Agreements to Arbitrate Seaman’s Personal Injury Suits Are Valid and Enforceable
Advanced Wage Agreements offer to pay “advanced wages" to an injured seaman, in addition to the legal obligations to pay maintenance and cure, in exchange for the seaman agreeing to arbitrate his personal injury claim if and when he decides to seek redress for his injury.
Advanced Wage Agreements define advanced wages as “compensation for wages that a seaman has lost as a consequence of his/her injury.” The advanced wages are not a substitute for the federal law requirement to pay all reasonable medical expenses (i.e., cure), or certain other expenses (i.e., maintenance), while the seaman recovers from his injury.
Advanced Wage Agreements will include a Dispute Resolution Clause, which typically provides that: “In addition to making the required Maintenance and Cure payments, the Company is prepared to make advances in unearned wages and company benefits against settlement, arbitration award, or judgment of any claim that could arise under the doctrine of unseaworthiness, the Jones Act, or any other applicable law provided that you agree to arbitrate these claims.” And: “In consideration of the payment of unearned wages and company benefits as outlined herein, you agree to arbitrate all claims against the vessel and/or company under [pre-selected arbitral body].”
Advanced Wage Agreements also will explicitly provide notice to the seaman that his employment with the company is not indefinite. The agreement may state that “it is company policy to terminate the employment of any employee who misses two consecutive hitches or is out of work for 12 consecutive months.” Termination “will not affect your right to Maintenance, Cure, Advanced Wages, and Employee Benefits, which will continue to be paid until you are declared Fit-for-Duty or reached Maximum Medical Improvement.”
The validity of an agreement to arbitrate a seaman’s personal injury dispute finds support in the Federal Arbitration Act (“FAA”). The FAA provides that “an agreement in writing to submit to arbitration an existing controversy arising out of such a contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.
The mandatory language of the FAA reflects a strong, well-established, and widely recognized federal policy in favor of arbitration. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991) (The FAA's “purpose was to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts.”); Southland Corp. v. Keating, 465 U.S. 1, 10 (1984) (“In enacting § 2 of the [FAA], Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.”). Under normal circumstances, therefore, “an arbitration provision with a contract admittedly signed by the contractual parties is sufficient to require the district court to send any controversies to arbitration.” Chastain v. Robinson-Humphrey Co., Inc., 957 F.2d 851, 854 (11th Cir. 1992).
Against this backdrop, arguments against the enforceability of the arbitration clause in an Advanced Wage Agreement face an uphill battle. Seaman have argued that the Advanced Wage Agreement qualifies as a seaman’s employment contract and is thus void under the FAA. 9 U.S.C. § 1. Some may also argue that the Federal Employers' Liability Act (“FELA”) prevents the enforcement of the arbitration clause. None of these arguments prevents enforcement of the arbitration clause.
Section 1 of the FAA provides that “nothing herein contained shall apply to contracts of employment of seamen, . . .” The phrase “contracts of employment of seamen” has been interpreted as not meaning any contract that has some connection or relation to a seaman’s employment. And, courts have uniformly held that post-incident agreements to pay a seaman advanced wages are non-employment agreements under the FAA. See, e.g., Harrington v. Atlantic Sounding Co., Inc., 602 F.3d 113, 121 (2d Cir. 2010) (holding that a post-incident agreement to pay a seaman advanced wages in exchange for an agreement to arbitrate is not contract of employment as defined by the FAA); Terrebonne v. K Sea Transp. Corp., 477 F.3d 271, 279 (5th Cir. 2007) (holding that the “maintenance and cure” provisions of an arbitration agreement, though “an intrinsic part of the employment relationship, [are] separate from the actual employment contract”) (emphasis in original).
The United States Supreme Court held in Boyd v. Grand Trunk Western Railroad, 338 U.S. 263, 266 (1949) that Sections 5 and 6 of FELA voided any contractual provision that limits a plaintiff’s choice of forum. The Jones Act incorporates by reference some provisions of FELA. In Pure Oil, the Fifth Circuit held that the venue provisions in FELA are not incorporated into the Jones Act. The argument that FELA's provisions limiting venue should be applied to Jones Act cases has been soundly rejected. Terrebonne, 477 F.3d at 282-83 (“Because, under our decision in Pure Oil Co., the venue provisions of section 6 of the FELA are inapplicable to Jones Act cases, it necessarily follows that nothing in section 5 of the FELA is applicable to Jones Act venue. Hence, neither Boyd nor section 5 dictate the result here.”); Harrington, 602 F.3d at 124 (“In concluding that FELA §§ 5-6 and Boyd are inapplicable to seamen arbitration agreements, we align ourselves with all of the courts that have considered the issue.”).
Advanced Wage Agreements have been attacked on the grounds that the agreement 1) is product “fraud in the inducement” and “negligent misrepresentation,” 2) suffers from “lack of consideration,” and 3) “constitutes an improper seamen's release.” In Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006), the Supreme Court held:
Challenges to the validity of arbitration agreements . . . can be divided into two types. One type challenges specifically the validity of the agreement to arbitrate. The other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid.
Further, “unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance.” Buckeye Check Cashing, Inc. at 445 (emphasis added); see also Chastain v. Robinson-Humphrey Co., Inc., 957 F.2d 851, 854 (11th Cir. 1992) (arbitration provision within a contract admittedly signed by the contractual parties is sufficient to require the district court to send any controversies to arbitration).
Having been upheld by several courts, Advanced Wage Agreements containing arbitration clauses will, in all likelihood, become common usage in maritime personal injury matters.
This article is one in a series of articles written for Blank Rome's MAINBRACE: March 2022 edition.