The Ties That Bind

In stark contrast, 17 years later, the Supreme Court decided the landmark case of Gilmer v. Interstate/Johnson Lane Corp, 500 U.S. 20 (1991). In that case, the Court held that a statutory discrimination claim brought under the Age Discrimination in Employment Act (ADEA) was subject to the mandatory pre-dispute arbitration agreement contained in a U-4 agreement that the plaintiff had signed as a condition to employment, and that the plaintiff was precluded from trying his discrimination claims before a jury. The agreement was mandated by the NYSE and required disputes between employees and employers regulated by NYSE rules to submit grievances to an NYSE arbitration panel. The Court relied on the strong federal policy of enforcing arbitration agreements pursuant to the Federal Arbitration Act (FAA). It rejected the plaintiff's claim that enforcement of the arbitration agreement undermined his substantive rights under the ADEA, finding that a waiver of a jury trial is not a waiver of a substantive right. Significantly, the Court found that the arbitration procedures provided under the agreement were sufficient to afford a full and fair review of a statutory discrimination claim, and that the supposed unequal bargaining power between an employer and employee did not render the mandatory agreement unenforceable absent evidence of coercion or fraud.

The Court did not overrule Gardner-Denver with its decision in Gilmer, but rather took pains to distinguish the two cases, thus setting up a rift that has never been mended: Employees who are subject to mandatory arbitration procedures under a collective bargaining agreement can still avoid arbitration of their statutory discrimination claims, but employees who sign individual agreements containing mandatory arbitration provisions – even as a condition of employment — can be compelled to arbitrate their Title VII claims.

'Obviously Some Tension'

In the 1998 case of Wright v. Maritime Service Corporation, 525 U.S. 70 (1998), the Supreme Court acknowledged that there was “obviously some tension” between Gardner-Denver and Gilmer, but expressly declined to resolve the split. Rather, the Court left open the possibility that a collective bargaining agreement could operate as a waiver of an employee's right to bring his Title VII or other statutory discrimination claim to court, but only if the waiver was explicitly stated and it was “clear and unmistakable.” The Court declined to elaborate much further, and so it remains an open question as to what magic language in a collective bargaining agreement would be “clear and unmistakable” enough to be upheld. Clearly, an arbitration provision must specifically list the names of the employment statutes it covers and affirmatively provide that the employer will adhere to federal and state local non-discrimination laws to bar a union-represented employee from bringing his or her claims in court. The collective bargaining agreement also should specifically state that the employees governed by it agree to submit all claims arising under federal, state and local non-discrimination laws to arbitration, rather than to a jury. Since Wright, only one federal circuit has held that a waiver in a collective bargaining agreement met the “clear and unmistakable” standard set forth in that case.

After Gardner-Denver, Gilmer, and Wright, some hostility to mandatory arbitration agreements remained. The EEOC took the position that private arbitral systems were “structurally biased” against employees and thus, mandatory arbitration would not be recognized and supported by the agency. Since the arbitration agreement in Gilmer was with a third-party regulatory agency, not between the employee and his employer, the debate centered around the FAA's applicability to employment agreements, given a provision of the FAA that arguably exempted employment agreements from its reach. In Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), however, the Supreme Court ruled in a 5-4 decision that the FAA applies to all contractual agreements between employers and employees to arbitrate workplace disputes, except for those involving transportation workers. Employers were particularly thrilled with the decision because it upheld a broad binding arbitration clause: the clause that was contained in an employment application stated that if hired the employee agreed to settle “all claims” arising out his employment by arbitration. Though the clause listed a few federal claims by way of example only, the employee brought his claims under state law; however, the court held that the mere fact the state laws were not included in the laundry list of possible claims did not mean that the clause was unenforceable.

Several Unresolved Issues

Notwithstanding Circuit City's ringing endorsement of mandatory arbitration agreements, there remain several unresolved issues that still jeopardize their enforceability. One of these is whether a provision that shifts arbitration costs to the employee or costs to the loser renders the agreement unenforceable as to statutory discrimination claims. Courts criticize these types of fee shifting provisions on the grounds that they overreach and deprive the employee of the ability to bring a statutory discrimination claim before a neutral decision-maker at no cost, when there is only a nominal fee charged for filing a claim with a court.

