arbitration Clause in a Terminated Agreement?, Commercial Law Bulletin, JDSUPRA (Mar. 15, 2022) https://www.jdsupra.com/legalnews/can-i-enforce-the-arbitration-clause-in-4463089/ [https://perma.cc/3EKE-7ZCM].

[9] Id.

[10] Id.

[11] Scott Medintz, Forced Arbitration: A Clause for Concern, Mandatory arbitration deprives consumers of important options if a product is faulty or harmful. Here's how to fight back. Consumer Reports (Jan. 30, 2020), https://www.consumerreports.org/mandatory-binding-arbitration/forced-arbitration-clause-for-concern/ [https://perma.cc/4V2Q-XA3D].

[12] Elizabeth Schartz, Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act Signed Into Law, HKLAW (Mar. 16, 2022) https://www.hklaw.com/en/insights/publications/2022/03/ending-forced-arbitration-of-sexual-assault-and-sexual-harassment-act [https://perma.cc/35AT-8QA4].

[13] Id.

[14] Stuart M. Riback, Arbitration Agreements: No Worse Than Other Contracts, But No Better, Either, aba (June 28, 2022), https://www.americanbar.org/groups/business_law/publications/blt/2022/07/arbitration-agreements/ [https://perma.cc/UB7V-D7M9].

[15] Id.