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Courts Continue to Examine Role of Arbitration Agreements in Employment Litigation

Volume 1, Issue 5
March 7, 2002

Most employers are beginning to recognize the potential benefits of pursuing private arbitration agreements to settle employment disputes, particularly since last year’s Supreme Court decision in Circuit City v. Adams , 121 S. Ct. 1302 (2001), upheld the validity of such agreements. However, two recent decisions should remind employers that private arbitration agreements will not always ensure that an employer is shielded from lawsuits.

U.S. Supreme Court Rules that Private Arbitration Agreements Do Not Bar EEOC From Seeking Relief

In a decision bolstering the enforcement authority of the Equal Employment Opportunity Commission (EEOC), the Supreme Court recently held that an arbitration agreement between a restaurant employee and his employer did not prevent the EEOC from seeking relief by bringing an Americans with Disabilities Act claim on the employee’s behalf. The Court determined that once a claim has been filed with the EEOC, the agency is in complete “command of the process” and is not bound by private arbitration agreements to which it is not a party. Specifically, the Court stated that the pro-arbitration goals of the Federal Arbitration Act do not require the EEOC to relinquish its statutory authority, which includes the authority to file suits on its own against employers.

In the abstract, the Court’s ruling should be a warning signal to employers that though a private arbitration agreement may prevent an employee from filing his or her own employment lawsuit, the same agreement does not ensure they will be immune from litigation should the EEOC decide to pursue litigation on behalf of the employee. In practice, however, this decision is limited since the EEOC’s rather strained resources dictate that it will pursue its own litigation in only the rarest of cases. EEOC v. Waffle House, Inc. , Case No. 99-1823 (Jan. 15, 2002).

On Remand, Ninth Circuit Refuses to Enforce Circuit City’s “Unconscionable” Agreement

A pre-employment arbitration agreement required by Circuit City Stores was found by the U.S. Court of Appeals for the Ninth Circuit to be unconscionable under California law, and therefore unenforceable. Determining that the agreement was a “contract of adhesion” offered on a take-it-or-leave-it basis, the Ninth Circuit determined that employee St. Clair Adams could not be compelled to arbitrate his discrimination claims against his employer. The U.S. Supreme Court had reversed an earlier ruling by the Ninth Circuit which had found the agreement was not covered by the Federal Arbitration Act. On remand, the Ninth Circuit noted that “Circuit City has devised an arbitration agreement that functions as a thumb on Circuit City’s side of the scale should an employment dispute ever arise between the company and one of its employees”. Of particular concern to the Ninth Circuit was: (1) execution of the agreement was a prerequisite to employment, and an employee had no ability to modify its terms; (2) the agreement limited the amount of relief that could be received by employees who took their claims to arbitration; and (3) the agreement dictated that the expense of arbitration would be split between the parties.

This decision should remind employers that they should be very careful in drafting the provisions of any proposed arbitration agreement. Employees should not be forced to completely give up statutory or procedural rights which they might enjoy in federal or state court, nor should they be placed in an unfair economic position. Rather than attempting to limit substantive rights of an employee, the primary focus of any arbitration agreement should be to place the dispute in the hands of an arbitrator instead of a jury.

Circuit City, Inc. v. Adams , Case No. 98-15992 (9th Cir. Feb. 4, 2002).

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.