Another issue that is still evolving in the case law is to what degree arbitration clauses can limit discovery. Generally, discovery in arbitration proceedings is more limited than judicial discovery. In Gilmer, however, the Supreme Court explained that than an arbitration system without any discovery or too limited discovery might threaten the overall enforceability of an arbitration. Thus, an arbitration agreement that does not allow the employee access to relevant information might be rendered unenforceable as against statutory discrimination claims.

Furthermore, while Circuit City made it clear that the FAA applies to employment disputes, the Court left open the issue as to whether mandatory arbitration agreements may limit the scope of remedies available to an employee. As a general rule, a mandatory arbitration agreement should provide the same remedies available in a judicial forum (eg, reinstatement, back pay, front pay, compensatory and punitive damages, attorneys' fees) or the agreement may be found to be unenforceable.

Recent Decisions

The Supreme Court further clarified the reach of a mandatory arbitration agreement between an employee and an employer in EEOC v. Waffle House, Inc, 534 U.S. 279 (2002). In Waffle House, the plaintiff-employee signed an arbitration agreement when he applied for his job. When he was later fired after he suffered a seizure at work, he filed a charge with the EEOC. The agency brought suit in accordance with its statutory enforcement powers, but the employer contended that the arbitration agreement barred the EEOC's suit. The Court ruled that although the employee and the employer had signed an agreement to arbitrate, the EEOC was not a party to that agreement and therefore was not bound by the mandatory arbitration provision, leaving open the question of what remedies could be recovered by the employee. Moreover, since the EEOC brings only a small number of claims each year, the ruling has had little impact on private arbitration agreements or employers' decisions to implement mandatory arbitration provisions.

Most recently, in a plurality decision, the Supreme Court in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), held that in the context of class-wide arbitrations the arbitrator — and not a court — should decide whether a particular arbitration agreement allows for class-wide arbitrations. The plurality arrived at its conclusion by deferring to the traditional division of labor between judges and arbitrators: Arbitrators usually decide whether a dispute is covered by an arbitration, while judges decide on review whether an arbitration ruling was arbitrary and capricious. The Court left many issues about arbitration of class actions unresolved. Courts remain split on whether an arbitration clause that makes no mention of class-wide arbitration forecloses the possibility of such arbitrations. Moreover, the Green Tree decision did not address the split among courts as to whether an arbitration or a judge should decide if a class should be certified if they are deemed permitted by an agreement.

Conclusion

In sum, the Supreme Court has shown an unmistakable trend toward favoring arbitration of Title VII claims that has paralleled the increasing percentage of employment cases filling the courts' dockets. Employment cases now make up a third of the federal docket, and courts recognize that arbitration can be an excellent way for employers and employees to achieve a cost efficient and speedy resolution of discrimination claims. Arbitration offers a more confidential forum where a claim is less likely to be litigated in the papers. However, opponents of mandatory arbitration programs contend that they may actually result in an increase in the number of employee grievances due to the easy accessibility of such a program. In addition, there is the risk that an outside arbitrator will “split the baby” or not strictly follow the law in resolving the claim. The limited ability to appeal to an arbitrator's ruling makes this risk particularly significant for both sides to the agreement. It is clear, however, that employers that do want a mandatory arbitration program have enough guidance from a plethora of recent Supreme Court rulings to craft an enforceable agreement.

Katharine H. Parker Jeremy M. Mittman

It's no secret that over the last decade, employees have been able to obtain large damages awards from employers in Title VII claims. Accusations of glass ceilings and racial and sexual harassment, for instance, are regularly splashed across headlines. Juries often see a sympathetic plaintiff and an employer with deep pockets. The prospect of a runaway jury is a prime motivation for employers to seek mandatory arbitration of these claims. Arbitration can in some cases reduce the costs of litigation, provide greater confidentiality, and provide a decision that is more predictable and less charged with emotion. There has been much controversy over so-called mandatory arbitration agreements, but a number of Supreme Court decisions in the last two decades have substantially refined the law in this area since the seminal case of Alexander v. Gardner-Denver Co.

