Arbitration and Employment Dispute: Drafting to Maximize Employer Protection

Arbitration and Employment Dispute: Drafting to Maximize Employer Protection

Reprinted from ACCA DOCKET, the Journal of the American Corporate
Counsel Association, Vol. 18, No. 2, February 2000

By Carmine A. Iannaccone and Ronald Silversten


THE THOUGHT IS ENOUGH TO STRIKE FEAR INTO THE HEART OF ANY conscientious human resources professional or in house counsel: It's a Saturday morning after bad week, you retrieve the morning newspaper and open it to a banner headline about the jury verdict in a sexual harassment suit brought by a former nonunion employee against your company. The employee, thanks to a generous compensatory and punitive damages award, will now be able to move into the neighborhood where your company's CEO resides. You're not sure which hurts worse: the verdict or the publicity. Then the CEO calls you at home that evening. She wants to know not only about the prospects on appeal but also what can be done to prevent this from ever happening again.

The question gives you pause. You've already adopted and published a comprehensive sexual harassment policy, trained employees and management in sensitivity, and trained human resources personnel in methods for conducting investigations. You train new employees in the company's policy virtually from their first day on the job. You publicize your policy, even going so far as to place reminders periodically in employee paychecks. What else can you do?

Today, one answer can be found in a statute adopted early in the last century of the last millennium: the Federal Arbitration Act (FAA), codified at Title 9 of the U.S. Code. It, along with certain state arbitration acts, can provide a basis for enforcing mandatory agreements (covering nonunion employees) to arbitrate employment disputes.

Yet, like anything else, mandatory arbitration has a downside. When employers require employees with discrimination claims to submit to compulsory arbitration, they risk the ire not only of those employees, but also of the plaintiffs' bar and the Equal Employment Opportunity Commission (EEOC). Regrettably, these challenges to mandatory arbitration of claims sometimes have succeeded.

Should you mention mandatory arbitration under either state or federal law as an option to your CEO? What do the laws provide? What are the pros and cons? How enforceable are compulsory arbitration agreements?

PROS AND CONS OF ARBITRATION

Before analyzing the federal and state law surrounding compulsory arbitration, a practical decision needs to be made: Is the arbitration of employment law claims a good idea for your company?

There are strong advantages to arbitration, including a speedier resolution of the dispute, avoidance of sympathetic juries, and less expense.[1] But arbitration has disadvantages for employers, the most important of which is the finality of the arbitrator's judgment combined with limitations on a party's ability to obtain meaningful appellate review.[2]

Certainly, arbitration brings faster results. A recent comparison conducted by the Securities Industry Association (SIA) of employment claims filed with the New York Stock Exchange (NYSE) and National Association of Securities Dealers (NASD) with those brought in the U.S. District Court for the Southern District of New York (SDNY) yielded some remarkable results. The SIA studied NYSE/NASD arbitration decisions and SDNY trial verdicts rendered since February 24, 1992, for cases completed through May 31, 1998, and found that completion time of NYSE and NASD arbitrations from inception to disposition bested the SDNY by 10 to 12 months.[3]

But is the arbitration table preferable to the courtroom for defendants? The evidence from the study is mixed. Employees prevailed in up to 38.46 percent of NYSE/NASD arbitrations, while only 22.12 percent of employees proved victorious in the SDNY. (One reason is that prehearing dismissals in arbitrations were rare, in contrast to the practice in the SDNY.) Another point the study brought out was that, while litigation raises the specter of multimillion dollar verdicts, many of these large verdicts were reversed on appeal. According to the study, a recent National Law Journal survey of jury verdicts in 1996 and 1997 found that 80 percent of jury verdicts $1 million or more were reversed (based on 36 cases followed through post-trial motions). The SIA study also concluded that arbitration defendants obtained significant cost savings due to the immense cost of jury trials and the relative efficiency of arbitration.

The perspectives of in-house counsel also differ on the advisability of requiring employees to execute mandatory arbitration agreements. For instance, one coauthor avoids such agreements, taking the view that "the true culture of a company can best be identified by how it treats its terminating employees." Treating people well when they are leaving, with no expectation of anything (including a release) in return, sends a clear message that a corporate culture of values, family-friendly initiatives, teamwork, trust, and cooperation are not just talk.

By acknowledging an individual's needs (for example, by bridging the terminating employee to a nearing employment anniversary date to achieve "X" years of service for the employee), the company recognizes the value of that employee and can render litigation less likely. Asking a departing employee instead to sign a release, or having earlier required that employee to submit to mandatory arbitration, can undermine the credibility and goodwill the company painstakingly established. Moreover, the easy avenue of the arbitration process in contrast to the more onerous litigation system makes one wonder whether it would encourage dormant or frivolous claims.

Another coauthor favors arbitration in the context of his company's dispute resolution program. It consists of a multistep approach that "links an open-door policy with an ombuds office and a variety of other dispute resolution options generally available to employees." Should the issue nonetheless proceed to arbitration, the company will pay up to $2500 for an attorney to represent the employee at and before an arbitration hearing. Although one might think this would encourage groundless litigation, the company has experienced a significant drop in both the incidence of such litigation and the cost and expense of handling employment issues.

HOW THE FAA WORKS

Congress, in passing the FAA, intended "to move the parties to an arbitrable dispute out of court and into arbitration as quickly and easily as possible."[4] It designed the statute to implement "rapid and unobstructed enforcement of arbitration agreements,"[5] including stopping litigation cold by providing for a stay pending arbitration.[6] Congress wanted to reverse the judicial hostility towards arbitration agreements.[7] The legislation made arbitration provisions as valid, irrevocable, and enforceable as any other contract.[8]

Federal courts have interpreted the FAA to apply to most employment contracts having a connection — albeit at times tenuous — to interstate commerce.[9] The statute's reach extends to the limits of Congress' Commerce Clause power[10] thus bringing virtually all twenty-first century companies within the scope of coverage. The language in Section 2 applying the FAA to transactions "involving commerce" signals a broader reach than more typical statutory language that extends congressional power to transactions "in commerce."[11]

While the FAA grants federal courts the authority to compel arbitration, it does not in and of itself confer federal question jurisdiction.[12] The federal court must have an independent jurisdictional basis before it can entertain a petition to compel arbitration.[13]

Regardless of whether a state or federal court has jurisdiction, however, the FAA governs the arbitrability of an issue.[14] For cases that fall within its reach, the FAA governs all aspects of arbitration procedure and preempts inconsistent state law.[15] By rendering arbitration provisions as valid as any other contract, the statute constitutes "a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary."[16 ]In effect, the statute creates "a body of federal substantive law of arbitration, applicable to any arbitration agreement within the coverage of the act."[17] Indeed, state courts as much as federal courts must grant stays of litigation under Section 3 of the FAA.[18 ]

Does the FAA Cover Your Employees?

Certain classes of workers are excluded from the FAA, including "seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."[19] Bus drivers and transportation workers covered by collective bargaining agreements have been excluded as well.[20] (By way of shorthand, it may be helpful to think of the exclusion as applying to the truck driver but not the mechanic who services the truck.) "Transportation" includes those who help ship goods by rail or boat. It appears, for example, as though the provision would exempt UPS or FedEx workers.[21]

Whether the exception applies to employment contracts of all workers in interstate commerce or just those involved in transportation industries is an issue that is yet to be addressed by the Supreme Court.[22] The First, Second, Third, Fifth, and Seventh Circuits have all held that the exclusion stated in Section 1 of the FAA is "limited to workers employed in transportation industries."[23] The District of Columbia and Eighth Circuits similarly have held that the exclusion applies only to workers engaged in movement of goods in interstate commerce.[24] The Sixth, Tenth, and Eleventh Circuits appear to have gone the other way, holding that the exclusion is not limited to workers engaged in the transportation of goods in interstate commerce.[25]

Types of Disputes Covered by FAA

The Supreme Court is known to favor arbitration, stating in Moses H. Gone Memorial Hospital that "Doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or?...a defense to arbitrability."[26] Other courts agree. For instance, arbitration clauses that pertain to "any dispute?...regarding the interpretation or performance of any part of this agreement" were held to encompass allegations of unlawful discrimination.[27]

In other examples, an agreement to arbitrate "any controversy or claim arising out of or relating to this agreement or the breach thereof" was held to be broad enough to encompass a claim that both the execution and acceleration of the consulting agreement itself were procured by fraud.[28] And an arbitration clause in a security firm's partnership agreement was held to encompass a partner's claim of fraud and breach of fiduciary duty.[29] In contrast, trade libel and intentional infliction of emotional distress claims arising in part out of criticisms made to fellow practitioners about plaintiff's methodology have been held to fall outside the scope of an arbitration provision in an employment contract.[30] It seems clear from these cases that claims relating to the contract (for example, its formation or enforcement) are arbitrable while tangential claims (such as those relating to comments to third parties) are not.

