Agreements to Arbitrate
Statutory Employment Claims

By Robert K. Sholl and Christian A. Jenkins

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

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.

Next Page