On Monday, December 16, 2024, the Eleventh Circuit Court of Appeals (covering Georgia, Florida and Alabama) issued a significant decision addressing whether a non-employee spouse is required to arbitrate a claim regarding statutory benefits provided by the employer, even when the employee is required to arbitrate. Lubin v Starbucks Corporation, 2024 WL 5113125 (11th Cir. December 16, 2024)
In Lubin, the spouse of a Starbucks employee entitled to health insurance through Starbuck’s sued Starbucks in federal court in Florida under the Consolidated Omnibus Budget Reconciliation Act (COBRA) alleging that Starbucks provided him a legally non-complaint COBRA notice of health insurance continuation rights. In response, because the employee spouse had signed an employment agreement containing an arbitration provision, Starbucks moved to compel arbitration of the non-employee spouse’s claim. The employee spouse herself had also sued Starbucks, but the employee spouse agreed to arbitrate based on the arbitration agreement she had signed.
The federal district court refused to compel the non-employee spouse to arbitrate his claim, primarily on the basis that his claim did not arise under his spouse’s employment agreement, but rather, his claim was whether he received adequate notice of his COBRA rights, which is a federal statutory issue. On appeal, the Eleventh Circuit agreed and held that because the non-employee spouse’s claim was based on an alleged statutory violation of COBRA, rather than arising under the employment agreement, the non-employee spouse could not be compelled to arbitrate.
The Court rejected Starbucks’ claim that the non-employee spouse was compelled to arbitrate under the theories of equitable estoppel, that he was a third-party beneficiary of the employment agreement, or that the COBRA claim was derivative of the employment relationship. Again, the Court determined that the claim by a non-spouse employee was a statutory claim, rather than based on the employment relationship. That the health insurance was provided through the employment relationship did not change the Court’s view.
Starbucks’ arguments were creative but failed to persuade the appeals court. Starbucks is now left having to defend the propriety of its health insurance termination notice under COBRA (Starbucks used a third-party administrator to issue the notice) in both arbitration and federal court.
Whether an employer can avoid a situation like this in the future depends on a number of considerations, not least of which is the forethought given in drafting the scope of the arbitration agreement. For example, language could be added to the arbitration agreement which expressly describes benefits provided to family members as derivative of the employment relationship. Whether this approach or something similar would actually suffice remains to be decided.