Recently, federal courts construing the FAA have upheld contracts between employers and employees that require the arbitration of all disputes between them including, but not limited to, statutory claims of employment discrimination and sexual harassment.[31] But there have been attacks on the use of mandatory arbitration of employment. The most visible comes from the EEOC. The EEOC guidance to its field offices and headquarters directs them to process a charge even in the face of an agreement to arbitrate.[32] The EEOC requires the agreement to be analyzed to determine if it is coercive, which, in the EEOC's view, is defined as an agreement secured as a condition of employment. If so, the EEOC may bring suit despite the agreement to arbitrate.

The EEOC's view stems from its certitude that agreements to arbitrate are "inconsistent" with civil rights laws. In its guidance, the EEOC posits that federal civil rights laws flow from the core of the Constitution, are of "a singular national importance," and depend on the courts for their development and interpretation. Arbitration, in the EEOC's view, does not allow for development of the law, and leaves "virtually no opportunity" for meaningful judicial review.

Other evidence of such attacks on arbitration abound. Recently, the NASD amended its rules to drop from its arbitration requirement employment discrimination claims brought under federal or state statutes.[33] This still leaves the individual firms in the industry free to enter into arbitration agreements with their registered personnel. The EEOC, however, characterizes such agreements as coercive.

At the same time, some courts have expanded protections for employees in employment-related disputes. For instance, in arbitrations the parties are free to determine who pays the arbitrator's fee as they see fit. Yet in Cole v. Bums the U.S. Court of Appeals for the District of Columbia Circuit held that an employee can never be required — as a condition of employment — to pay an arbitrator's compensation to secure statutory claims under Title VII.[34]

Cole joined a growing number of cases that have broadened judicial review of arbitrator's awards. Normally, judicial review of arbitrator's awards is limited. Awards may be vacated only for fraud, corruption, or similar wrongdoing on the part of arbitrators.[35] Such wrongdoing has included an arbitrator misbehaving by failing to hear evidence, an arbitrator exceeding allotted powers, and an arbitrator failing to reach a definite final award.[36]

In Cole, however, the court held that courts are empowered to review an arbitrator's award where novel or difficult issues present themselves.[37 ]Thus, to ensure that the arbitrator's resolution of public law issues is correct, the courts are empowered to review an arbitrators award.[38]

Other courts have recently held that the failure of an arbitrator to set out the grounds for an award will more readily lead to an overturned award. Long-standing precedent had held that arbitrators need not set out the basis for an award. The Second Circuit in Halligan v. Piper Jaffray, Inc., held that "when a reviewing court is inclined to hold that an arbitration panel manifestly disregarded the law, the failure of the arbitrators to explain the award can be taken into account."[39] In another decision in this vein, the Eleventh Circuit held in Montes v. Shearson Lehman Brothers, Inc., that in view of one party's urging to an arbitrator to expressly disregard the law, the absence of an indication that the arbitrator rejected that plea, and the lack of facts to support the award, the court would reverse the arbitration panel's ruling and send the case to a new arbitration panel.[40 ]The upshot of both cases is to require arbitrators to articulate the bases of their decisions and to follow the law being applied.

It is unclear whether these decisions constitute a trend that courts will generally follow. What can be said is that these decisions have begun to set more limits on what arbitrators can and cannot do. As the use of arbitration in the employment context expands, and attacks on it become more prevalent, the authors believe that at least some courts will set more limits on the discretion of arbitrators.

For instance, recently the Supreme Court — which extolled arbitration in Gilmer — refused to grant certiorari in Duffield, in which the Ninth Circuit had determined that employers may not compel arbitration of claims under the Civil Rights Act of 1991.[41]

State Law Alternatives to the FAA

Your company may be able to avoid federal judicial attacks on arbitration of employment claims by sheltering under the umbrella of state arbitration statutes. For example, in Volt Information Sciences, Inc. v. Stanford University,[42 ]the Supreme Court held that the FAA does not preempt state arbitration statutes in cases in which the parties have agreed to arbitrate under a state statute (even though the FAA's commerce clause requirement has been met). As already noted, the purpose of the FAA is to encourage arbitration; accordingly, it preempts state laws that render arbitration agreements unenforceable, but not arbitration agreements in which the parties have chosen to abide by state rules of arbitration.[43]

Many of those state statutes also encourage arbitration in the employment context. Unlike the FAA, the Uniform Arbitration Act (UAA), which has been adopted by 35 states, with some variations, provides that it applies to arbitration agreements between employers and employees.[44] Within the 35 adopting states, 16 have kept this provision,[45] while only 5 have expressly excluded employment agreements.[46] The remaining states have either been silent on the issue or have provided other requirements. For example, South Carolina expressly excludes arbitration between employers and employees, unless the parties otherwise agree, but such agreements may not require arbitration of issues arising out of workers' compensation claims, unemployment claims, or collective bargaining agreements.[47 ]

Moreover, most of the states that have not adopted the UAA do enforce arbitration agreements between employers and employees. For instance, California's arbitration statute expressly provides for enforcement. In 24 Hour Fitness, Inc. v. Superior Court of Sonoma County, the court held that it would enforce an arbitration agreement for "every kind or type of dispute" arising from employment, including "any allegation of wrongful discharge, discrimination, or injury to physical, mental, or economic interest."[48 ]Similarly, a Michigan court held in Rembert v. Ryan's Family Steak Houses, Inc. that an agreement to arbitrate a statutory employment discrimination claim was enforceable.[49]

Your company may take advantage of the state laws if the contract with your employees contains such a provision, or if the agreement does not meet the commerce requirement in the FAA. (The term commerce in the statute is to be interpreted as expanding to the fullest extent of the Commerce Clause.) In Bercovitch v. Baldwin School, Inc., the First Circuit stated that the FAA clearly covered an enrollment agreement that provided for the payment of money for educational services to a local, private grammar school.[50] Similarly, a district court in Alabama held in Roberson v. Money Tree of Alabama, Inc. that a loan agreement negotiated in Alabama, but approved and distributed from Georgia, was covered by the FAA.[51] To control for this factor, your company may wish to provide that state law will govern arbitration of employment disputes, so long as that law meets the heightened requirements for fundamental fairness now being read into the FAA.

But when looking to state laws to conduct arbitration in the employment context, employers should not assume that they will be free from attack. State court decisions have also challenged arbitration in the employment law context. For instance, in Ackerman v. The Money Store, a New Jersey trial judge held that the company's decision to terminate a nine-year employee for her refusal to execute an arbitration agreement violated the New Jersey Law Against Discrimination's (LAD) proscription against interference with rights granted or protected by the LAD.[52] It distinguished cases upholding arbitration on the grounds that in those cases the employee had already waived and the waiver had been found valid.[53]

This reasoning is questionable as it would lead to the curious result that an attempt to have an employee, such as Ackerman, waive is actionable under LAD but the completed waiver is not. Moreover, the court never dealt head-on with the FAA's preemption of her claim of interference with rights under LAD.[54] Nonetheless, such decisions raise further questions about the continued enforceability of arbitration agreements in the nonunion context.

The authors believe that arbitration clauses are generally enforceable. This conclusion holds true even in the employment context within which statutory, civil rights, and sexual harassment claims are brought. Yet in-house counsel should proceed with eyes wide open. The appropriateness of arbitration in the employment context will be subject to continuing attack. This increases the chance of decisions favoring employees who seek to avoid arbitration. Such decisions, however, should prove more the exception than the rule.

