Agreements to Arbitrate Statutory Employment Claims
By Robert K. Sholl and Christian A. Jenkins
Suggested
language to include in arbitration agreements
Most employers are familiar with the costs associated with claims
brought under Title VII of the
Civil Rights Act of 1964 (Title VII), the Equal Pay Act
(EPA), the Age
Discrimination in Employment Act (ADEA), the Americans with
Disabilities Act (ADA), the Family and
Medical Leave Act (FMLA), and parallel state statutes. Because
investigatory agencies such as the Equal
Employment Opportunities Commission (EEOC) and its state
counterparts fail to screen out meritless complaints, employers often
are forced to devote much time and money to dispose of even the most
frivolous claims. These costs increase dramatically as claims move from
the investigatory agency into state or federal court. Indeed, employers
settle many cases simply because the cost of litigation exceeds or
approaches the amount sought by the employee.
Arbitration can reduce the costs of
employment-related claims. But arbitration agreements will be effective
only if they do not diminish employees' remedies under state or federal
employment laws and if employees knowingly waive their rights to proceed
in court. |
In most cases, arbitrating an employment claim is significantly less
expensive than litigating in state or federal court.1 Unlike courts, arbitrators do not have crowded
dockets and can proceed to hearing under expedited schedules. Similarly,
the pre-hearing procedures (that is,discovery, motion practice, and so
on) available in arbitration usually are much less complicated and
protracted than those available before a court. If employees can be
required to arbitrate employment-related claims, the costs associated
with such claims should decline significantly. However, arbitration is
no guarantee of employer success, and mandating claims arbitration is
not always easy.
The federal appellate courts disagree over when an employee can be
required to arbitrate his or her statutory employment claim. Depending
upon the location of where an employee works, different measures may be
necessary before arbitration can be required. Such regional distinctions
are likely to continue because, on Oct. 14, 1997, the U.S. Supreme Court
refused to review three cases involving arbitration of such employment
claims.2 However, an agreement to arbitrate
generally will be enforceable if the employee knowingly consents to
arbitration, if no statutory remedies are forfeited, and if the
arbitration clause language is drafted carefully to cover all claims
sought to be arbitrated.
Where to put an arbitration agreement
Most employers give new employees a variety of documents to read and
sign when they begin employment. An arbitration agreement can easily be
incorporated within such documents. However, where such an agreement is
placed within a document and how it is displayed can affect the extent
to which the employee "knowingly" consents to arbitrate his or her
statutory claims and, therefore, the extent to which the employee will
be barred from taking such claims to court. While a variety of solutions
are possible, individual agreements are most effective.
Collective bargaining agreements. The arbitration
clause in a collective bargaining agreement generally cannot be
used to require arbitration of a statutory employment claim. Many
collective bargaining agreements contain general language that commits
employers to nondiscriminatory employment practices on the basis of
race, gender, disability, or age, or that directly identifies statutes
such as TitleVII, the ADA, or the ADEA. Some employers have argued that,
because of such references, discrimination claims should be subject to
arbitration under collective bargaining agreements.
At least one federal appellate court (the Fourth Circuit) has
required an employee to arbitrate his employment discrimination claim
under an arbitration clause contained in a collective bargaining
agreement.3 Thus, employers in Virginia,
North Carolina, South Carolina, Maryland, and WestVirginia may attempt
to require arbitration of such claims. However, courts in the Fourth
Circuit may not compel arbitration of such statutory disputes under a
collective bargaining agreement unless there is support for such an
interpretation in the agreement's language.4
The U.S. Court of Appeals for the Seventh Circuit recently ruled that
an employee cannot be required to submit his or her statutory employment
claim to arbitration under the arbitration clause in a collective
bargaining agreement.5 In Pryner
the court reasoned that an individual's right to proceed in court under
federal employment statutes cannot be waived by a union when it executes
a collective bargaining agreement. Thus, for companies operating in
Wisconsin, Illinois or Indiana, the message is clear - arbitration may
be required only under an agreement with each individual
employee.6 For employers with unionized
workforces, this ruling may make it difficult or impossible to implement
agreements to arbitrate statutory employment claims since any attempt to
negotiate such agreements might violate prohibitions on individual
bargaining.
