Advance wage settlements offer to pay “advance wages” to an injured seafarer, in addition to legal obligations to pay for maintenance and recovery, in exchange for the seafarer agreeing to arbitrate his personal injury claim if and when he decides to seek compensation for his injury.
Advance wage agreements define advance wages as “compensation for wages that a sailor has lost as a result of his injury”. Advanced wages do not replace the federal law requirement to pay all reasonable medical expenses (that is to say, treatment), or certain other expenses (that is to say, maintenance), while the sailor recovers from his injury.
Advance wage agreements will include a dispute resolution clause, which typically provides that: “In addition to making required maintenance and healing payments, the company is prepared to make advances of unearned wages and company benefits against the settlement, award or judgment of any claims that may arise. under the doctrine of unseaworthiness, the Jones Act or other applicable law provided that you agree to arbitrate such claims.” And: “In consideration of payment of unearned wages and Company benefits as described herein, you agree to arbitrate all claims against the Vessel and/or the Company under [pre-selected arbitral body].”
Advance wage agreements will also explicitly inform the seafarer that his employment with the company is not permanent. The agreement may state that “It is company policy to terminate the employment of any employee who misses two consecutive snags or is out of work for 12 consecutive months.” Termination “will not affect your right to maintenance, healing, advanced wages and benefits, which will continue to be paid until you are declared fit for duty or until you reach the maximum medical improvement .”
The validity of an agreement to arbitrate a seafarer’s personal injury dispute is supported by the Federal Arbitration Act (“FAA”). The FAA provides that “a written agreement to submit to arbitration an existing controversy arising out of such contract … shall be valid, irrevocable, and enforceable, except on such grounds as exist in law or equity for the revocation of any Contract.” 9 USC § 2.
The mandatory wording of the FAA reflects a strong, well-established and widely recognized federal policy in favor of arbitration. See, for example, Gilmer v. Interstate/Johnson Lane Corp., 500 US 20, 25 (1991) (the “FAA’s purpose was to reverse the long-standing judicial hostility to arbitration agreements that existed in the English common law and had been adopted by American courts, and to place arbitration agreements on the same footing as other contracts.”); Southland Corp. vs. Keating, 465 US 1, 10 (1984) (“In enacting § 2 of the [FAA], Congress declared a national policy favoring arbitration and removed the power of states to require a judicial forum for the settlement of claims that contracted parties have agreed to settle by arbitration. “). Under normal circumstances, therefore, “an arbitration clause with a contract admittedly signed by the contracting parties is sufficient to oblige the district court to send the controversies to arbitration”. Chastain v Robinson-Humphrey Co., Inc., 957 F.2d 851, 854 (11th Cir. 1992).
In this context, arguments against the enforceability of the arbitration clause in an advanced wage agreement face an uphill battle. Seaman argued that the advanced wage agreement is considered a seafarer’s employment contract and is therefore void under the FAA. 9 USC § 1. Some may also argue that the federal Employers Liability Act (“FELA”) precludes the application of the arbitration clause. None of these arguments prevents the execution of the arbitration clause.
FAA Section 1 states that “Nothing contained herein shall apply to seafarers’ employment contracts, . . .” The term “seafarers’ employment contracts” has been interpreted as not referring to any contract connected or related to the employment of a seafarer. And, courts have consistently ruled that post-incident agreements to pay advanced wages to a sailor are non-employment agreements under the FAA. See, for example, Harrington v. Atlantic Sounding Co., Inc., 602 F.3d 113, 121 (2d Cir. 2010) (stating that a post-incident agreement to pay advanced wages to a sailor in exchange for an arbitration agreement is not a contract of employment such as defined by the FAA); Terrebonne c. K Sea Transp. Corp., 477 F.3d 271, 279 (5th Cir. 2007) (holding that the “maintenance and repair” provisions of an arbitration agreement, although “an integral part of the love relationship, [are] separate from actual job Contract”) (emphasis in original).
The United States Supreme Court ruled in Boyd c. Grand Trunk Western Railroad, 338 US 263, 266 (1949) that sections 5 and 6 of the FELA nullified any contractual provision limiting the plaintiff’s choice of forum. The Jones Act incorporates by reference certain provisions of the FELA. In pure oil, the Fifth Circuit ruled that the on-premises provisions of FELA are not incorporated into the Jones Act. The argument that FELA provisions limiting jurisdiction should be applied to Jones Act cases was soundly rejected. Terrebonne, 477 F.3d at pp. 282-83 (“Because, pursuant to our decision in Pure Oil Co., the venue provisions of section 6 of the FELA are inapplicable to Jones Act cases, it necessarily follows that nothing in section 5 of the FELA applies to the venue of the Jones Act. Therefore, neither Boyd nor does Article 5 dictate the result here. ); Harington, 602 F.3d at 124 (“In finding that FELA §§ 5-6 and Boyd are inapplicable to seamen’s arbitration agreements, we agree with all the courts that have considered the issue. “).
The advance wage agreements have been attacked on the grounds that the agreement 1) is a “fraud in inducement” and a “negligent misrepresentation”, 2) suffers from a “lack of consideration” and 3) “constitutes a inappropriate release of sailors”. In Buckeye Check Cashing, Inc. vs. Cardegna, 546 US 440, 444 (2006), the Supreme Court held:
Contesting the validity of arbitration agreements. . . can be divided into two types. One guy specifically challenges the validity of the arbitration agreement. The other challenges the contract as a whole, either for a pattern that directly affects the whole chord (for example, the agreement was fraudulently induced), or on the grounds that the illegality of one of the provisions of the contract renders the entire contract void.
In addition, “unless the dispute relates to the arbitration clause itself, the question of the validity of the contract is examined in the first place by the arbitrator”. Buckeye Check Cashing, Inc. at 445 (emphasis added); see also Chastain v Robinson-Humphrey Co., Inc., 957 F.2d 851, 854 (11th Cir. 1992) (arbitration clause in contract admittedly signed by contracting parties sufficient to compel district court to refer disputes to arbitration).
After being upheld by several courts, advance wage agreements containing arbitration clauses will in all likelihood become common practice in maritime personal injury cases.