DRAFTING ENFORCEABLE AGREEMENTS

Given the applicability of arbitration disputes to a broad range of issues, and the increasing attacks on arbitration, how can agreements be drafted to maximize the likelihood that they would be enforceable in employment agreements? Counsel should bear in mind three general principles. First, ambiguous agreements are to be resolved in favor of arbitration.[55] Second, an arbitration provision covering claims "relating to" a contract is broader than one that covers claims merely arising out of a contract.[56] Finally, the clearer and more comprehensive the language in the agreement, the more likely it is that a court would find that the parties agreed to arbitrate all disputes related to the employment relationship and that the court would find a limitation of remedies clause (that is, barring punitive damages) in the agreement.[57] As recently decided cases tend to show, an employer maximizes the protection of arbitration both procedurally and substantively by a carefully drafted document.[58]

Recent federal and state cases have resolved or clarified a number of issues commonly arising in the context of employment arbitration.[59] They include the following:

  • Does the employment agreement's dispute resolution procedure meet the requirements for arbitration or does it describe an inferior procedure that does not constitute arbitration and so fails to limit the employee's ability to resort to court?
  • Does an arbitrator or does a court decide whether a dispute is arbitrable under the employment agreement?
  • Given the relative degrees of bargaining power on each side, can the agreement to arbitrate be set aside as a contract of adhesion?
  • How effective are defenses to arbitrability such as fraudulent inducement, duress, and/or lack of consideration for the agreement to arbitrate?
  • Can the arbitrator decide employment issues affecting a state's public policy?
  • Can the parties to the agreement ever validly agree to waive common law or statutory remedies (such as punitive damages) in employment-related disputes?

Is the Dispute Resolution Process an Arbitration?

Key: Provide for an independent decision-maker, a binding and final decision, and impartiality.

What factors make a dispute resolution an arbitration? Some elements courts look for are the presence of a neutral (third-party) decision-maker, a binding and final decision, and some minimum level of impartiality.

When there is no independent decision-maker, courts will not enforce the dispute resolution procedures of employment agreements under the FAA. In Cheng-Canindin v. Renaissance Hotel Associate[60] an employee brought a wrongful termination action against the owners and management of her former employer, a hotel. The defendants moved to compel arbitration under the FAA. The California Court of Appeals held that the parties had not, in the circumstances of the case, entered into an arbitration agreement. Although Cheng signed an acknowledgment that she had received certain materials in which was described the hotel's internal problem-solving procedure, the procedure described was not arbitration because it lacked an impartial third-party decision-maker and because one party exclusively controlled the process:

Under the review committee procedure at issue in this case, the hotel is the sole decision-maker. Everyone involved in the decision-making proms is employed by, selected by, and under the control of the hotel. Employees of the hotel sit on the committee; the general manager of the hotel breaks tie votes; the committee is chaired by an employee from the personnel department. The employee does not select any committee member and must accept the roles that the hotel has assigned to the general manager and the personnel department?...

The entire review committee procedure is inherently slanted in management's direction. The general manager decides, according to some unknown standards, the jurisdiction of the committee, breaks the votes, and makes the final decision about whether a witness should be required to testify. The personnel department chooses the committee members, makes relevancy decisions, and also has control over who may testify. It is even suggested that committee members need not be objective; their job is to ensure that major decisions affecting the employment of individual employees is [sic] made in accordance with hotel policy. Hotel policies may never be challenged by employees or altered by the committee.[61]


Sample Insert to an Employment Application

To ensure that an employee will be bound by a knowing and voluntary agreement to arbitrate in an employment application, the language regarding the submission of employment disputes to an ADR process must be clear and noticeable. The language regarding ADR should reference the applicable procedures and the matters covered, should be separate and apart from the other information the employee is attesting to by signing the employment application, and should make clear that the employee has carefully read these specific provisions before signing.

The following is a sample insert in an employment application that provides for arbitration of future employment disputes:

In consideration of the Company employing you or continuing to employ you and the mutual promises set forth herein, you and the Company and your and its representatives, successors, and assigns (i) agree that all claims relating to your recruitment, employment with, or termination of employment from the Company shall be deemed waived unless submitted to final and binding arbitration in accordance with the rules of the [American Arbitration Association/JAMS/Endispute or other ADR provider] and (ii) in the event that either party files, and is allowed by the courts to prosecute, a court action on such claim, the plaintiff in such action agrees not to request, and hereby waives his, her, or its right to a trial by jury.

The Company and you (and their representatives, successors, and assignees) further agree that, in the event that either seeks relief in a court of competent jurisdiction for a dispute covered by this Agreement, the other may, at any time within 60 days of the service of the complaint, require the dispute to be arbitrated, and that the decision and award of the arbitrator shall be final binding and enforceable in the courts.

This predispute resolution agreement covers all matters directly or indirectly related to your recruitment, employment, or termination of employment by the Company, including, but not limited to, alleged violations of Title VII of the Civil Rights Act of 1964, sections 1981 through 1988 of Title 42 of the United States Code and all amendments thereto, the Employee Retirement Income Security Act of 1974 ("ERISA"), the Americans with Disabilities Act of 1990 ("ADA"), the Age Discrimination in Employment Act of 1967 ("ADEA"), the Older Workers Benefits Protection Act of 1990 ("OWBPA"), the Fair Labor Standards Act ("FLSA"), the Occupational Safety and Health Act ("OSHA"), the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and any and all claims under federal, state and local laws against discrimination, but excluding Worker's Compensation Claims.

You may wish to consult an attorney prior to signing this agreement. If so, take a copy of this form with you. However, you will not be offered employment until this form is signed and returned by you.

Please read these provisions carefully. By signing below, you are attesting that you have read and understood this document, and are knowingly and voluntarily agreeing to these terms.

____________________________
Signature

____________________________
Date


The Cheng-Ganindin case provides a good example of how not to structure an arbitration procedure. So, too, does a case recently decided by the Fourth Circuit. in Hooters of America, Inc. v. Phillips[62] the court held that Phillips, a Hooters employee, could rescind her agreement to arbitrate her sexual harassment claim. The court posited that an employer who sets up an arbitration system assumes the obligation of establishing a system "[whereby] disputes are fairly resolved by an impartial third party."[63]

The court found that Hooters failed to fulfill because its policy contained the following provisions:

  • Hooters required the employee to provide notice of the specifics of the claim but Hooters need not file a responsive pleading or notice its defenses.
  • Hooters required the employee to provide it with a list of all fact witnesses and a brief summary of the facts known to each but Hooters need not provide such a list.
  • While the employee and Hooters could each choose an arbitrator from a list and those arbitrators would then select a third, Hooters alone selected the arbitrators on the list.
  • Hooters had the right to widen the scope of arbitration to include any matter while the employee was limited to those raised in its notice.
  • Hooters may move for summary dismissal but the employee may not move for summary judgment.
  • Only Hooters had the right to record the arbitration.
  • Only Hooters had the right to sue to vacate or modify an arbitration award because the panel exceeded its authority.
  • Only Hooters could cancel the agreement to arbitrate.
  • Only Hooters; could change the rules regarding the arbitration.[64]

The Fourth Circuit stated bluntly that Hooters "creat[ed] a sham system unworthy even of the name of arbitration."[65]

Other courts have approved arbitration procedures that include third-party decision-makers, independently originating rules of procedure (for example, AAA, NYSE, NASD arbitration rules, and so on), and other indications of impartiality.[66]

Who Decides Whether a Dispute is Arbitrable?

Key. Specify in your agreements that the arbitrator will decide.

Thirty years ago, the Supreme Court held in Prima Paint Corp. v. Flood & Conklin Mfg. that issues concerning the enforceability of an arbitration clause would be decided a court while issues concerning the enforceability of the contract itself could only be decided by the arbitrator.[67] In practice, the distinction made in Prima Paint has proved a difficult one to implement in the employment context.[68]

In light of this, the Supreme Court in 1995 held in First Options of Chicago, Inc. v. Kaplan[69] that, absent clear and unmistakable evidence that the parties agreed that the issue be decided by an arbitrator, a court should decide a dispute over whether the parties agreed to arbitrate.[70] First Options also reconfirmed that an arbitrator's decisions would be set aside only in very unusual circumstances (such as corruption, fraud, undue means, or the arbitrator's acting outside the scope of authority).[71]

So what does First Options teach us? The employer must draft a clear and unambiguous agreement with specific language providing that the arbitrator, not a court, is to decide whether a particular issue is arbitrable. By doing so, the employer minimizes the likelihood and extent of court involvement.

