A Word to the Wise

Many major employers have adopted internal dispute resolution programs designed to resolve internally employment disputes, and the numbers of such programs are only increasing. In prior years, these programs typically included a mediation step and ended in a final step of binding arbitration. Under such programs, employees were barred from opting out of the program to bring their claims in court. This is still the case with many employer dispute resolution programs. A growing number of employers, however, have moved away from this binding arbitration model and instead have provided employees with the option of opting out of the program after the mediation stage and permitting the employee to take his or her claim to court.

This is generally viewed as a positive development by the plaintiffs' bar. This “employee choice” model provides employees with the best of both worlds: an internal program that costs little or nothing to invoke while still permitting the employee to assert his or her legal rights in court.

Counsel representing an employee with a claim subject to the employer's ADR program providing such a choice needs to be cognizant, however, of two potential landmines: the possible need to exhaust internal remedies and the tolling, or better put the lack thereof, of applicable filing deadlines and statutes of limitation during the processing of claims internally.

The First Landmine

The requirement that employees exhaust internal remedies is a familiar one, present in such settings as claims brought under ERISA. In the employee choice context, mediation is invariably the final step before the employee is permitted to choose arbitration or litigation. Must employees exhaust this step before proceeding with their claim in court? There is little authority on this issue to date. But what authority there is suggests that exhaustion may in fact be required. Cf. Edwards v. Poulmentis, 307 A.D.2d 1051 (2d Dep't 2003)(agreement to mediate dispute enforceable). In any event, with the deluge of employment cases flooding the courts, it can reasonably be expected that employers' exhaustion arguments will receive a friendly response from overworked judges.

The Second Landmine

Perhaps a more serious danger to the interests of employees is the risk of an untimely filing with the EEOC or in court. The processing of claims internally does not serve to toll applicable statutes of limitation or filing deadlines. This should not be surprising as courts have uniformly ruled, in the analogous context of labor-management relations, that “the pendency of a grievance, or some other method of collateral review of an employment decision, does not toll the running of the limitations periods.” Delaware State College v. Ricks, 449 U.S. 250 (1980).

The no-tolling rule has just recently been applied in the non-union context to employee choice dispute resolution programs. In Fields v. Merrill Lynch, 2004 WL 137538 (S.D.N.Y. 1/27/04), the employee raised a sex discrimination claim under Merrill Lynch's Employment Disputes Resolution program. Under the company's program, employees are required to raise any dispute first with the human resources department and then to mediation. If the dispute is not resolved at the mediation stage, the employee has the choice of submitting the claim to an arbitrator or may instead file the claim in court. Here, Fields raised the claim with the human resources department and tried to have a step-two mediation. At the same time she sought mediation she also filed a charge of discrimination with the EEOC, 17 months after the last alleged discriminatory act. The EEOC closed the file on the case, finding that it was untimely filed. No mediation occurred and Fields then filed her claim in court.

Merrill Lynch moved to dismiss on timeliness grounds. The court granted the motion, finding that Fields' time to file with the EEOC was not extended by the processing of her claim internally. “Her participation in the Merrill EDR Program does not excuse her obligation to comply with the statutory prerequisites to a Title VII claim.” The court also found no basis to equitably toll the statute of limitations, as Merrill's program clearly informed employees that the processing of a claim did not serve to extend statutory limitations periods. The court noted that the delay in processing her internal claim did not interfere in any way with her ability to file with the EEOC.

Counsel representing employees in the confines of an employer's dispute resolution program are well-advised to recall for whom the limitations period bell does not toll, namely, your client and his or her claim in this setting.

Many major employers have adopted internal dispute resolution programs designed to resolve internally employment disputes, and the numbers of such programs are only increasing. In prior years, these programs typically included a mediation step and ended in a final step of binding arbitration. Under such programs, employees were barred from opting out of the program to bring their claims in court. This is still the case with many employer dispute resolution programs. A growing number of employers, however, have moved away from this binding arbitration model and instead have provided employees with the option of opting out of the program after the mediation stage and permitting the employee to take his or her claim to court.

This is generally viewed as a positive development by the plaintiffs' bar. This “employee choice” model provides employees with the best of both worlds: an internal program that costs little or nothing to invoke while still permitting the employee to assert his or her legal rights in court.

Counsel representing an employee with a claim subject to the employer's ADR program providing such a choice needs to be cognizant, however, of two potential landmines: the possible need to exhaust internal remedies and the tolling, or better put the lack thereof, of applicable filing deadlines and statutes of limitation during the processing of claims internally.

The First Landmine

The requirement that employees exhaust internal remedies is a familiar one, present in such settings as claims brought under ERISA. In the employee choice context, mediation is invariably the final step before the employee is permitted to choose arbitration or litigation. Must employees exhaust this step before proceeding with their claim in court? There is little authority on this issue to date. But what authority there is suggests that exhaustion may in fact be required. Cf. Edwards v. Poulmentis , 307 A.D.2d 1051 (2d Dep't 2003)(agreement to mediate dispute enforceable). In any event, with the deluge of employment cases flooding the courts, it can reasonably be expected that employers' exhaustion arguments will receive a friendly response from overworked judges.

The Second Landmine

Perhaps a more serious danger to the interests of employees is the risk of an untimely filing with the EEOC or in court. The processing of claims internally does not serve to toll applicable statutes of limitation or filing deadlines. This should not be surprising as courts have uniformly ruled, in the analogous context of labor-management relations, that “the pendency of a grievance, or some other method of collateral review of an employment decision, does not toll the running of the limitations periods.” Delaware State College v. Ricks , 449 U.S. 250 (1980).

The no-tolling rule has just recently been applied in the non-union context to employee choice dispute resolution programs. In Fields v. Merrill Lynch, 2004 WL 137538 (S.D.N.Y. 1/27/04), the employee raised a sex discrimination claim under Merrill Lynch's Employment Disputes Resolution program. Under the company's program, employees are required to raise any dispute first with the human resources department and then to mediation. If the dispute is not resolved at the mediation stage, the employee has the choice of submitting the claim to an arbitrator or may instead file the claim in court. Here, Fields raised the claim with the human resources department and tried to have a step-two mediation. At the same time she sought mediation she also filed a charge of discrimination with the EEOC, 17 months after the last alleged discriminatory act. The EEOC closed the file on the case, finding that it was untimely filed. No mediation occurred and Fields then filed her claim in court.

Merrill Lynch moved to dismiss on timeliness grounds. The court granted the motion, finding that Fields' time to file with the EEOC was not extended by the processing of her claim internally. “Her participation in the Merrill EDR Program does not excuse her obligation to comply with the statutory prerequisites to a Title VII claim.” The court also found no basis to equitably toll the statute of limitations, as Merrill's program clearly informed employees that the processing of a claim did not serve to extend statutory limitations periods. The court noted that the delay in processing her internal claim did not interfere in any way with her ability to file with the EEOC.

Counsel representing employees in the confines of an employer's dispute resolution program are well-advised to recall for whom the limitations period bell does not toll, namely, your client and his or her claim in this setting.