For Wisconsin employers, what is the best way to implement agreements
requiring employees to arbitrate employment claims? A variety of methods
is available, but the administrative difficulty of obtaining an
effective arbitration agreement may dissuade many employers from
trying.
Employee handbooks. Simply including an arbitration
clause among the provisions of an employee handbook ordinarily will not
be sufficient to require employees to arbitrate their employment claims.
In a recent Ninth Circuit case, an employee who signed a receipt for the
company's handbook providing that he agreed to "read and understand" the
handbook, was not required to arbitrate his discrimination claim under
the handbook's arbitration clause. The court reasoned that nothing in
the receipt form advised the employee that the handbook contained an
arbitration clause or that he was waiving his right to proceed in
court.7
Other recent decisions have required arbitration under employee
handbook provisions if steps were taken to bring the arbitration clause
to employees' attention. In a recent decision by the Eighth Circuit
Court of Appeals, the court required arbitration under a provision set
out on the last page of an employee handbook. The arbitration clause had
a capitalized and boldfaced heading indicating that it was "important."
Moreover, the page containing the arbitration clause was signed by the
employee, removed from the handbook and placed in the employee's
personnel file. Thus, the court concluded that the arbitration agreement
was separate from the employee handbook, which contained a standard
disclaimer to the effect that the handbook did not create a
contract.8
Other courts have enforced arbitration clauses in employee handbooks
where the signed receipt clearly indicated that the handbook contained
an arbitration clause that the employee agreed to accept as a condition
of employment. For example, in one recent case an employee was required
to arbitrate her claim where she signed a handbook receipt containing
this statement:
"I also understand that as a condition of my employment and continued
employment, I agree to submit any complaints to the published process
and agree to abide by and accept the final decision of the arbitration
panel's ultimate resolution of my complaints for any and all events that
arise out of employment or termination of employment."9
Whether an employee has effectively agreed to be bound by an
arbitration clause is a matter of state contract law. No Wisconsin court
has specifically addressed whether an employee handbook arbitration
clause is enforceable. However, Wisconsin law appears to be in accord
with the general principle that an arbitration clause in an employee
handbook, without more, will not be enforced.10 Accordingly, Wisconsin employers who wish to
require arbitration of employment discrimination claims probably should
not use an employee handbook as the means for conveying an arbitration
agreement to employees, especially if employers want to maintain that
nothing in the employee handbook constitutes an enforceable
contract.
Employment applications. An alternative
method of obtaining an agreement to arbitrate employment-related claims
is to set out the arbitration clause in the employment application. The
employer's evaluation of the application for employment provides the
consideration for the agreement to arbitrate. Under such agreements,
employers theoretically may require arbitration of complaints filed by
applicants as well as employees. Agreements placed in applications also
may solve the dilemma of employers with unions, since most employees do
not become union members until 30 to 90 days after hire. However, these
issues remain unresolved.
Several recent decisions have required arbitration of employment
discrimination claims under provisions in employment applications. For
example, an Illinois federal court required two employees who sued their
ex-employer for sexual harassment to arbitrate their claims under an
arbitration provision included in their employment applications.11 Significantly, the arbitration clause was set
out immediately above the signature line on the application. The court
concluded that, under Illinois law, the employees had effectively agreed
to arbitrate any claims arising out of their employment.
Again, no Wisconsin court has yet decided whether an arbitration
provision contained in an employment application will be enforced with
respect to an employment discrimination claim. However, the trend of
decisions nationwide suggests that as long as the agreement is clearly
set forth, so that the signing employee knowingly consents to
arbitration, such provisions will be enforced.
Individual employment agreements. In Wisconsin, an
arbitration clause contained in a valid individual employment agreement
generally will be given effect and preclude an employee from proceeding
against his or her employer in state or federal court on claims covered
by the arbitration clause.12 Accordingly,
an individual employment agreement is perhaps the best place in which to
obtain an employee's agreement to arbitrate claims arising out of his or
her employment or termination.