Will the Arbitration Agreement Be Deemed a Contract of Adhesion?

Key: Be fair.

Generally, federal courts have not set aside arbitration agreements as contracts of adhesion or as otherwise unconscionable.[72] As the Supreme Court observed in Gilmer v. Interstate/Johnson Lane Corp., "[M]ere inequality in bargaining power ?... is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context."[73]

Cases after Gilmer that address the adhesion/unconscionability issue establish that an arbitration agreement will not be found to be unconscionable merely because the employer drafted it (absent evidence of fraud, pressure tactics, or other means of coercion to extract the employee's agreement).[74] Moreover, no finding of adhesion or unconscionability will be made if the arbitration agreement is found fairly to bind both parties and to favor neither.[75] Thus, a clearly drafted and objectively evenhanded arbitration provision will be upheld under the FAA against adhesion/unconscionability claims.[76]

Did the Employee Sign Without Knowledge or Under Duress?

Key: Specify that such claims are to be decided by the arbitrator and identify the arbitration provision clearly and distinctly.

The adhesion/unconscionability argument is by no means the only one made against enforcement of employment arbitration agreements. An extremely common and occasionally successful argument is that the employee never knowingly agreed to arbitrate employment-related issues and so never knowingly waived his or her right to a judicial proceeding.

In Prudential Ins. Co. of America v. Lai,[77] the employer moved to compel arbitration of plaintiffs' Title VII[78] and related state law statutory claims. The Ninth Circuit panel held that "a Title VII plaintiff may only be forced to forego her statutory remedies and arbitrate her claims if she has knowingly agreed to submit such disputes to arbitration."[79] The form signed by the plaintiffs did not "purport to describe the types of disputes that were to be subject to arbitration."[80 ]Moreover, a separate employment contract signed by the plaintiffs did not describe the types of disputes that would be arbitrable.[81] Finding that the employees had not knowingly agreed to arbitrate, the court refused to compel arbitration.[82]

Lai has been distinguished or criticized by a number of recent cases.[83 ]The analysis in Golenia v. Bob Baker Toyota is an example of a court's unwillingness to become hypertechnical with the language of an arbitration provision. The court there found that a reference to 'employment disputes' in an arbitration agreement is enough to put the employee on notice of what is being waived:

The language of the clause in this case refers to arbitration 'any dispute or controversy which would otherwise require or allow resort to any court or other governmental dispute resolution forum, between myself and the company, arising from, related to, or having any connection with my seeking employment with, employment by, or other association with, company, whether based on tort, contract, statutory, or equitable law, or otherwise .... More cannot be reasonably required....[84]

And in Maye v. Smith Bamey, Inc.[85]the court distinguished Lai:

[T]he agreements that Maye and Harris signed could not have done more to put them on notice that they were agreeing to submit any and all Title VII claims to arbitration.... At the bottom of the document there is a paragraph that expressly defines the employment disputes that are to be submitted to arbitration as including those arising under Title VII and related federal and state laws. A more stark contrast to the facts in Lai cannot be imagined.[86]

Still other courts—based on the FANs enunciation of a liberal federal policy in favor of arbitration agreements—have criticized the implication in Lai that there is congressional intent to preclude arbitration absent an explicit and knowing waiver of rights.[87] Whatever one's opinion of the persuasiveness of legislative history, however, the cases discussed above show that clear and comprehensive arbitration agreements will be enforced under the FAA.[88]

Yet another common argument against enforcement of employment arbitration agreements is the claim that the employee's assent was secured by fraud or misrepresentation. Often, such a claim amounts to no more than a lack of knowledge about the substance of the employment documents signed by the plaintiff. Courts have found such arguments wanting.[89]

Other courts have held that, even assuming the existence of some evidence of fraud or misrepresentation, the plaintiff failed to show reasonable reliance thereon.[90] Since at least one court has allowed discovery to go forward on plaintiffs claim of fraudulent inducement,[91] and since employees can always claim that misrepresentations induced them to sign the arbitration agreement, fraudulent inducement clause can probably best be addressed by clear and prominent language in the employment agreement that such claims are to be decided by the arbitrator.

Finally, courts have rejected arguments that arbitration agreements fail for lack of consideration.[92] Courts have commonly found that continued employment and mutual agreement to arbitrate constitute sufficient consideration to uphold enforcement.[93]

The cases discussed above, rejecting claims of lack of knowledge, fraud, duress, and lack of consideration, make it apparent that employee plaintiffs seeking to set aside carefully drafted arbitration agreements have their work cut out for them.

May State Public Policy Issues Be Arbitrated?

Key: Reference state statutes in the arbitration provision to establish the parties' intent.

On several occasions, courts have considered whether employee claims arising from the protection afforded by state whistleblower statutes,[94] or other public policy concerns,[95 ]can be arbitrated under the FAA and Gilmer.[96] These courts have held that issues that implicate state public policy can be arbitrated.

These decisions contrast with Labib v. Younan,[97] a diversity action decided before Gilmer involving the New Jersey Arbitration Statute—because of the lack of connection to interstate or foreign commerce—and not the FAA.[98]

In Labib, the employee alleged, among other things, retaliatory discharge in violation of the New Jersey Conscientious Employee Protection Act (CEPA).[99] The defendants moved to stay judicial proceedings under the arbitration provision of the employment contract. Although the plaintiff was an individual employee not subject to a collective bargaining agreement, the Labib court referred to cases involving those agreements. Those cases have held that an employee's right to litigate a retaliatory discharge claim in court survived despite an arbitration clause in a collective bargaining agreement. The Labib court reasoned that there was no reason to distinguish collective bargaining cases and that there was a strong public policy under CEPA against limiting an employee to arbitration. It therefore refused to stay the employee's CEPA-related claims (while staying claims unrelated to CEPA), finding that 'the strong public policy against retaliatory employment discharges weighs against the general policy in favor of arbitration."[100] Given the New Jersey public against retaliatory discharge, the CEPA-related claim implicated "substantive, nonwaivable rights of all workers," which were necessarily independent of the employment agreement's provisions.[101]

Labib was distinguished in light of Gilmer by a New Jersey state court ruling involving the FAA, captioned Bleumer v. Parkavy Insurance Co.[102] Bleumer also involved whether an employee's CEPA claim subject to arbitration, this time under the FAA.[103] The Bleurner court concluded that Gilmer had made a distinction between collective bargaining arbitration and individual employment contract arbitration, favoring arbitration of claims in the latter context.[104] The court reasoned that the nonwaiver analysis derived from the collective bargaining cases and applied in Labib was inapposite:

[It] does not extend to similar claims arising under private employment agreements. Moreover, to the extent that the court in Labib failed to recognize the distinction between collective bargaining agreements and private employment contracts, its reasoning, in the light of Gilmer, now appears flawed. In any event Labib was decided under state law, rather than the FAA, and the public policy grounds for declining to compel arbitration of CEPA claims under state law ... cannot dictate a similar result in cases arising under the FAA(because the FAA has been held under the Supremacy Clause to preempt any state law or policy which would restrict arbitrability.[105]

The Bleumer court concluded that Gilmer mandated that the CEPA claim was subject to arbitration under the FAA and that the wording of the arbitration agreement contemplated arbitration of the claim.[106 ]Yet, to avoid the extended analysis the Bleumer court engaged in, and to increase the chance that a court will conclude that the parties contemplated arbitration of a state statutory claim in their agreement, it would be best to reference state statutes in the arbitration provision to make clear the parties' intent to arbitrate claims arising under those statutes.

Federal district courts have likewise held claims arising under state whistleblower[107] and discrimination[108] statutes to be arbitrable under the FAA. When considered together with Bleumer, and in light of Gilmer, the FAA evidently trumps state public policy concerns otherwise requiring judicial review in employment disputes.

Can Contractual Limits on Remedies Be Enforced?

Key: This is a danger area. Provide for the severability of any waiver provisions.

