Issue of the Month

July 2001, Do You Want to Arbitrate Non-Union Employee Discrimination Charges? The Recent Circuit City Decision: What You Need to Know

Introduction

Employment-related litigation is costly for employers in both time and money. Employers have required employees to sign agreements to arbitrate employment disputes. This newsletter outlines the March 21, 2001, Supreme Court decision in Circuit City v. Adams and addresses issues of enforceability that have been raised regarding these agreements.

The Supreme Court Ruling

The United States Supreme Court issued a decision that supports the use of mandatory arbitration agreements to resolve employment disputes between employees and their employers. At first glance, the decision in Circuit City v. Adams seems to clear the way for all non-transportation industry employers to insert arbitration agreements into their applications to avoid costly litigation and save valuable company resources, like the time managers and supervisors may have to spend in depositions or at other court-related proceedings. There are concerns raised related to the fairness of entering into the agreement and the accompanying process for the arbitration. A key issue concerns what must be contained in a mandatory arbitration agreement to ensure that the agreement is valid and enforceable. Basically, federal and state courts look to the contract law of the state in which the contract was executed in to determine whether an arbitration agreement is enforceable. The determination is usually based on whether certain minimum standards for a fair contract have been met, and these requirements may differ from state to state.

Enforceability

The manner in which an employer secures the agreement and the procedures that are used in the arbitration determine whether the arbitration agreement is valid and enforceable. Two key points to consider when using an arbitration agreement:

• An employee cannot be forced, rushed or threatened to sign an arbitration agreement; and
  
• An arbitration agreement cannot be used to frustrate an employee's due process right to have his or her claim heard for alleged wrongs an employer may have committed.
  

Until now, many employers have not used arbitration agreements, fearing that these agreements might not be upheld in court. In light of the Supreme Court decision in Circuit City, it is expected that more companies will initiate these agreements in the hope of avoiding expensive and disruptive litigation. The provisions outlined in the following checklist will help to ensure that an arbitration provision is valid and enforceable (keep in mind that the courts have not fully developed the substantive and procedural standards for arbitration agreements):

Checklist

• WAIVER. The employee must make a knowing and voluntary waiver that he or she is waiving rights to a judicial forum and jury trial in bold capital letters above the employee's signature: I HAVE READ AND UNDERSTAND THAT BY SIGNING THIS AGREEMENT THAT I AM WAIVING MY RIGHT TO HAVE A JURY HEAR ANY CASE I BRING AGAINST THE COMPANY.
  
  
• FORM. Make sure your arbitration agreement is no longer than a page, easy to read, contains a signature line for the employee to consent to arbitration and provides for binding arbitration of all employment-related disputes.
  
  
• COVERAGE. What disputes will be covered by the arbitration agreement? All employment-related disputes or just Title VII claims? If you wish to include a list of examples of covered employment-related disputes, be sure to indicate that the list is not "all-inclusive."
  
  
• MUTUALITY OF OBLIGATION. Provide the arbitration agreement as a method by which to resolve all disputes arising between the company and the employee.
  
  
• LANGUAGE. Ensure that, if you do have foreign language-speaking employees, provide them with a translation of the agreement.
  
  
• CHOICE OF LAW. Include a provision that your state's law is to be applied by the arbitrator.
  
  
• RELIEF. Include language that indicates that the arbitrator is authorized to award all relief and apply all limitations (i.e. punitive damage caps) under your state's law.
  
  
• CONSIDERATION. If you want existing employees to sign an arbitration agreement, you must give them adequate consideration (e.g. their 2001 wage increase). For new applicants, the mutual promise to arbitrate and their continued employment should be enough.
  
  
• CHOICE OF ARBITRATOR. Do not choose the arbitrators beforehand, as this increases the chances that the system will appear biased. You may select several different arbitration organizations in your area to supply a list of arbitrators.
  
  
• RULES. Depending on your state's arbitration law, you may refer to it as "the rules," and, where your state's rules are silent, supplement with the American Arbitration Association's National Rules for the Resolution of Employment Disputes and Due Protocol for Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship.
  
  
• DISCOVERY. More than minimal discovery should be allowed and provisions should be made for abusive discovery tactics.
  
  
• CONFIDENTIALITY. Provide that neither the parties nor the arbitrator shall disclose anything in regard to the arbitration proceedings unless written consent of the parties is secured.
  
  
• PROCEDURE. The agreement should set up, at a minimum, the procedure on how the one party triggers the system. For example, "the employee must forward by certified letter a demand for arbitration. 30 days following the date of the request, the employee's arbitration brief must be received. If no brief is received, the employee waives his or her right to arbitration..." At the arbitration itself, both sides must be allowed to present their cases as they would in court, as arbitration is merely an alternative forum, not a wholly distinct forum in itself. Many times, arbitrators may question the witnesses themselves.
  
  
• PLACE. Indicate in the agreement that the arbitration will occur at a location selected mutually by the parties or at the direction of the arbitrator, upon advice of the parties.
  
  
• DECISION. The arbitrators should draft and disseminate to the parties a written decision, stating the factual and legal bases for his or her decision to ensure that the award is not overturned.
  
  
• AWARD. The arbitrator should be allowed by the parties to award the same relief as a court would be able to award.
  
  
• ENFORCEMENT. The parties should agree that the arbitration award will be enforceable and judgment may be entered in any court having jurisdiction. The employer cannot include a provision that the award is enforceable only in Texas courts if the arbitration takes place in Pennsylvania, as this would frustrate an employee's right to recovery.
  
  
• ARBITRATION FEES. Mandatory agreements that require an employee to pay a portion of the arbitrator or arbitration fees are generally unenforceable. Allow a division of costs that allows the employer to take care of a greater share, so employees are not deterred from arbitrating claims, as this may frustrate an employee's due process rights and invalidate the agreement.
  

Any arbitration agreement should be reviewed by legal counsel prior to implementation to ensure that it is free of bias that may be seen as favoring the employer. If you craft an arbitration agreement that is non-biased and enforceable, arbitration can be a time and cost-effective forum for resolving employment-related disputes. Other alternatives to litigation include establishing an "open-door" policy for resolving conflicts, and "peer review." Both of these methods do not require third-party intervention – the arbitrator. Our next publication will outline these alternatives, how they work and the advantages in keeping matters in-house.

For more information, please call (414) 423-1330 or e-mail educational services.