Current or former car salespeople who allege a Timonium-based dealership cheated them of more than $1 million in commissions can pursue their lawsuit in federal court after a U.S. appeals court Monday struck down as unenforceable the arbitration clause in their employment contract.
The 4th U.S. Circuit Court of Appeals said Nationwide Motor Sales Corp.’s contractual requirement that all disputes be settled via arbitration rather than litigation was “illusory,” and thus invalid, because the contract also stated that the company could change its arbitration policy with or without notice to the employees.
The 4th Circuit’s published decision marked the latest chapter in the claim brought by at least five current or former salespeople whose commission was tied to the profit margin on the cars they sold. The plaintiffs – whose number could swell if a class-action claim is certified – allege NMSC falsely inflated its costs for the cars they sold in order to artificially reduce its profits on the sales and thus slash the commission owed the employees, in violation of federal and Maryland wage laws.
U.S. District Judge Stephanie A. Gallagher, who sits in the federal courthouse in Baltimore, had also ruled that the case should proceed in court rather than before an arbitrator.
Gallagher said the arbitration provision in NMSC’s employee handbook was essentially rendered invalid by the salespeople’s acknowledgment of having received the handbook because the receipt states that NMSC has the “the right … to enforce, change, abolish or modify existing policies, procedures or benefits applicable to employees as it may deem necessary with or without notice.”
NMSC argued on appeal that its alteration rights, as stated in the receipt acknowledgment, do not apply to the handbook’s arbitration provision because arbitration is not a policy, procedure or benefit of the company.
But the 4th Circuit, in its 3-0 decision, discounted what it called NMSC’s “supposed distinctions among those labels” and “the plain language” of the receipt.
“The better reading of the receipt is that ‘personnel policies, procedures and company benefits’ encompasses all sections of the employee handbook, including those specially acknowledged in the receipt like the arbitration agreement,” Judge Allison Jones Rushing wrote for the court in sending the case back for trial. “Because the modification clause (in the receipt acknowledgement) gives Nationwide the right to abolish those policies, procedures, and benefits without notice, the arbitration agreement is illusory under Maryland law.”
The salespeople’s attorney, Brian J. Markovitz, hailed the appellate court’s decision.
“The 4th Circuit was applying the long-standing principle in Maryland law that an employer cannot unilaterally change an arbitration agreement at any time,” Markovitz stated via email.
“But what makes this an important decision is that the waiver and the agreement were separate, which is why I believe the 4th Circuit published the decision,” added Markovitz, of Joseph, Greenwald & Laake PA in Greenbelt. “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.”
NMSC’s attorney, William J. Murphy, declined to comment on the 4th Circuit’s decision. Murphy is with Zuckerman Spaeder LLP in Baltimore.
According to their complaint, the current or former salespeople were employed at one of NMSC’s four dealerships: Nationwide Infiniti of Timonium, Nationwide Kia, Nationwide Nissan and Nationwide Pre-Owned.
The plaintiffs claim on their own behalf – as well as a potential class of current and former NMSC salespeople – that the company’s “policy and practice of falsely inflating” its costs associated with the sale of automobiles has caused them to “have collectively been underpaid millions of dollars in earned but unpaid commissions,” stated the complaint filed in May 2020.
The plaintiffs allege NMSC has violated the federal Fair Labor Standards Act and the Maryland Wage Payment and Collection Law, which provides for a damages award of treble, or three times, their financial loss.
NMSC has denied the allegations.
4th Circuit Judges G. Steven Agee and Stephanie D. Thacker joined Rushing’s opinion.
The 4th Circuit rendered its decision in Michael Coady et al. v. Nationwide Motor Sales Corp. et al., No. 20-2302.