Care should be taken, however, to ensure that the employment
agreement itself constitutes a valid and enforceable agreement supported
by adequate consideration. Thus, for new employees, employment should be
conditioned upon the execution of the employment agreement. For existing
employees, continuing employment may not constitute adequate
consideration.13 Accordingly, independent
consideration such as eligibility for a bonus, a raise, or promotion
also should be identified in the agreement.
Individual employment agreements may be difficult or impossible to
implement for many types of employees. However, with respect to
management employees or commissioned salespeople, larger employers often
desire individual agreements for other purposes (for example,
noncompetition agreements). Such agreements present a clear opportunity
to obtain an effective agreement to arbitrate employment-related
claims.
Drafting the arbitration clause
Regardless of where an arbitration agreement is placed, the
provision's language will determine which claims are subject to
arbitration. Accordingly, such provisions should be crafted carefully
with the advice of knowledgeable counsel. A few basic guidelines should
be followed in most cases.14
Do not limit substantive statutory rights or
remedies. Some employers have been tempted to overreach when
drafting arbitration agreements by limiting the remedies employees can
recover through arbitration. In a recent guidance, the EEOC took the
position that mandating arbitration of Title VII, ADA, and ADEA claims
as a condition of employment is "contrary to the fundamental principles
evinced in these laws."15 However, with a
few exceptions,16 the federal courts
generally endorse the concept of arbitrating employment disputes as a
way of relieving the pressure such cases place on the federal
judiciary's docket. Indeed, in a case in which the EEOC attempted to
proceed on behalf of employees who had signed arbitration agreements, a
federal court dismissed the agency's claims.17 Thus, so long as an arbitration agreement does
not substantively diminish an employee's right to recover under the
applicable statute, compulsory arbitration should be upheld.
For example, the EEOC recently filed an amicus brief challenging an
employer's attempt to enforce an arbitration clause providing that,
regardless of the arbitrator's award, each party was responsible for its
own attorney fees. The EEOC unsuccessfully argued that the arbitration
clause should not be enforced because it would require employees to
forego a substantive right (that is,the right to recover attorney fees
under Title VII). The court acknowledged that, if the arbitrator
impaired the employee's TitleVII rights, the agreement might be
unenforceable, but nonetheless ordered arbitration, holding that it was
up to the arbitrator to interpret the agreement. 18 Other provisions that have drawn challenges include limitations on the right to
consult or employ counsel, clauses naming arbitrators employed by the
company, provisions requiring employees to pay the costs of arbitration,
limitations on the type or amount of damages available, provisions
denying any and all discovery, and language imposing far shorter
deadlines than provided by statute. 19
To avoid such difficulties, arbitration clauses should not impinge
upon any substantive rights provided by applicable statutes. Language
expressly providing that the arbitration clause does not prevent
employees from consulting counsel, or from filing an administrative
complaint, will help minimize challenges to arbitration provisions. The
American Arbitration Association's "National Rules for the Resolution of
Employment Disputes" incorporate many of these principles. 20
The agreement should be drafted broadly so that all claims
are covered. Some employers' efforts to require arbitration of
employment claims have been frustrated by narrowly drafted arbitration
clauses. For example, one employer's effort to compel arbitration was
challenged when the arbitration clause only covered disputes over
performance of the employment agreement, and did not specifically extend
to any other claims.21 Similarly, another
employer was denied arbitration where the arbitration clause failed to
provide that any statutory claims would be subject to arbitration.
22
It is impossible to anticipate all of the potential claims that
employees may assert. Accordingly, an arbitration clause should
encompass all claims arising out of an employee's employment or
termination, regardless of whether such claims are contractual,
statutory, common law or based upon any other legal theory. Perhaps the
broadest arbitration agreement would cover all disputes whatsoever
between the employer and the employee.