Enforceability of arbitration agreements in the employment context raises the intriguing question of what, if any, limits may be imposed upon the recovery of damages or the obtaining of relief otherwise avail. able in a judicial proceeding. Several recent cases have echoed the Supreme Court's language in Mitsubishi Motors v. Soler Chrysler-Plymouth, Inc.:[109]

By agreeing to arbitrate a statutory claim, a party does not forego the substantive rights afforded by the statute; it only submits to their resolution in an arbitral rather than a judicial forum.[110]

But can the parties go further and limit remedies? The federal district court in Minnesota faced that issue in Johnson v. Hubbard Broadcasting, Inc.,[111] in which an employee signed an arbitration agreement that limited her recovery in arbitration to "out-of-pocket" damages, and excluded recovery for punitive damages or any other form of nonpecuniary loss.[112] While holding the employee's statutory claims to be arbitrable under the FAA, the court took a dim view of the employees attempt to limit employee remedies by agreement:

[S]hould the arbitrator find that the terms of the arbitration agreement which require Johnson to file her charge 'within 180 days after [her] dispute has arisen' bars the present action, the agreement would contravene federally and state established statutes of limitations, possibly rendering the agreement unenforceable as unconscionable.[113]

Is the Johnson court alone?

Citing the Supreme Court's Gilmer and Mitsubishi Motors v. Soler Chrysler-Plymouth Inc.[114] decisions, Southern District of New York held in DeGaetano v. Smith Barney, Inc. that a clearly worded arbitration provision barring recovery of punitive damages and attorneys' fees in arbitration is enforceable.[115]

It is therefore not inconsistent to submit plaintiff's claim to arbitration simply because punitive damages and attorneys' fees are unavailable in that forum. The mere fact that these statutory remedies may be unavailable in the arbitral forum does not in itself establish that Title VU claims must be resolved in a court of law.... Although arbitration may not afford the full panoply of remedies otherwise available in a court of law,[116 ]'[S]o long as the prospective litigant effectively may vindicate [His or her] statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.'[117]

Does the DeGaetano court's ruling reflect a trend or an isolated decision? The better view is that the arbitration provision should not limit remedies. This permits the employer to argue that the employee has not given up any claims and that only the forum has changed, thus blunting any attack that arbitration involves a loss of substantive rights. In the authors' view, the Mitsubishi and Johnson cases are more persuasive for the proposition that remedies cannot be limited than the DeGaetano case would appear to be for the proposition that they can be limited. While the jury may still be out on this issue, employers seeking to minimize attacks on arbitration in the employment context should avoid any attempt to limit remedies.[118]

CONCLUSION

Whatever the Supreme Court's ultimate resolution of the FAA's reach and of the ability to limit remedies, the advisable course remains to place arbitration provisions in employment agreements. Counsel should draft agreements that:

  • provide for an independent decision-maker, a binding and final decision, and impartiality;
  • provide specifically that the arbitrator should decide whether a dispute is arbitrable, including claims that fraud or misrepresentation induced the employee to sign the arbitration agreement;
  • be fair and even-handed;
  • insert clear and comprehensive language to the effect that the parties agreed to arbitrate all disputes "related to" the employment relationship; set out specifically the statutory and common law claims subject to arbitration; and include language not limiting arbitrable claims to those specifically mentioned;[119]
  • reference in the arbitration clause statutes providing tights to employees and state explicitly that these issues are arbitrable and are to be decided by an arbitrator, and
  • try to ensure that the document not include a remedies limitation clause but, if the client requires it, provide that such a clause is intended by the parties to be severable from the rest of the agreement so that if a court refuses to enforce the remedies limitation, it can be argued that the rest of the agreement remains enforceable.

In this way, attacks on arbitration in the nonunion context may be blunted.

ENDNOTES

[1] See, Formal Employment Contracts, 558 Pli/Lit. 7 at 34.

[2] Id. at 34-35.

[3 ]Stuart J. Kaswell, U.S. Senate Hearing on Mandatory Arbitration Agreement in Securities Industry Employment Contracts (July 31, 1998) (www.sia.com/government_relations/html/stuart_testimony.html).

[4] Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 22. 74 L. Ed. 2d 765, 784, 103 S. Ct. 927, 940 (1983).

[5] Id. at 23, 74 L. Ed. 2d at 784, 103 S. Ct. at 941.

[6] 9 U.S.C. § 3. "If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration ?... the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration."

[7] Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 114 L. Ed. 2d 26, 36, 111 S. Ct. 1647, 1651 (1991).

[8] Id.

[9] See, cases cited at notes 20 and 23.

[10] Allied-Bruce Terminex Co. Inc. v. Dobson, 513 U.S. 265, 273, 130 L. Ed. 2d 753, 766, 115 S. Ct. 834, 839 (1995).

[11] 9 U.S.C. § 2. "A written [arbitration] provision in any maritime transaction or a contract evidencing a transaction involving commerce ?... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." See, Allied-Bruce Terminex Co. Inc. v. Dobson, 513 U.S. at 273, 130 L. Ed. 2d at 764, 115 S. Ct. at 839.

[12] PaineWebber Inc. v. Faragalli, 61 F.3d 1063, 1066 (3rd Cir. 1995).

[13] Id. (citing National Iranian Oil Co. v. Mapco Int'l Inc., 983 F.2d 485, 493 (3d Cir. 1992).

[14] Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. at 24, 74 L Ed. 2d at 785, 103 S. Ct. at 94 1.

[15] See, Southland Corp. v. Keating, 465 U.S. 1, 16-17, 79 L. Ed. 2d 1, 15-16, 104 S. Ct. 852, 861 (1984) (Stevens, J. concurring in part, dissenting in part).

[16] Moses H. Cone Mem'l Hosp., 460 U.S. at 74, L Ed.2d at 785, 103 S. Ct. at 941. See also, Doctor's Associates, Inc. v. Casarotto, 116 S. Ct. 1652 (1996) (Montana law conflicting with the FAA preempted); Yale Materials Handling Corp. v. White Storage and Retirement Systems, 240 N.J. Super. 370, 375 (App. Div. 1990) (New Jersey state courts recognize that the FAA's liberal federal policy in favor of arbitration agreements preempts state law for contracts involving interstate commerce.)

[17] Moses H. Cone Mem'l Hosp, 460 U.S. at 24, 74 L. Ed. 2d at 785, 103 S. Ct. at 941.

[18] Id. at 26, 74 L. Ed. 2d at 786, 103 S. Ct. at 942. It is less clear whether this applies to orders to arbitrate.

[19] 9 U.S.C. § 1 "[C]ommerce, as herein defined, means commerce among the several states or with foreign nations, or in any territory of the United States or in the District of Columbia, or between any such territory and another, or between any such territory and any state or foreign nation, or between the District of Columbia and any state or territory or foreign nation, but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." (Emphasis added).

[20] See, Greyhound Workers Amalgamated Ass'n, etc. v. Pennsylvania Greyhound Lines, 192 F.2d 310 (3d Cir. 1951); Pennsylvania Greyhound Lines v. Amalgamated Ass'n, 193 F.2d 327 (3d Cir. 1952). See also, Central States Southeast and Southwest Areas Pension Fund v. Central Cartage Co., 84 F.3d 988, 993 (7th Cir.), cert. denied. 519 U.S. 912, 117 S. Ct. 276, 136 L. Ed. 2d 199 (1996). (§ 1 exclusion applies to trucking company workers covered by collective bargaining agreement). Compare Domino Sugar Corp. v. Sugar Workers Local Union 392, 10 F.3d 1064, 1067 (4th Cir. 1993) (sugar workers covered by collective bargaining agreement, FAA exclusion applies); Austin v. Owens-Brockway Glass Container, Inc., 78 F.3d 875, 879 (4th Cir.), cert. denied. 519 U.S. 980, 117 S. Ct. 432, 136 L. Ed. 2d 330 (1996) (glass container factory workers covered by collective bargaining agreement, FAA exclusion applies); and Pryner v. Tractor Supply Company, 109 F2d 354, 357 (7th Cir. 1997) (FAA generally applies to workers covered by collective bargaining agreements not related to transportation industries). Accord Nieves v. Individualized Shirts, Inc., 961 F. Supp. 782, 791 (D.N.J. 1997) (whether a union can waive or otherwise limit its members' access to court by agreement with the employer through collective bargaining remains a disputed issue). Compare Austin, 78 F.3d 875 and Moore v. Duke Power Corp., 971 F. Supp. 978 (W.D.N.C. 1997), 1997 WL 392494 (permitting waiver), with Pryner v. Tractor Supply Co., 109 F.3d 354 (7th Cir. 1997). Nieves v. Individualized Shirts, 961 F. Supp. 782 (D.N.J. 1987) (prohibiting union waiver of employer statutory rights through CBA).

