Managers of residential-care facilities should consider extending pre-dispute arbitration clauses to cover facility employees, despite the ongoing debate over the use of such pre-arbitration clauses in admission agreements.
Litigation claims against nursing homes, assisted-living facilities and residential-care facilities by residents of these facilities have led residential-care providers to utilize pre-dispute arbitration clauses in admission agreements and materials. A purpose of these agreements is to control litigation costs and exposure, stabilize insurance and risk-management costs, and to avoid the worst-case scenario of possible closure of the business. While consumer groups have lobbied to broadly prohibit arbitration clauses in residential care admission agreements—going so far as to depict these clauses as "evil," as in recently proposed federal legislation, The Fairness in Nursing Home Arbitration Act—they remain a viable and perhaps even necessary risk-management option in many states, provided that reasonable safeguards are met.
Recently, a Massachusetts Appeals Court decision offered guidance as to how the benefits of pre-dispute arbitration clauses could be extended to employees of the facility.
Pre-Dispute Arbitration Clauses in Admission Agreements
Federal law supports the broad enforcement of pre-dispute resolution agreements. The Federal Arbitration Act provides that they are enforceable except upon grounds that may exist for the revocation of any contract. To fall under the ambit of the Federal Arbitration Act, which can potentially preempt state law prohibitions on arbitration, the agreement must involve "interstate commerce."
The highest state court in Massachusetts has recognized, as some other states courts have, that "accepting payment from Medicare, a Federal program . . . constitutes an act in interstate commerce." While The Fairness in Nursing Home Arbitration Act would have declared a pre-dispute arbitration agreement between a residential care facility and a resident unenforceable, it was not enacted in the 110th Congress, perhaps due to a strong public policy favoring arbitration as an expeditious alternative to litigation for settling disputes, or the failure to fine tune the bill to modify its prohibitions and permit arbitration clauses given certain conditions.
Attesting to the value of pre-dispute arbitration clauses, nurses who were employed by a nursing home in Massachusetts sought recently to compel arbitration of a resident's liability claim against them under the arbitration clause of their employer's nursing home admission agreement. The Massachusetts Appeals Court, in denying nurses the ability to compel the arbitration of the resident's claim against them, thereby permitting the administratrix of the resident's estate to proceed directly in court in her lawsuit against the nurses, did, however, offer guidance on how an admission agreement could be redrafted so that the nurse-employees could be beneficiaries of the requirement for mandatory arbitration.
The Facts and Court's Decision
In Constantino v. Frechette, et al., decided by the Massachusetts Appeals Court on December 18, 2008, the administratrix of the estate of the deceased resident of a nursing facility filed a lawsuit against the facility and its corporate parent (the corporate defendants) and three nurses employed by the facility, seeking damages for personal injuries and the wrongful death of the resident. As to the administratrix's numerous challenges to the validity of the mandatory arbitration provision, the court found that the signature on the agreement was authentic and ruled that the arbitration provision was not unconscionable under Massachusetts law. Although the judge then allowed the motion to compel arbitration with respect to the corporate defendants, he denied the motion as it related to the nurses on the grounds that they were not parties to the contract. The original three nurses, joined by six additional nurses who were named as defendants by the plaintiff, pursued an appeal of the court's denial of their motions to compel arbitration.
In denying the ability of the nurses to compel arbitration, the court noted the "understandable attitude of wariness about arbitration forced on a party," and reasoned that, absent advance consent, a party cannot be compelled to arbitrate a dispute, an option available only to the parties to the arbitration agreement. In this case, the only parties to the arbitration agreement were the corporate defendants. The nurses were not named as parties to the agreement, did not assume any obligations under the terms of the agreement, and consequently could not benefit from the protections set forth in the agreement.
Moreover, the arbitration provision in the admission agreement confined the reach of the arbitration to disputes between the actual parties to the contract (e.g., the resident, and the corporate defendants.) At the time the resident signed the agreement, the court believed that the patient "could not reasonably have understood that she was agreeing to waive her right to a jury trial not only against the nursing home, but also against all its employees."
The court suggests that had the nursing home intended to bring its employees within the purview of the arbitration provision, it had the duty to clearly inform its patients that the arbitration provision was intended to inure to the benefit of individual nurses as well.
Lessons for Nursing Homes
The decision in Constantino v. Frechette, et al. suggests that residential-care facilities, utilizing admission agreements containing provisions calling for pre-dispute arbitration of claims by residents, may wish to review those agreements, where permissible by law, with an eye to modifying them to include the nursing home's employees as third-party beneficiaries of the pre-dispute arbitration provisions of the admission agreement. The court observed that "[s]uch language is commonly included in nursing home admission contracts," although it was absent in the case before the court. Moreover, the court provides additional guidance, stating that each employee of the nursing home would not be required to sign the agreement in order to be covered, since a clause establishing that the agreement was intended to inure to the benefit of the employees would suffice to create an enforceable right under which the nurses could rely: "If the provision were so drafted, the nurses would be intended third-party beneficiaries of the contract and would have the right to enforce it as such."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