The various statutes under which employees often bring claims should
be identified specifically so as to subject such claims to arbitration.
TitleVII, the EPA, the ADA, the ADEA, and the FMLA should be mentioned.
Comparable state laws also can be identified (for example, WFEA and
Chapter 109 of the Wisconsin Statutes). Other common theories of
employer liability can be mentioned specifically or covered by
"catch-all" language. For example, courts have subjected claims of
public policy wrongful discharge and whistleblower protection violations
to arbitration under broadly worded arbitration clauses. 23
Robert K. Sholl (right),
Chicago 1981, chairs the labor and employment department at Reinhart,
Boerner, Van Deuren, Norris & Rieselbach S.C. He is co-author of
Wisconsin Employment
Law andHiring and
Firing in Wisconsin, both published by the State Bar of
Wisconsin and updated annually. He also is a director of the State Bar's
Labor and Employment Law Section.
Christian A. Jenkins (left),
Georgetown and U.W. 1995, is a member of the litigation and labor and
employment departments at Reinhart, Boerner, Van Deuren, Norris &
Rieselbach S.C. He litigates employment-related disputes and advises
employers on compliance issues involving state and federal labor and
employment laws. While at the U.W., Jenkins received the ABA award for
excellence in labor and employment law.
|
The agreement should provide that any arbitration award is
"final and binding." At least one employer has arbitrated a
claim successfully only to discover that the employee could proceed in
court under the same theories.24 In that
case, the arbitration clause did not expressly provide that it was the
exclusive forum for such claims or that arbitration awards were final or
binding. Accordingly, arbitration agreements should state that
arbitration is the exclusive means by which such claims may be resolved
and that arbitration awards shall be final and binding.
Do not refer to statutory arbitration provisions. At
least one Wisconsin employer has included language in an employee's
arbitration agreement to the effect that arbitration may be compelled
under the Wisconsin Arbitration Act (Chapter 788 of the Wisconsin
Statutes). However, section788.01 expressly precludes the enforcement of
"contracts between employers and employees" under the Act. Accordingly,
no arbitration agreement between an employer and employee should
identify the Wisconsin Arbitration Act as an enforcement mechanism.
The Federal Arbitration Act (FAA) 25 can
provide a statutory mechanism for enforcing arbitration agreements.
However, it too contains some pitfalls. For example, employees have
challenged efforts to enforce arbitration clauses under the FAA, arguing
that its exclusion of "contracts of employment of ... workers engaged in
foreign or interstate commerce" bars the enforcement of most contracts
between employers and employees. While this argument has been rejected
by the Seventh Circuit and most federal courts, it has not been finally
settled by the U.S. Supreme Court and continues to be raised by
employees opposing arbitration. 26
Accordingly, practitioners are well advised not to make reference to
any statutory enforcement scheme when drafting arbitration agreements
between employers and employees. Instead, such agreements should provide
that they may be enforced by injunctive relief requiring specific
performance of the obligation to arbitrate, and that arbitration awards
shall be final, binding and enforceable.
Conclusion
Arbitration offers employers an opportunity to reduce the costs
associated with employment claims. However, an arbitration agreement
will be effective only if the employee knowingly waives his or her right
to proceed in court. Moreover, an arbitration agreement that attempts to
diminish employees' remedies under state or federal employment law may
not be enforced. Accordingly, employers must be careful to place such
agreements in prominent positions in the documents signed by employees,
and to draft them so as to cover desired claims without impinging upon
substantive employee rights.
Endnotes
1See DiCesare,
Alternative Dispute Resolution, Monthly Lb. Rev., Jan. 1996, at
79.
2 Pryner v.
Tractor Supply Co., 109 F.3d 354 (7th Cir.),cert.
denied, 118 S. Ct. 295 (1997)(declining to compel arbitration of
Title VII, ADA and ADEA claims under collective bargaining
agreement);Peacock v. Great Western Mortgage Corp., 110 F.3d
222 (3d Cir.), cert. denied, 118 S. Ct. 299 (1997)(requiring
arbitration of sexual harassment claim);DeMeo v. Smith Barney Inc.,
cert. denied, 118 S. Ct. 329 (1997)(refusing to suspend arbitration
of age discrimination claim of securities industry employee).