[21]See, Lepera v. ITT Corp. 1997 WL 535165, *6 (E.D.P.A. 1997) (New York law, rather than the FAA, applied to arbitration agreement with corporate employer of pilot who transported company executive). The Lepera court observed that "Under the prevailing interpretation of the § 1 exception, pilots carrying only goods — for example, pilots working for FedEx or any other shipping company — are clearly exempted from the FAA because they transport goods directly in the chain of commerce. It does not make sense to stratify pilots by their type of cargo?..." Labor relations in the railroad and airline industries are governed by the Railway Labor Act, 45 U.S.C.A. § 151 et seq. See, Hearing, Before the Subcommittee of Aviation, House Transportation Committee on H.R. 991, to Apply the Railway Labor Act to Pilots Engaged in Flight Operations Outside the United States (105th Cong. 1st Session, 1997).

[22] See, Crawford v. West Jersey Health Systems, 847 F. Supp. 1232, 1241 (D.N.J. 1994).

[23] See, Crawford v. West Jersey Health Systems, 847 F. Supp. 1232, 1241 (D.N.J. 1994) (citing cases). See also, Rojas v. TK Communications, Inc., 87 F.3d 745, 747 n.2 (5th Cir. 1996). Since about the time of Crawford, a number of federal district courts have held the § 1 exclusion inapplicable in the employment context, see eg., Hull v. NCR Corp., 826 F. Supp. 303 (E.D. Mo. 1993) (exclusion applies only to those workers engaged in movement of goods in interstate or foreign commerce); Cherry v. Wertheim Schroder & Co., Inc., 868 F. Supp. 830 (D.S.C. 1994); Powers v. Fox Television Stations, Inc., 923 F. Supp. 21 (S.D.N.Y. 1996); Golenia v. Bob Baker Toyota, 915 F. Supp. 201 (S.D. Cal. 1996); Albert v. National Cash Register Co., 874 F. Supp. 1324 (S.D. Fla. 1994); Conners v. Amisub (North Ridge Hospital) Inc., 1996 WL406677 (S.D. Fla. 1996); McWilliams v. Logicon, Inc., 1996 WL 439291 (D. Kan. 1996); Durkin v. Cigna Property & Casualty Corp., 942 F. Supp. 481 (D. Kan. 1996); Hickman v. PaineWebber Inc., 1996 WL 700099 (E.D. Tex. 1996).

[24 ]See, Patterson v. Tenet Healthcare, 113 F.3d 832, 835 (8th Cir. 1997); Cole v. Bums Int'l Security Services, 105 F.3d 1465, 1472 (D.C. Cir. 1997).

[25] See, Crawford, 847 F. Supp. at 1241. See also, United Food and Commercial Workers v. Safeway Stores, 889 F.2d 940, 943-944 (10th Cir. 1989) (FAA generally not applicable to labor arbitration); American Postal Workers Union v. U.S. Postal Service, 823 F.2d 466, 473 (11th Cir. 1987). The Sixth Circuit subsequently rejected the earlier dictum in Willis v. Dean Witter Reynolds, Inc. 948 F.2d 305 (6th Cir. 1991), and held the § 1 exclusion inapplicable in most employment contexts. Aspludh Tree Expert Co. v. Bates, 71 F.3d 592, 594 (6th Cir. 1995).

[26] Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp. 460 U.S. at 24-25, 74 L. Ed 2d at 785, 103 S. Ct. at 941.

[27] Crawford v. West Jersey Health Systems, 847 F. Supp. at 1243 n. 14.

[28] Prima Paint v. Flood & Conkling Mfg., 388 U.S. at 406, 18 L. Ed. 2d at 1279, 87 S. Ct. at 1807.

[29] See, Goodwin v. Elkins & Co., 730 F.2d 99, 109 (3d Cir. 1984).

[30] See, Crawford, 847 F. Supp. at 1238, 1243 n. 14.

[31 ]See, e.g. Patterson v. Tenet Healthcare, Inc., 113 F.3d 832 (8th Cir. 1997) (Title VII, and Missouri Human Rights Act (MHRA) claims); Cole v. Bums Int'l Security Services, 105 F.3d 1465 (D.C. Cir. 1997) (Title VII); Great Western Mortgage Corp. v. Peacock, 110 F.3d 222 (3d Cir. 1997) (sexual harassment under New jersey statute); Gutierrez v. Academy Corp., 967 F. Supp. 945 (S.D. Texas 1997) (discharge in violation of Title VII); Seus v. John Nuveen & Co., Inc., 146 F. 3d 175 (3d Cir. 1998) (Title VII, Age Discrimination in Employment Act, 29 U.S.C. § 601 et. seq., and Pennsylvania Human Relations Act Claims); Kovaleskie v. SBC Capital Markets, Inc., 167 F. 3d 361 (7th Cir. 1999); Kahalnik v. John Hancock Funds, Inc., 1996 WL 145842 (N.D. Ill. 1996) (arbitration of age discrimination claim); Mikes v. Strauss, 897 F. Supp. 805 (S.D.N.Y. 1995) (arbitration of retaliatory discharge claim under New York law); Kuehwer v. Dickinson & Co., 84 F.3d 316 (9th Cir. 1996) (Fair Labor Standards Act claim); Powers v. Fox Television Stations, Inc., 923 F. Supp. 21 (S.D.N.Y. 1996) (wrongful termination under New York law); Matthews v. Rollins Hudig Hall Co., 72 F.3d 50 (7th Cir. 1995) (age discrimination and fraudulent inducement); Tomasetti v. Prudential Ins. Co. of America, 1996 WL 604752 (E.D. Cal. 1996) (wrongful termination under California law); Williams v. Cigna Financial Advisors, Inc., 56 F.3d 656 (5th Cir. 1996) (age discrimination); Connors v. Amisub (Worth Ridge Hospital) Inc., 1996 WL 406677 (S.D. Fla. 1996) (Americans With Disabilities Act claim); Vitone v. Metropolitan Life Ins. Co. 943 F. Supp. 192 (D.R.I. 1996) (Rhode Island Whistleblower's Protection Act); Brown v. Rexhall Industries, 1996 WL 662449 (N.D. Ind. 1996) (sexual harassment under Title VII and Equal Pay Act Claims); McWilliams v. Logicon, Inc., 1996 WL 439291 (D. Kan. 1996) (ADA claim); Continental Airlines, Inc. v. Mason, 87 F.3d 1318 (9th Cir. 1996) (gender discrimination under California law); Topf v. Warnaco, Inc., 942 F. Supp. 762 (D. Conn. 1996) (Federal Rehabilitation Act and Connecticut Fair Employment Practices Act claims); Dempsey v. George S. May Int'l Co., 933 F. Supp. 72 (D. Mass. 1996) (dispute over noncompetition clause in employment agreement); Johnson v. Hubbard Broadcasting, Inc., 940 F. Supp. 1447 (D. Minn. 1996) (age discrimination claim under Title VII); Maye v. Smith Barney, Inc., 897 F. Supp. 100 (S.D.N.Y. 1995) (Title VII and New York state law claims); Santarino v. A.G. Edwards & Sons, Inc., 941 F. Supp. 609 (N.D. Texas 1996) (Family and Medical Leave Act and ADA claims); Golenia v. Bob Baker Toyota, 915 F. Supp. 201 (S.D. Cal. 1996) (ADA claim); Bleumer v. Parkway Ins. Co., 277 N.J. Super 378 (Law Div. 1994) (New Jersey Whistleblower Statute claim); Pilanski v. Metropolitan Life Ins. Co., 1996 WL 622024 (S.D.N.Y. 1996) (sexually offensive hostile work environment under Title VII); Durkin v. Cigna Property and Casualty Corp., 942 F. Supp. 481 (D. Kan. 1996) (Title VII, ADEA, ADA, Equal Pay Act, Kansas state law claims); Rojas v. TK Communications, Inc., 87 F.3d 745 (5th Cir. 1996) (Title VII sexual harassment); Beauchamp v. Great West Life Assurance Co., 918 F. Supp. 1091 (E.D. Mich. 1996) (ADEA and Title VII); Cherry v. Wertheim Schroder & Co., Inc., 868 F. Supp. 830 (D.S.C. 1994) (Title VII sexual harassment); Crawford v. West Jersey Health Systems, 847 F. Supp. 1232 (D.N.J. 1994) Title VII, ADEA, and New Jersey Law Against Discrimination); Nazon v. Shearson Lehman Brothers, Inc., 832 F. Supp. 1540 (S.D. Fla. 1993) (sexual harassment under Florida law).