Supreme Court Rulings

In Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), the Supreme Court decided that a union-represented employee was not precluded from bringing his Title VII claim in court even though he had arbitrated the same claim pursuant to a mandatory arbitration clause in the collective bargaining agreement governing his employment. The Court reasoned that, because an employee's rights are “individual” under Title VII, a union cannot prospectively waive these rights through a collective bargaining agreement with an employer.

In stark contrast, 17 years later, the Supreme Court decided the landmark case of Gilmer v. Interstate/Johnson Lane Corp , 500 U.S. 20 (1991). In that case, the Court held that a statutory discrimination claim brought under the Age Discrimination in Employment Act (ADEA) was subject to the mandatory pre-dispute arbitration agreement contained in a U-4 agreement that the plaintiff had signed as a condition to employment, and that the plaintiff was precluded from trying his discrimination claims before a jury. The agreement was mandated by the NYSE and required disputes between employees and employers regulated by NYSE rules to submit grievances to an NYSE arbitration panel. The Court relied on the strong federal policy of enforcing arbitration agreements pursuant to the Federal Arbitration Act (FAA). It rejected the plaintiff's claim that enforcement of the arbitration agreement undermined his substantive rights under the ADEA, finding that a waiver of a jury trial is not a waiver of a substantive right. Significantly, the Court found that the arbitration procedures provided under the agreement were sufficient to afford a full and fair review of a statutory discrimination claim, and that the supposed unequal bargaining power between an employer and employee did not render the mandatory agreement unenforceable absent evidence of coercion or fraud.

The Court did not overrule Gardner-Denver with its decision in Gilmer, but rather took pains to distinguish the two cases, thus setting up a rift that has never been mended: Employees who are subject to mandatory arbitration procedures under a collective bargaining agreement can still avoid arbitration of their statutory discrimination claims, but employees who sign individual agreements containing mandatory arbitration provisions – even as a condition of employment — can be compelled to arbitrate their Title VII claims.

'Obviously Some Tension'

In the 1998 case of Wright v. Maritime Service Corporation , 525 U.S. 70 (1998), the Supreme Court acknowledged that there was “obviously some tension” between Gardner-Denver and Gilmer , but expressly declined to resolve the split. Rather, the Court left open the possibility that a collective bargaining agreement could operate as a waiver of an employee's right to bring his Title VII or other statutory discrimination claim to court, but only if the waiver was explicitly stated and it was “clear and unmistakable.” The Court declined to elaborate much further, and so it remains an open question as to what magic language in a collective bargaining agreement would be “clear and unmistakable” enough to be upheld. Clearly, an arbitration provision must specifically list the names of the employment statutes it covers and affirmatively provide that the employer will adhere to federal and state local non-discrimination laws to bar a union-represented employee from bringing his or her claims in court. The collective bargaining agreement also should specifically state that the employees governed by it agree to submit all claims arising under federal, state and local non-discrimination laws to arbitration, rather than to a jury. Since Wright, only one federal circuit has held that a waiver in a collective bargaining agreement met the “clear and unmistakable” standard set forth in that case.

After Gardner-Denver, Gilmer, and Wright, some hostility to mandatory arbitration agreements remained. The EEOC took the position that private arbitral systems were “structurally biased” against employees and thus, mandatory arbitration would not be recognized and supported by the agency. Since the arbitration agreement in Gilmer was with a third-party regulatory agency, not between the employee and his employer, the debate centered around the FAA's applicability to employment agreements, given a provision of the FAA that arguably exempted employment agreements from its reach. In Circuit City Stores, Inc. v. Adams , 532 U.S. 105 (2001), however, the Supreme Court ruled in a 5-4 decision that the FAA applies to all contractual agreements between employers and employees to arbitrate workplace disputes, except for those involving transportation workers. Employers were particularly thrilled with the decision because it upheld a broad binding arbitration clause: the clause that was contained in an employment application stated that if hired the employee agreed to settle “all claims” arising out his employment by arbitration. Though the clause listed a few federal claims by way of example only, the employee brought his claims under state law; however, the court held that the mere fact the state laws were not included in the laundry list of possible claims did not mean that the clause was unenforceable.