3 Austin v. Owens-Brockway
Glass Container Inc., 78 F.3d 875 (4thCir.), cert.
denied, 117 S. Ct. 432 (1996).
4 Brown v. Trans World
Airlines, 74 FEP Cases 1675 (4th Cir. 1997) (BNA).
5Pryner v.
Tractor Supply Co., 109 F.3d 354 (7th Cir.), cert.
denied, 118 S. Ct. 295 (1997).
6 The U.S. Supreme Court may modify
this rule in a case recently accepted for review in which the district
court compelled arbitration of an ADA claim under a collective
bargaining agreement and the appellate court affirmed. See Wright v.
Universal Maritime, 121 F.3d 702 (4th Cir. 1997), cert.
granted, __ S. Ct. __, 66 U.S.L.W. 3399 (March 2, 1998).
7 Nelson v. Cyprus Bagdad
Copper Corp., 119 F.3d 756 (9th Cir. 1997).
8Patterson v. Tenet Healthcare
Inc., 113 F.3d 832 (8th Cir. 1997).
9 O'Neil v.
Hilton Head Hosp., 115 F.3d 272 (4th Cir. 1997). See also,
Topf v. Warnaco Inc., 942 F. Supp. 762 (D. Conn. 1996).
10 See Clay v. Horton Mfg.
Co. Inc., 172 Wis. 2d 349, 493 N.W.2d 379 (Ct. App. 1992)(holding
that an employee handbook alone does not constitute an enforceable
contract).
11 Sheller v. Frank's Nursery
& Crafts Inc., 957 F. Supp. 150 (N.D. Ill. 1997). See also,
Cole v. Burns Int'l Sec. Serv., 105 F.3d 1465 (D.C. Cir. 1997);
Brown v. KFC Nat'l Mgmt. Co., 921 P.2d 146 (Haw. 1996).
12 Bungard v. Rural Mut. Ins.
Co., 1995 WL 215500 (Ct. App. 1995)(unpublished decision).
13 NBZ Inc. v. Pilarski,
185 Wis. 2d 827, 520 N.W.2d 93 (Ct. App. 1994).
14 For additional discussion of
other jurisdictions, see Andrew W. Volin, Recent
Developments in the Arbitration of Employment Claims, 52 Disp.
Resol. J. 16 (Summer 1997).
15 EEOC Notice 915.002 (July 10,
1997).
16 See, e.g., Rosenberg v.
Merrill Lynch, 1998 U.S. Dist. Lexis 877 (D. Mass. 1998).
17EEOC v. Kidder, Peabody
& Co., 74 FEP Cases 1833 (S.D.N.Y. 1997).
18Johnson v. Hubbard Broad.
Inc., 940 F. Supp. 1447 (D. Minn. 1996).
19 See EEOC Notice
915.002 (July 10, 1997) n.18.
20 The rules are available
through the American Arbitration
Association Internet site, or by calling (800) 671-2678.
21 Bungard v. Rural Mut. Ins.
Co., 1995 WL 215500 (Ct. App. 1995) (unpublished decision).
22 Rudolph v. Alamo
Rent-A-Car Inc., 952 F. Supp. 311 (E.D. Va. 1997).
23 See Oldroyd v. Elmira Sav.
Bank FSB, 1998 WL11056 (2d Cir. 1998); In re Prudential Ins.
Co. of America Sales Practice Litig. All Agent Actions, 1998 WL
2844 (3d Cir. 1998).
24Orlando v. Interstate
Const. Corp., 1996 WL 638211 (3d Cir. 1996).
25 9 U.S.C. §§
1-14.
26 Miller Brewing Co. v.
Brewery Workers Local Union No. 9, 739 F.2d 1115, 1162 (7th Cir.),
cert. denied, 469 U.S. 1160 (1984).
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