[32] See, EEOC Notice 915,002, July 10, 1997.

[33] See, Securities Arbitration Commentator, No. 1.

[34] Cole v. Bums, 105 F.3d 1465, 1481 (D.C. Cir. 1997).

[35] See, Tretina Printing Inc. v. Fitzpatrick & Assoc., Inc., 135 N.J. 349, 357-58 (1994).

[36] 9 U.S.C. § 10(a).

[37] Cole v. Burns, 105 F. 3d at 1487.

[38] Id.

[39] Halligan v. Piper Jaffrey Inc., 148 F.3d 197, 204 (2d Cir. 1998).

[40] Montes v. Shearson Lehman Brothers, Inc., 128 F. 3d 1456, 1464 (11th Cir. 1997).

[41] Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir.) cert. denied, __U.S.__, 119 S. Ct. 445, 142 L. Ed. 2d 399 and cert. denied sub. nom., Robertson, Stephens & Co. v. Duffield, __U.S.__, 119 S. Ct. 465, 142 L. Ed. 2d 418 (1998).

[42] 489 U.S. 468, 479 (1989).

[43] Id.

[44] Alaska, Arizona, Arkansas, Colorado, Delaware, District of Columbia, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and Wyoming.

[45] Delaware, Colorado, District of Colombia, Indiana, Maine, Minnesota, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Pennsylvania, South Dakota, Virginia, Wyoming.

[46] Arizona, Arkansas, Iowa, Kansas, and Kentucky exclude all employment contracts. However, Maryland, Massachusetts, Oklahoma, Oregon, Rhode Island, and Texas expressly provide that the statute does not apply to collective bargaining agreements.

[47] See also, Idaho Code § 7-901 et seq., which states that the provisions do not apply to arbitration agreements between employers and employees, unless the parties otherwise provide in the agreement.

[48] 24 Hour Fitness, Inc. v. Superior Court of Sonoma County, 66 Cal. App. 4th 1199,1209 (1998).

[49] Rembert v. Ryan's Family Steak Houses, Inc., 596 N.W.2d 208, 210 (Mich. Ct App. 1998); see also, Int'l Marine Holdings v. Stauff, 691 A.2d 1117 (Conn. App. 1997), (enforcing an arbitration agreement in employment); Pierce v. J.W. Charles-Bush Sec., Inc., 603 So.2d 625, 628 (Fla. Dist. Ct. App. 4th Dist. 1992) (stating that if civil rights, antitrust, and securities fraud claims are not inappropriate for arbitration, it is very difficult to imagine a civil claim in which an agreement to arbitrate would not be enforced.); Gaffney v. Powell, 668 N.E.2d 951 (Ohio App. 1st Dist., 1995), (enforcing an employment arbitration agreement that covered employee's breach of contract claims and various tort claims asserted for assault, gender discrimination, sexual harassment, intentional infliction of emotional distress, and loss of consortium); Pyramid Elec. Co. v. Stalinski, 61. N.J. Super. 278 (App. Div. 1960) (enforcing an arbitration agreement in a contract of employment); Ga. Code Ann. 9-9-2 (c)(9) (enforces contracts relating to terms and conditions of employment, as long as the specific arbitration clause is initialed by the signatories). But see Wisconsin Stat. § 788.01 et seq. (the arbitration statute does not apply to contracts between employers and employees, except as provided in 111.10, which provides that a ponies to a dispute in a collective bargaining agreement may agree to have the commission act or name arbitrators.)

[50] Bercovitch v. Baldwin School, Inc., 133 F.3d 141, 148 (1st Cir. 1998).

[51] Roberson v. Money Tree of Alabama, Inc., 954 F.Supp 1519, 1523 (N.D. Ala 1997). See also, M&L Power Services v. American Network Int'l, 44 F.Supp. 2d 134 (D.R.I. 1999) (a contract between a Rhode Island corporation and a Connecticut corporation that involved work for a multistate corporation, is within "commerce" requirement of the FAA).

[52] Ackerman v. The Money Store, 321 N.J. Super. 308, 321 (Law Div. 1998).

[53 ]Id.

[54] See, Bleumer v. Parkway Ins. Co., 277 N.J. Super. 373 (Law Div. 1994) and discussion, infra, regarding whether issues that implicate state law can be arbitrated.

[55] See, Yale Materials Handling Corp. v. White Storage & Retrieval Systems, Inc., 240 N.J. Super. 370, 375 (App. Div. 1990).

[56] Id. at 375.

[57] See, e.g. discussion beginning at note 77.

[58] See, id.

[59] See, cases cited regarding the discussion of these issues below.

[60] 57 Cpl. Rptr. 2d 867 (Ct. App. 1996).

[61] Id. at 874-878.

[62] 173 F.3d 933 (4th Cir. 1999).

[63 ]Id. at 940.

[64 ]Id. at 938-39.

[65] Id. at 940.

[66 ]See, cases cited at note 31.

[67] Prima Paint Corp. v. Flood & Conklin Mfg, Corp., 388 U.S. 395, 402-4. 18 L. Ed. 2d. 1270, 1277-78, 87 S. Ct. 1801, 1805-6 (1967). See also, Rojas v. TK Communications, Inc. 87 F.3d 745, 749 (5th Cir. 1996) (attack on formation of entire contract must be heard by arbitrator); Kelly v. UHC Management Co., 967 F. Supp. 1240,1253 (N.D. Ala. 1997) (following Prima Paint).

[68] See, Kelly v. UHC Management Co. Inc., 967 F. Supp. 1240,1253 (N.D. Ala. 1997).

[69 ]514 U.S. 938, 131 L. Ed. 2d. 985, 115 S. Ct. 1920 (1995).

[70] 514 U.S. at 942-45, 131 L. Ed. 2d at ___, 115 S. Ct. 1923-24. Recent cases have attempted to clarify this distinction. See, e.g. Great Western Mortgage Corp. v. Peacock, 110 F.3d 222, 230 (3d Cir. 1997) ("[A] court compelling arbitration should decide only such issues as are essential to defining the nature of the forum in which a dispute will be decided."). But see, Rojas v. TK Communications Inc., 87 F.3d at 749.

[71] 115 S. Ct. at 1923.

[72] See e.g., Continental Airlines, Inc. v. Mason, 1996 WL341758 (9th Cir. 1996) reported without opinion in 87 F.3d 1318 (table); Satarino v. A.G. Edwards & Sons, Inc., 941 F. Supp. 609 (N.D. Texas 1996).

[73] 500 U.S. 20, 33, 114 L. Ed. 2d 26, 41, 111 S. Ct. 1647, 1655 (1991). Accord, Kuehner v. Dickinson & Co., 84 F.3d 316, 319 (9th Cir. 1996); Durkin v. Cigna Property & Casualty Corp., 942 F. Supp. 481 (D. Kansas 1996); Great Western Mortgage Corp. v. Peacock, 110 F.3d 222, 229 (3d Cir. 1997).

[74] See, Hoffinan v. Aaron Kahmi, Inc., 927 F. Supp. 640, 643 (S.D.N.Y. 1996). See, also Cherry v. Wertheim Schroder & Co., Inc., 868 E Supp. 830, 836 (D.S.C. 1994).

[75] Golenia v. Bob Baker Toyota, 915 E Supp. 201, 2D4 (S.D. Cal. 1996). See, also In Re Prudential Ins. Co. of America Sales Practices Utigation, 924 E Supp. 627, 642 (D.N.J. 1996) (Smith Barney is bound by the terms of the Form U4 to the same extent as plaintiff is bound.").

[76] Lack of mutuality of contract arguments will also be rejected: See Durkin v. Cigna Prop & Casualty Corp., 942 P. Supp. 481 (D. Kan. 1996) (mutuality of contract existed where both parties bound themselves to arbitration) (citation omitted).

