Guarantor Held to Arbitrate Under Provision in Employment Agreement

GUARANTOR HELD TO ARBITRATE UNDER PROVISION IN EMPLOYMENT AGREEMENT

By: Larry Leiby, Esq. and Robert S. Tanner, Esq.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com.

In Wallshein v. Shugarman, 2010 WL 5093260 (Fla. 4 th DCA Dec. 15, 2010), Dr. Richard Shugarman ("Employee") entered into a written employment agreement with the Palm Eye Center ("Employer"). The president of Employer, Dr. Jay Wallshein ("President"), signed the agreement as a guarantor of the obligations of Employer. More specifically, President agreed to "guarantee payment and performance of all obligations of the Corporation hereunder to and for the benefit of Employee." President signed the agreement twice, once as president of Employer and once as the guarantor.

Eventually, Employer terminated Employee's employment. Pursuant to an arbitration provision in the written employment agreement, Employee demanded that Employer and President enter into arbitration proceedings on Employee's claims that Employer had failed to pay all amounts owed to Employee and that President breached his obligations as guarantor to pay the amounts owed by Employer. Instead, President filed a complaint for declaratory judgment in court, asking the court to determine that he was not required to arbitrate. Employee responded to the complaint for declaratory judgment by filing a motion to compel arbitration. Upon finding that both Employer and President signed the written employment agreement, which contained an enforceable arbitration clause, the trial court agreed with Employee and entered an order compelling arbitration. President appealed.

On appeal, President advanced several arguments. First, President argued that he was not a party to the employment agreement and therefore was not subject to the arbitration clause therein. The appellate court found that the guaranty provision was not a separate agreement but actually a numbered paragraph in the employment agreement. The appellate court also found that by guaranteeing "payment and performance" of Employer's obligations, President's objective intent was to be bound by the entire agreement, including the arbitration provision. Additionally, the appellate court found that the claim against President was a type of dispute governed by the arbitration provision.

President argued that signing the employment agreement as guarantor was similar to another case where an anesthesiologist had signed a similar agreement, not as a party, but instead as a representative for a party to the agreement. In that case, however, the contract defined who were parties to the contract and did not identify the representative. As a result, the appellate court rejected President's argument. The appellate court instead concluded that President was subject to the arbitration provision of the written employment agreement.

Finally, President argued that the trial court should have granted an expedited evidentiary hearing pursuant to the statute governing arbitration. The appellate court noted that it was up to the trial court to "decide if there is a disputed issue before setting the expedited evidentiary hearing" and that that an evidentiary hearing is "required only when a substantial issue is raised as to the making of the arbitration agreement." The appellate court found that since President had not identified any factual issues concerning the making of the arbitration agreement that would require an evidentiary hearing (i.e., a mini-trial where the court considers testimony and documentary evidence); rather, the issues and arguments presented legal issues only that the trial court was correct to decide without an evidentiary hearing. Accordingly, President's appeal was unsuccessful and the trial court's decision was affirmed.

Because the policy of Florida law is to liberally construe arbitration agreements in favor of arbitration, it is important to consider the pros and cons of such agreements before entering them. They make a lot of sense is many circumstances, while in others they may be better to avoid. Experienced legal counsel should be retained to explain such pros and cons before any agreement containing an arbitration provision is entered into.