Chicago Business Litigation Lawyer Blog
A corporate defendant waives the right to enforce an arbitration clause in an employment agreement if it asserts an affirmative defense to a complaint that is unrelated to arbitration. So ruled the First District Appellate Court of Illinois in a recent breach of employment contract case called Koehler v. Packer Group Inc., 2016 IL App (1st) 142767.
Michael K. was CEO of Packer Engineering, a subsidiary of The Packer Group. When he reported evidence of alleged financial improprieties on the part of Packer’s chairman to the company’s board, he claims he was dismissed in retaliation. He filed suit against the company for breach of his employment contract, and also against various Packer officers individually for tortious interference with contract, claiming they induced the company to breach the contract. The defendants argued that, pursuant to the contract’s terms, Michael’s claims should have been resolved in arbitration.
Michael’s four-year employment agreement contained an arbitration clause waiving the right to resolve disputes in court. The contract was signed by Michael, Packer’s chairman, and several Packer executives. Michael claimed that after he refused to go along with the alleged financial improprieties, he was offered the option of demotion or termination and chose termination. In his complaint, he sought future salary and bonus compensation plus punitive damages. In its answer, Packer asserted the affirmative defense of Michael’s own breach of the employment agreement, then later moved to dismiss the complaint on the grounds that the arbitration provision deprived the court of jurisdiction. The individual defendants argued that the arbitration clause also applied to Michael’s suit against them for tortious interference, claiming they had signed the agreement in their corporate and not individual capacities. The circuit court ruled that Packer waived its contractual right to arbitrate when it answered Michael’s complaint without asserting the right. Continue reading ›