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The Seventh Circuit Court of Appeals ruled that because the laws of agency cover an employee's actions taken on behalf of his employer, an arbitration agreement between a customer and the company covers actions brought against an employee.
In Dunmire v. Schneider, No. 06-1254, 2007 WL 764306 (7th Cir. Mar. 15, 2007), Dunmire, a disgruntled customer of Morgan Stanley, lost nearly $2,000,000 on silver contracts, allegedly due to the actions of a Morgan Stanley employee.
Though he signed an arbitration agreement with Morgan Stanley, Dunmire claimed that the clause was not intended to cover claims brought against employees because express language covering Morgan Stanley's employees was recently dropped from the agreement.
In rejecting Dunmire's argument, the Court relied primarily on agency law, noting that "it would make little sense for a customer to arbitrate [the principal's] liability while simultaneously litigating with its employees" because the principal would bear liability if the employees lost in court.
Given the strength of agency law and the fact that courts regularly treat employees as third-party beneficiaries of this type of arbitration clause, the Court noted that the fact that language expressly covering employees was dropped from the agreement was nothing more than good editing to eliminate precatory language.
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