High Court Weighs in on Arbitration

June 15, 2001
Mandatory arbitration agreements have been shaded with doubt for years. Thenagging question: Just how enforceable are they? In March, the Supreme Courtanswered. In Saint Clair Adams v. Circuit City, the Court ruled that employersmay indeed require employees to bring all their work-related disputes before anarbitrator -- rather than file a lawsuit. In short, this major decision allowsemployers to establish arbitration programs as the sole means for employees toissue complaints -- replacing court action as an option.Larry Lorber, a partner in the Washington, D.C., office of Proskauer Rose LLP --and the author of the amicus brief in the case on behalf of the Chamber ofCommerce -- explains the case and its fallout for employers.

What is the crux of Saint Clair Adams v. Circuit City?
Adams was hired by Circuit City, and signed an arbitration agreement. Hecomplained to his supervisors of being harassed because he was gay. He claimednot only that there was no response, but also that his managers belittled hiscomplaints and encouraged the harassment. He resigned and filed a Californiastate cause of action.
And the case reached the Supreme Court. What was the nature of the justices'ruling?
In a 5 to 4 decision, the justices argued that they want these cases to go toarbitration. The Supreme Court is very pro-arbitration, partly because thecourts are getting inundated with similar lawsuits.
How will this ruling affect EEOC complaints?
There will be an arbitration case -- EEOC v. Waffle House -- next termdeciding this question. The issue is whether an employee's agreement toarbitrate would prohibit the EEOC from filing a lawsuit on the employee'sbehalf. (The fourth circuit court held that the EEOC can pursue injunctiverelief, but not monetary relief, for an individual who'd signed an arbitrationagreement.)
So this is a decision with major implications, but a lot of loose ends,right?
This whole issue isn't over. The Supreme Court only answered the basicquestion. They simply said, yes, mandatory arbitration agreements andpre-employment arbitration agreements will be enforceable. And that will trumpany state law. But whether employees have to pay part of the arbitration cost,whether their remedies can be limited, whether they get damages -- all thoseissues are still floating around. The Supreme Court answered the most narrowquestion it had to -- but it didn't answer all the others.
Where does that leave us? Can employers, for instance, have an agreement thatsays no matter what the claim, race or sex discrimination, the employee has togo through mandatory arbitration?
Yes. That you can do. But there's the issue: do you make the employee pay forthe cost of the arbitrator? There's a case out of Washington, D.C., where thecircuit court said no, you can't, because if you do that, you're placing aburden on the employee that the employee wouldn't otherwise have if thecomplaint went to court. Other courts have said you can charge employeessomething, (similar to) filing fees. So a lot of these circuit courts haveestablished parameters.
What should a legally defensible agreement look like in light of the SupremeCourt's decision?
Employers should look at protocols written by the American ArbitrationAssociation and the American Bar Association explaining what they would allow asemployment arbitration. But these agreements should allow for some degree ofdiscovery, and damages. You can't have punitive damages in arbitration -- that'ssomething only a court could order. So the damages may not be at the same levelas you'd get in court, but some degree of damages is probably required.
What about class actions? What happens there?
There are questions as to whether you can have class-action arbitration. Idon't think you can. But that will be a question, because by definitionarbitrations are individual complaints. So how do you bring a class action ifthe individuals don't all go through the arbitration process of filing andundergoing some degree of mediation? I don't think it's a matter of law that youhave to have class actions -- that's created by litigation rules and procedure.
Can employers say in the agreement that employees can't file a complaint withEEOC?
Absolutely not -- that you can't do. You can't prevent anybody from going tothe EEOC or filing a charge with the EEOC. That's what this Waffle House case isabout: what happens if they do file with the EEOC? That's a right employeescan't waive. Just as in some settlement agreements, employers can't say,"You can't complain to the EEOC." But what you can say is, "Youcan't benefit. If you take our money, you can't benefit from the EEOC." Soyou can't prevent employees from filing a charge. But this Waffle House case maysay that if an employee has signed an arbitration agreement, he or she may filea charge, but it doesn't mean anything.
What else should agreements include right now?
The arbitration agreement should be accessible to employees. It shouldn't bedesigned in a way that, by either cost or process, it's going to inhibitemployees in being able to bring a claim. Employees should be allowed to berepresented. In fact, they have to be allowed to be represented. There's aquestion then -- should the arbitration agreement provide for some attorneys' fees? I'd think the answer is yes. I know there have beensome arbitration agreements that provide for attorneys' fees -- not unlimited,but attorneys' fees.
How should arbitrators be decided?
The agreement should provide for a degree of fairness as to who thearbitrator is. You don't want to have a closed panel of arbitrators who arearguably dependent on the employer for their business. Go through the AmericanArbitration Association or any of these independent arbitration outfits. Atleast have a wide-open panel, allowing the employee and employer -- as they doin union contests -- to choose an arbitrator.
What else should an agreement allow for?
Provide some degree of discovery. In my own view, not anything like federaldiscovery, which is simply a boon for lawyers -- it costs everybody a fortune,but for no particular benefit. Have written opinions. And have, prior toarbitration, some form of dispute-resolution mechanism. A fairdispute-resolution component will help the process do what it's supposed to do:resolve these matters quickly.

Workforce, June 2001, pp. 100-101 --  SubscribeNow!