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In the wake of several United States Supreme Court decisions, many employers have implemented mandatory arbitration procedures in order to avoid costly federal and state law employment discrimination trials. The idea that arbitration offers a cheaper alternative and avoids the possibility of a 'runaway jury' has considerable appeal for employers who are now subject to a host of employment discrimination and other workplace protection statutes.
Unfortunately for employers, however, arbitration is not the panacea it was originally thought to be. Many of the so called 'advantages' once considered to be the impetus for adopting an arbitration procedure for workplace disputes do not exist, or at least do not offer the benefits many hoped they would. One alternative, mostly overlooked in the employment law context, is the issue of entering into agreements with employees to waive their rights to jury trials. A recent decision in the Southern District of New York has suggested that such an approach may be lawful. As discussed below, such agreements may offer employers some of the benefits they hoped to have achieved through the adoption of an arbitration procedure ' without the pitfalls.
Supreme Court's Endorsement of Arbitration of Workplace Disputes
In Circuit City v. Adams, 532 U.S. 105, 121 S.Ct. 1302 (2001), the United States Supreme Court made it easier for employers to resolve workplace disputes through the use of arbitration procedures rather than the courts. The Court held that employment agreements containing arbitration provisions are enforceable under federal law. The decision gives broad protection to arbitration agreements under the Federal Arbitration Act. Previously, in Gilmer v. Interstate/Johnson Lane Corporation, the Court held that a plaintiff who had signed a registration application which included, inter alia, an arbitration clause binding him to arbitrate any disputes relating to his profession was required to arbitrate his claim under the Age Discrimination in Employment Act (ADEA), 29 U.S.C. ' 621 et seq.
Problems Enforcing Arbitration Agreements
Notwithstanding the willingness of the Supreme Court to enforce arbitration agreements, many lower courts have not given employers carte blanche in this area. Arbitration agreements that are deemed to be too one-sided will not be enforced. Just how fair arbitration agreements must be remains uncertain.
A good example of this issue is the Ninth Circuit's decision on remand from the Supreme Court in Circuit City v. Adams, 279 F.3d 889 (9th Cir. 2002). The Court of Appeals unanimously ruled that the arbitration agreement at issue was unenforceable because it was too one-sided. The agreement at issue in Circuit City was held to be procedurally unconscionable because it was a contract of adhesion: 'a standard-form contract, drafted by the party with superior bargaining power, which relegates to the other party the option of either adhering to its terms without modification or rejecting the contract entirely.' ' It was also found to be substantively unconscionable because the agreement: 1) required employees to arbitrate all 'employment-related legal disputes, controversies or claims' against the employer but did not require the employer to arbitrate its claims against employees; 2) required employees to split the arbitrator's fee with the employer; 3) imposed a strict 1-year statute of limitations on the arbitration of claims; and 4) limited the relief available to employees to injunctive relief, up to 1 year of back pay and up to 2 years of front pay, compensatory damages, and punitive damages in an amount up to the greater of the amount of back pay or front pay awarded, or $5000. Because the unconscionable provisions could not be severed, the entire arbitration agreement was unenforceable.
More recently, in Brooks v. Travelers Insurance Co., 297 F.3d 167 (2d Cir. 2002), the Second Circuit expressed significant concerns about the enforceability of an arbitration agreement that limited the number of days of arbitration hearings, limited the amounts of damages and relief available to a prevailing party, and potentially denied prevailing plaintiffs attorneys' fees. In addition, the D.C., Tenth, and Eleventh Circuits have found that arbitration agreements that require a Title VII plaintiff to pay all or part of an arbitrator's fee may be unenforceable. Clearly, courts have taken a case-by-case approach in determining whether a particular arbitration agreement is enforceable or considered defective because it fails to adequately provide for the vindication of federal statutory rights. Thus, there is no guarantee that any particular arbitration provision will be enforced.
Waiver of Jury Trial
Until recently there were very few employment cases discussing the issue of a waiver of the right to a jury trial. However, in Brown v. Cushman & Wakefield, Inc., 2002 WL 1751269 (S.D.N.Y. July 29, 2002), aff'd, 235 F.Supp.2d 291 (S.D.N.Y. 2002), a court held that an employee could lawfully waive his or her right to a trial by jury. In Brown, the plaintiff signed an employment agreement on May 3, 1999 specifically stating that she and her employer 'hereby do waive a trial by jury in any action, proceeding or counterclaim brought or asserted by either of the parties hereto against the other on any matters whatsoever arising out of this agreement.' After she was terminated on January 3, 2000, Brown filed a complaint alleging that she had been terminated because of her 'sex, pregnancy and childbirth.' She also claimed that the employer had beached her employment contract. The employer denied the allegations and also filed a counterclaim against Brown for payments made to her during her maternity leave. It also sought to strike Brown's demand for a trial by jury.
