Case on workplace grievances could affect millions

Five years ago, St. Clair Adams saw a Help Wanted sign at the Circuit City store in Santa Rosa, Calif., and went in to apply for a job. He remembers feeling only "minor discomfort" when told he would not be considered unless he gave up his right to sue the retailer.

"I just needed to pay my house payments and was looking for a full- time job," Adams said. "I was thinking, why is this going to affect me?" He signed on the dotted line and went to work selling computers.

As things have turned out, the two pages of legalese Adams signed affected not just him but many others as well: They are at the heart of a Supreme Court case, Circuit City vs. Adams, that could enhance or diminish the workplace status of millions of Americans.

Not long after he joined the company, Adams began to be hazed by fellow sales representatives who suspected that he might be gay. He complained to his supervisor, got no satisfaction, and finally decided to bring harassment charges against the company. Circuit City promptly countersued, saying Adams had waived his right to a trial and must submit to arbitration.

Adams persisted, and this week the Supreme Court will hear oral argument in the case, which is expected to settle whether such waivers are legally enforceable between employers and non-union employees.

Ten years ago, it was virtually unheard of for a company to make its employees agree to resolve all workplace disputes in nonjudicial forums. But the practice, which has been long established in other settings, caught on in the workplace in the 1990s, as businesses sought to pare legal costs and reduce their exposure to unpredictable juries.

Today, the agreements turn up repeatedly in job applications and employee manuals. They usually state that all workplace grievances must be taken to arbitrators. In many cases, employees are told they must sign if they want to keep their jobs.

Because arbitration is a private procedure, statistics on its use in the workplace are sketchy. The General Accounting Office estimated in 1995 that one company in ten used arbitration to sort out employee grievances, though not all made it mandatory. One large provider, the American Arbitration Association, says it administers programs at 500 companies, covering more than 5 million employees, and gets eight to ten new company requests each month.

Companies that require arbitration say the process is fair, inexpensive, faster and less traumatic for everybody than lawsuits. Surveys show that many employees who air their grievances before an arbitrator come away satisfied.

But critics say that making workers waive their right to sue their employers can be coercive and raises serious civil liberties issues. Though few employees know it when handed a piece of boilerplate to sign, some academic research suggests the practice of arbitration in the non-union workplace tends to favor companies. And while employees will rarely go through arbitration more than once, many businesses that engage in it again and again learn to "play" the system, according to Lisa B. Bingham, a professor of public service at Indiana University.

Wrongful dismissal, sexual harassment, race discrimination -- the agreements consign such allegations to closed-door tribunals, where the procedural rules have been written by the companies themselves, sometimes to the great disadvantage of unsuspecting employees.

One California receptionist, Sherri I. Warner, tried to bring sexual harassment charges against her employer, a plastic surgeon, but was sent to arbitration because she had signed a waiver when she was hired. She lost her case -- something that might have happened at trial, too -- but the arbitrator then ordered her to pay his own $18,260 fee, plus the plastic surgeon's $207,271 legal bills. Her lawyer, Stephen J. Gorski, said she has filed for personal bankruptcy.

Other companies have set up programs barring employees from suing them, but reserving the right to sue employees. Some, like Circuit City, cap the awards aggrieved employees may seek.

Hooters of America, which operates Hooters restaurants, required its waitresses, bartenders and other staff to agree to a program that allowed the company to pick the arbitrators, a privilege comparable to letting a defendant choose his own jurors. A federal appellate court last year found Hooters' agreement "utterly lacking in the rudiments of evenhandedness" and released employees from it.

Many agreements emphasize that the proceedings will be private; some even threaten to fine employees who talk about their grievances.

"Remember how we used to mock the Soviet Union for having a civil justice system that was private?" said Cliff Palefsky, a San Francisco employment lawyer and longtime foe of mandatory arbitration in the workplace.

The agencies that enforce the nation's labor and anti- discrimination laws also find the privacy particularly troubling, for it shields workplace disputes involving mass layoffs, plant closings, charges of discrimination and sexual harassment from public view.

"Decisions usually aren't written, so they're virtually unreviewable by a court," said Carolyn Wheeler, assistant general counsel for the Equal Employment Opportunity Commission. "It freezes the development of the law."

In recent years, the EEOC has taken several companies to court for requiring employees to sign arbitration agreements as a condition of employment.

Different jurisdictions have handled the cases differently, but in most, courts have found the agreements enforceable as long as the rules don't put employees at extreme disadvantage.