Several Unresolved Issues

Notwithstanding Circuit City's ringing endorsement of mandatory arbitration agreements, there remain several unresolved issues that still jeopardize their enforceability. One of these is whether a provision that shifts arbitration costs to the employee or costs to the loser renders the agreement unenforceable as to statutory discrimination claims. Courts criticize these types of fee shifting provisions on the grounds that they overreach and deprive the employee of the ability to bring a statutory discrimination claim before a neutral decision-maker at no cost, when there is only a nominal fee charged for filing a claim with a court.

Another issue that is still evolving in the case law is to what degree arbitration clauses can limit discovery. Generally, discovery in arbitration proceedings is more limited than judicial discovery. In Gilmer, however, the Supreme Court explained that than an arbitration system without any discovery or too limited discovery might threaten the overall enforceability of an arbitration. Thus, an arbitration agreement that does not allow the employee access to relevant information might be rendered unenforceable as against statutory discrimination claims.

Furthermore, while Circuit City made it clear that the FAA applies to employment disputes, the Court left open the issue as to whether mandatory arbitration agreements may limit the scope of remedies available to an employee. As a general rule, a mandatory arbitration agreement should provide the same remedies available in a judicial forum (eg, reinstatement, back pay, front pay, compensatory and punitive damages, attorneys' fees) or the agreement may be found to be unenforceable.

Recent Decisions

The Supreme Court further clarified the reach of a mandatory arbitration agreement between an employee and an employer in EEOC v. Waffle House, Inc , 534 U.S. 279 (2002). In Waffle House, the plaintiff-employee signed an arbitration agreement when he applied for his job. When he was later fired after he suffered a seizure at work, he filed a charge with the EEOC. The agency brought suit in accordance with its statutory enforcement powers, but the employer contended that the arbitration agreement barred the EEOC's suit. The Court ruled that although the employee and the employer had signed an agreement to arbitrate, the EEOC was not a party to that agreement and therefore was not bound by the mandatory arbitration provision, leaving open the question of what remedies could be recovered by the employee. Moreover, since the EEOC brings only a small number of claims each year, the ruling has had little impact on private arbitration agreements or employers' decisions to implement mandatory arbitration provisions.

Most recently, in a plurality decision, the Supreme Court in Green Tree Financial Corp. v. Bazzle , 539 U.S. 444 (2003), held that in the context of class-wide arbitrations the arbitrator — and not a court — should decide whether a particular arbitration agreement allows for class-wide arbitrations. The plurality arrived at its conclusion by deferring to the traditional division of labor between judges and arbitrators: Arbitrators usually decide whether a dispute is covered by an arbitration, while judges decide on review whether an arbitration ruling was arbitrary and capricious. The Court left many issues about arbitration of class actions unresolved. Courts remain split on whether an arbitration clause that makes no mention of class-wide arbitration forecloses the possibility of such arbitrations. Moreover, the Green Tree decision did not address the split among courts as to whether an arbitration or a judge should decide if a class should be certified if they are deemed permitted by an agreement.

Conclusion

In sum, the Supreme Court has shown an unmistakable trend toward favoring arbitration of Title VII claims that has paralleled the increasing percentage of employment cases filling the courts' dockets. Employment cases now make up a third of the federal docket, and courts recognize that arbitration can be an excellent way for employers and employees to achieve a cost efficient and speedy resolution of discrimination claims. Arbitration offers a more confidential forum where a claim is less likely to be litigated in the papers. However, opponents of mandatory arbitration programs contend that they may actually result in an increase in the number of employee grievances due to the easy accessibility of such a program. In addition, there is the risk that an outside arbitrator will “split the baby” or not strictly follow the law in resolving the claim. The limited ability to appeal to an arbitrator's ruling makes this risk particularly significant for both sides to the agreement. It is clear, however, that employers that do want a mandatory arbitration program have enough guidance from a plethora of recent Supreme Court rulings to craft an enforceable agreement.

Katharine H. Parker Jeremy M. Mittman Proskauer Rose New York