[77] 42 F.3d 1299 (9th Cir. 1994), cert. denied, 116 S. Ct. 61 (1995).

[78] 42 U.S.C. 2000, et seq.

[79] 42 F.3d at 1305.

[80] Id.

[81] Id.

[82] Id. Recent Ninth Circuit cases have continued to follow Lai. See, e.g., Renteria v. Prudential Ins. Co., 113 F.3d 1104 (9th Cir. 1997); Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756,1997 WL 381177 (9th Cir. 1997).

[83] See, e.g. Golenia v. Bob Baker Toyota, 915 F. Supp. 201 (S.D. Cal. 1996); Maye v. Smith Barney, Inc., 897 F. Supp. 100 (S.D.N.Y. 1995); Beauchamp v. Great West Life Assurance Co, 918 F. Supp. 1091 (E.D. Mich. 1996); DeGaetano v. Smith Barney, Inc., 1996 WL 44226 (S.D.N.Y. 1996); DiDonato v. A.G. Edwards, Sons, Inc., 1996 WL 67323 (N.D. Cal. 1996); Crisan v. A.G. Edwards & Sons, Inc., 1996 WL 67317 (N.D. Cal. 1996); Topf v. Warnaco, Inc., 942 F Supp. 762 (D. Conn. 1996); Johnson v. Hubbard Broadcasting, Inc., 940 F. Supp. 1447 (D. Minn 1996).

[84] Golenia, 915 F.Supp. at 205 (S.D.Cal. 1996). Compare Hoffman v. Aaron Kahmi, Inc., 927 F. Supp. 640, 645 (S.D.N.Y. 1996) (no enforcement of arbitration when agreement was "poorly worded and ambiguously phrased").

[85] 897 F. Supp. 100 (S.D.N.Y. 1995).

[86] Id; at 107 (emphasis added). See also, DeGaetano 1996 WL 44226 (S.D.N.Y. 1996) (arbitration agreement referring to "employment disputes" specifically defined term to include claims under Title VII and other employment statutes); Continental Airlines, Inc. v. Mason, 1996 WL 341758 (distinguishing Lai).

[87 ]See, eg. Kuehner v. Dickinson & Co., 84 R3d 316, 319 (9th Cir. 1996); Johnson v. Hubbard Broadcasting, Inc., 940 F. Supp. 1447,1455 (D. Minn. 1996); Beauchamp, 918 F. Supp. at 1096.

[88 ]See, cases cited in notes 83, 85, and 86. See also, Smith v. Lehman Brothers, Inc., 1996 WL 383232 (S.D.N.Y 1996) ("[A]ny controversy arising out of or in connection with my compensation, employment, or termination of employment?... This provision applies to any claim under Title VII, the ADEA, or any other state or local discrimination statute.")

[89] Beauchamp, 918 F. Supp. at 1099.

[90] See. e.g., Topf v. Warnaco, Inc., 942 F. Supp. 762 (D. Conn. 1996).

[91] See, Berger v. Canton Fitzgerald Securities, 942 F. Supp. 963,964 (S.D.N.Y. 1996).

[92] See, e.g. Dunkin v. Cigna Property & Casualty Co., 942 F. Supp. 481, 488 (D. Kansas 1996); Dempsey v. George S. May Int'l Co., 933 F. Supp. 72, 75 (D. Mass. 1996); Brown v. Rexhall Industries, Inc., 1996 WL 662449 (N.D. Ind. 1996).

[93] See cases cited in note 31.

[94] See, e.g., N.J.S.A. 34:19-1 to 34.19-8; R.I. General Laws, § 28-50-1.

[95 ]See, e.g., Vitone v. Metropolitan Life Ins. Co., 943 F. Supp. 192 (D.R.I. 1996) (Whistleblower statute); Nazon v. Shearson Lehman Brothers, Inc., 832 F. Supp. 1540 (S.D. Fla. 1993) (Florida public policy against workplace sexual harassment).

[96] Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 114 L. Ed. 2d 26, 111 S. Ct. 1647 (1991).

[97] 755 F. Supp. 125 (D.N.J. 199 1). The Labib court remarked that the statute "mirrors federal arbitration policy." Id. at 127.

[98] See, N.J.S.A. 2A:24-1 to 2A:24-11.

[99] N.J.S.A. 34:19-1 to 34:19-8.

[100] 755 F. Supp. at 129.

[101] Id. at 130. The court found no reason to distinguish individual employment contracts from collective bargaining agreements and relied upon several collective bargaining cases in its analysis. E.g. Lepore v. Nat'l Tool and Mfg. Co., 224 N.J. Super. 463 (App. Div. 1988), aff'd. 115 N.J. 226, cert. denied, 493 U.S. 954 (1989): Lingle v. Norge Div. of Magic Chef Inc., 486 U.S. 399, 108 S. Ct. 1877 (1988).

[102] Bleumer, 277 N.J. Super. 378 (Law Div. 1994).

[103] Id. at 382.

[104] Id. at 397.

[105] Id. at 397-98.

[106] Id. at 401-13.

[107] See, Vitone v. Metropolitan Ins. Co., 943 F. Supp. 192 (D.R.I. 1996).

[108] See, Nazon v. Shearson Lehman Bros., Inc., 832 F. Supp. 1540 (S.D. Fla. 1993).

[109] See, 473 U.S. 614, 87 L. Ed. 2d 444, 105 S. Ct. 3346 (1985).

[110] Id. at 628, 87 L. Ed. 2d at 456, 105 S. Ct. at 3354. See also, Cole v. Bums Int'l Security Services, 105 F.3d 1465, 1478 (D.C. Cir. 1997), Seus v. John Nuveen & Co., 146 F. 3d 175, 179 3d Cir. 1998); Maye v. Smith Barney, Inc., 897 F. Supp. 100 (S.D.N.Y. 1995); Johnson v. Hubbard Broadcasting, Inc., 940 F. Supp. 1447 (D. Minn. 1996); DiDonato v. A.G. Edwards & Sons, Inc., 1996 WL 67323 (N.D. Cal. 1996); Crisan v. A.G. Edwards & Co., 1996 WL 67317 (N.D. Cal. 1996).

[111] Johnson, 940 F. Supp. 1447 (D. Minn. 1996).

[112] Id. at 1452.

[113] Id. at 1461. Compare Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, 131 L. Ed. 2d 76, ______, 115 S. Ct. 1212, 1216 (1995) (Parties to a written arbitration agreement may structure their relationship as they see fit; the agreement did not explicitly exclude recovery for punitive damages; the arbitration panel's award of punitive damages was enforceable despite New York case law barring recovery of punitive damages in arbitration). See also, Alcaraz v. Avnet Inc., 933 F. Supp. 1025 (D.N.M. 1996) (arbitrator's authorization to award damages for breach of contract only meant that the parties did not agree to submit Title VII or ADEA claims to arbitration).

[114] Mitsubishi Motors v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985).

[115] DeGaetano v. Smith Barney, Inc., 1996 WL 44226 *5 (S.D.N.Y. 1996).

[116] Id. at *5-6 (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. at 28, 114 L. Ed. 2d at 38, 111 S. Ct. at 1653).

[117] Id., quoting Mitsubishi Motors v. Soler Chrysler-Plymouth, Inc., 473 U.S. at 637, 87 L. Ed. 2d at 461-62, 105 S. Ct. at 3359.

[118 ]See, Great Western Mortgage Corp. v. Peacock, 110 F.3d 222 (3d Cir. 1997); Cole v. Bums Int'l Security Services, 105 F.3d 1465 (D.C. Cir. 1997): Seus v. John Nuveen & Co., 146 F.3d 175 (E.D. PA, 1997). These cases indicate that while resolution of statutory rights issues can be referred to an arbitrator once the court initially decides that the parties agreed to arbitrate them, waiver of the substance of such rights will not be judicially recognized or enforced. See, Cole v. Bums Int'l Security Services, supra, indicating that a broader scope of review of arbitration decisions may be called for to insure protection of employees' statutory rights. Such review would, of course, undermine the goals supporting submission of employment disputes to arbitration in the first instance.

[119] See, Smith v. Lehman Brothers, Inc., 1996 WL 383232 (S.D.N.Y. 1996). ("[A]ny controversy arising out of or in connection with my compensation. employment, or termination of employment.")


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