Still, Wheeler said the lawsuits have slowed the spread of mandatory arbitration in recent years, and have prompted the firms that provide arbitration services to set minimal procedural standards.

She said companies are now watching to see whether the Supreme Court will sanction the practice.

"If the outcome of the Circuit City case is that arbitration agreements are enforceable, then I don't know why everybody wouldn't adopt them," Wheeler said.

Programs requiring all employees to arbitrate their complaints appeared after the Supreme Court ruled in 1991 against a stockbroker who wanted to sue his firm for age discrimination. Years earlier, he had signed an arbitration clause as part of his registration with the New York Stock Exchange. The clause was meant to cover disputes between investors and brokers, but the Supreme Court affirmed that it could also apply to employment disputes. (The exchange has since deleted the clause from its registration forms.)

Before long, management-side employment lawyers were urging corporate clients to put themselves on the same legal footing. Their advice fell on receptive ears, for 1991 was also the year Congress amended the civil-rights statutes, allowing people to bring discrimination complaints before juries, and to seek punitive damages awards and payments for emotional distress. Businesses, some still beset with unresolved age-discrimination complaints from the layoffs of the 1980s, faced the prospect of even higher-profile trials and bigger jury awards.

In 1996, General Electric Aircraft Engines assembled its employees in an auditorium and explained that it was adopting a Dispute Resolution Program. It involved four layers of hearings, culminating in arbitration.

"Everybody was a little ticked off, but what could you say?" recalled James E. Broadnax, an engineer who at that time had been with GE for 17 years. "It was a condition of employment."

The GE rules emphasized privacy, forbidding employees with disputes from seeking out sympathetic colleagues or sharing documents. GE did, however, retain the right "to interview witnesses and gather information" itself.

Arbitrators' decisions were not to be published, or cited as precedent in future disputes, the rules said.

Broadnax had been thinking about taking GE Aircraft Engines to court when the arbitration rules were handed out. He is black, and said that from 1993 to 1997, he was passed over for promotions 11 times by whites he considered less qualified. By 1997, he felt sure he had a case, but the new rules required him to complete the four steps first.

Three years later and $116,000 in lawyers' fees poorer, he is finally ready to take his complaint to court.

But now, GE Aircraft Engines' lawyers are arguing that the statute of limitations ran out.

"When I got into the first $20,000 of debt with this, I should have stopped," Broadnax said. "Any normal citizen would have. The company is interested in the employee running out of time and patience. That's how they win."

Rick Kennedy, GE Aircraft Engines' spokesman, declined to comment on Broadnax's situation while it was before the court. But he said that the vast majority of GE Aircraft Engines employees who have used the company dispute-resolution program have been able to solve their disputes at the lower levels, and don't even need arbitration.

"It's been useful to both sides," he said.

St. Clair Adams harbors suspicions similar to Broadnax's about Circuit City's arbitration program, which has been challenged in a number of jurisdictions and found unenforceable in a few because of its limit on punitive damages.

Circuit City declined to discuss the matter while its case with Adams is before the Supreme Court.

As Adams tells it, his complaint arose out of a petty incident: His co-workers, he said, liked to make crude remarks about the customers behind their backs; one day they were chortling about a big- busted shopper, and he tried to hush them.

"I said, `Stop, we could be fired for that,'" he recalled. "They said, `Oh, you must be gay.'"

Adams is, in fact, gay, but he hadn't wanted to say so because his co-workers seemed intolerant. When confronted, though, he didn't want to deny it, so he didn't say anything. The next thing he knew, he said, he was the butt of endless sexual jokes and pranks. Even his immediate supervisor joined in, he said.

Adams said he repeatedly asked the store manager to intervene, but the hazing just got worse. Finally, he announced that he needed time off to see an attorney. Suddenly the fun was over. The store manager called in a team of investigators from Circuit City's human- resources department; their questions scared Adams' co-workers into thinking they were about to be fired, and they blamed it on him.

Adams ended up on tranquilizers, severely depressed. A doctor prescribed a disability leave, and when he took it, Circuit City informed him that he had never applied for employee benefits, so none would be forthcoming.

"I had no medical; no dental; nothing," Adams said.

"All these creditors were calling me. Circuit City was calling and threatening me. The whirlwind of stress really took a toll on me."

Adams eventually moved to San Diego, to distance himself from what he calls "this tailspin."

But he still can't understand, he said, why any company would spend so much time and money trying to keep someone like him out of court. If anyone had just paid attention the first time, he said, he would never have had a grievance.

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