The court cited precedent, albeit in the commercial context, that parties to a contract may choose to waive their right to a jury trial. The agreement, however, must be 'knowing, voluntary and intentional.' To determine whether a waiver is knowing and voluntary, courts look to the following factors: 1) the negotiability of contract terms and negotiations between the parties concerning the waiver provision; 2) the conspicuousness of the waiver provision in the contract; 3) the relative bargaining power of the parties; and 4) the business acumen of the party opposing the waiver.
Although Brown claimed that she did not knowingly waive her right to a jury trial, the court disagreed. The waiver was sufficiently conspicuous in the agreement. Moreover, Brown was well educated, having obtained a Harvard MBA, and having worked as an investment banker. Her claim that she did not read the particular provision was dismissed as one that 'had no merit.' Accordingly, the court concluded that the contractual waiver of a jury trial applied to all of Brown's claims including those arising under federal and state discrimination statutes.
Brown obviously involved a well-educated plaintiff and a conspicuous waiver. Whether a less-educated person could demonstrate that the agreement was not voluntary has yet to be decided in the employment context. Still, applying the factors set forth in Brown, employers should be able to adopt such procedures if the waivers are conspicuous and written so that the average person could understand exactly what they are signing and are given a reasonable period of time to consider.
Waiver of Jury Trial Versus Arbitration
A waiver of a jury trial may be a more appealing alternative to arbitration because:
In short, jury trial waivers, as opposed to arbitration agreements may be a true cost saving device for employers. Not only may concerns about sympathetic juries be avoided, but there can be no doubt that each side will still say that they had their 'day in court.'
Mark N. Reinharz and Terence M. O'Neil, partners in the law firm of Rains & Pogrebin, P.C., represent management and are responsible for counseling and representing employers in a wide variety of labor and employment matters, including litigation in federal and state courts and before federal, state, and local administrative agencies.
In the wake of several United States Supreme Court decisions, many employers have implemented mandatory arbitration procedures in order to avoid costly federal and state law employment discrimination trials. The idea that arbitration offers a cheaper alternative and avoids the possibility of a 'runaway jury' has considerable appeal for employers who are now subject to a host of employment discrimination and other workplace protection statutes.
Unfortunately for employers, however, arbitration is not the panacea it was originally thought to be. Many of the so called 'advantages' once considered to be the impetus for adopting an arbitration procedure for workplace disputes do not exist, or at least do not offer the benefits many hoped they would. One alternative, mostly overlooked in the employment law context, is the issue of entering into agreements with employees to waive their rights to jury trials. A recent decision in the Southern District of
Supreme Court's Endorsement of Arbitration of Workplace Disputes
Problems Enforcing Arbitration Agreements
Notwithstanding the willingness of the Supreme Court to enforce arbitration agreements, many lower courts have not given employers carte blanche in this area. Arbitration agreements that are deemed to be too one-sided will not be enforced. Just how fair arbitration agreements must be remains uncertain.
A good example of this issue is the Ninth Circuit's decision on remand from the
More recently, in
Waiver of Jury Trial
Until recently there were very few employment cases discussing the issue of a waiver of the right to a jury trial. However, in Brown v. Cushman & Wakefield, Inc., 2002 WL 1751269 (S.D.N.Y. July 29, 2002),
The court cited precedent, albeit in the commercial context, that parties to a contract may choose to waive their right to a jury trial. The agreement, however, must be 'knowing, voluntary and intentional.' To determine whether a waiver is knowing and voluntary, courts look to the following factors: 1) the negotiability of contract terms and negotiations between the parties concerning the waiver provision; 2) the conspicuousness of the waiver provision in the contract; 3) the relative bargaining power of the parties; and 4) the business acumen of the party opposing the waiver.
Although Brown claimed that she did not knowingly waive her right to a jury trial, the court disagreed. The waiver was sufficiently conspicuous in the agreement. Moreover, Brown was well educated, having obtained a Harvard MBA, and having worked as an investment banker. Her claim that she did not read the particular provision was dismissed as one that 'had no merit.' Accordingly, the court concluded that the contractual waiver of a jury trial applied to all of Brown's claims including those arising under federal and state discrimination statutes.
Brown obviously involved a well-educated plaintiff and a conspicuous waiver. Whether a less-educated person could demonstrate that the agreement was not voluntary has yet to be decided in the employment context. Still, applying the factors set forth in Brown, employers should be able to adopt such procedures if the waivers are conspicuous and written so that the average person could understand exactly what they are signing and are given a reasonable period of time to consider.
Waiver of Jury Trial Versus Arbitration
A waiver of a jury trial may be a more appealing alternative to arbitration because:
In short, jury trial waivers, as opposed to arbitration agreements may be a true cost saving device for employers. Not only may concerns about sympathetic juries be avoided, but there can be no doubt that each side will still say that they had their 'day in court.'
Mark N. Reinharz and Terence M. O'Neil, partners in the law firm of Rains & Pogrebin, P.C., represent management and are responsible for counseling and representing employers in a wide variety of labor and employment matters, including litigation in federal and state courts and before federal, state, and local administrative agencies.
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