Do employment arbitration clauses apply to corporate director decisions? Edwards v. Carey Explained

Background and Facts

In Edwards v. Carey, Joseph Edwards and Michael Carey co-founded Seirus Innovative Accessories Inc., each owning fifty percent of the company. Edwards, Michael, and Wendy Carey served as the company’s directors and officers. During a July 2015 board meeting, Michael and Wendy voted to remove Edwards as an officer and approve an equity exchange offering that ultimately diluted Edwards’ ownership interest to 44.56% while increasing Michael’s interest to 55.44%. Edwards sued the Careys two days later, challenging these board actions.

Key Legal Issues

The primary issue was whether Edwards’ claims were subject to mandatory arbitration under the employment agreements that Michael and Wendy had signed with the company. The Careys argued that their challenged actions fell within the scope of their duties as corporate officers, triggering the arbitration provisions. The district court had to determine whether the defendants acted in their capacity as directors or as officers when making the contested decisions.

Court’s Analysis and Holding

The Utah Court of Appeals affirmed the district court’s denial of the motion to compel arbitration. The court emphasized that arbitration is a matter of contract and parties cannot be required to arbitrate disputes they have not agreed to arbitrate. Although the Careys wore “different hats” within the company, the court found that Edwards’ amended complaint plainly focused on actions the Careys took as corporate directors, not as officers. The court noted that the challenged decisions were made during a board meeting where Michael and Wendy voted as directors, and Edwards’ causes of action specifically targeted their conduct in that capacity.

Practice Implications

This decision provides important guidance for corporate litigation involving parties who serve multiple roles within a company. Practitioners must carefully analyze the specific capacity in which defendants acted when determining whether employment agreement arbitration provisions apply. The court’s holding demonstrates that even when corporate officers make recommendations or take preliminary actions in their officer capacity, if the ultimate harm stems from board decisions made in their director capacity, employment arbitration clauses will not apply. This distinction is particularly crucial in closely-held corporations where individuals often serve as both directors and officers.