Employment dispute arbitration remains under litigation

ATLANTA -- Since the U.S. Supreme Court cleared the way for federal enforcement of mandatory arbitration agreements in employment disputes, courts have expanded the types of statutory claims subject to arbitration, while at the same time subjecting the details of arbitration clauses to intense judicial scrutiny.

At the American Bar Association's Annual Meeting, Evelyn Becker, a partner in the Washington, D.C., office of O'Melveny & Myers, outlined the landmark U.S. Supreme Court cases that set the stage for current issues. In 2001, the high court ruled in Circuit City v. Adams that agreements to arbitrate employment disputes are not exempt from enforcement under the Federal Arbitration Act. The following year, the justices ruled in Equal Employment Opportunity Commission (EEOC) v. Waffle House that the EEOC is allowed to sue an employer for victim-specific relief despite the existence of a mandatory arbitration agreement. (Waffle House has been applied to allow the EEOC to seek victim-specific relief where workers had signed waivers and releases with their employer.)

Two years after Circuit City, in EEOC v. Luce Forward Hamilton & Scripps, the full 9th Circuit Court of Appeals overturned its prior precedent and adopted the Supreme Court's position that arbitration affects only claimants' choice of forum, not their substantive rights. The EEOC's freedom to pursue judicial remedies further lessened the 9th Circuit's earlier concerns about mandatory arbitration agreements.

Following the 9th Circuit's decision in Luce Forward, the EEOC reached a settlement with the employer in that case that allows the employer to retain its mandatory arbitration agreement as long as it includes notice of employees' right to file charges with the EEOC. The settlement is notable because it conflicts with a 1997 position statement against mandatory arbitration of discrimination claims. Media accounts quoted an EEOC spokesperson as saying that while the 1997 policy statement is still in effect, the agency is examining the issue.

Courts have recently held that statutory claims under the Fair Labor Standards Act, the Age Discrimination in Employment Act and even whistleblower retaliation claims under the Sarbanes-Oxley Act are subject to arbitration under mandatory predispute agreements.

With the ultimate roadblock to federal enforcement of mandatory arbitration of employment disputes definitively removed, and the expanding jurisprudence on the types of statutory claims subject to arbitration, the focus of litigation has shifted to the question of whether the particular arbitration clause is enforceable--"a case specific, fact intensive" inquiry, explained Becker, who represents employers.

The Supreme Court has not addressed what standards are to be applied in determining enforceability, noted speaker Richard Williams, a Minnesota labor lawyer who also serves as an arbitrator in employment disputes.

To invalidate mandatory arbitration agreements, plaintiffs have turned to basic contract principles such as unconscionability, lack of mutuality of obligation and lack of valid consideration, according to Becker's materials. For example, a California appeals court this year refused to compel arbitration of an employment claim because the employee had no opportunity to negotiate the terms. The 6th Circuit recently held that an employer's exclusive control over the pool of potential arbitrators prevented the employee from vindicating her statutory rights.

On the other hand, some courts have upheld seemingly one-sided agreements in the face of traditional contract challenges, Becker reported. An Ohio federal trial court held, for example, that in an at-will employment relationship each day constitutes a new agreement. The employer's offer of something less than it offered the day before does not invalidate the second day's offer; it merely leaves it up to the employee to accept or reject it, the court said. Similarly, the same court held that if an employer were not allowed to offer a take-it-or-leave-it or "adhesion" contract to an at-will employee, then "'at will' would no longer mean 'at will.'"

While there may be precedent on both sides, panelist Edward C. Anderson said the issue of whether a take-it-or-leave-it offer of a contract that contains a mandatory arbitration clause is an unenforceable adhesion contract is "over." Specifically, requiring an employee's agreement to mandatory arbitration as a condition of employment is valid.

--Margaret M. Clark, J.D., SPHR

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