[Legal horizontal]
Smart Business: Mandatory Arbitration
Hed: Employment Dispute Resolution
Deck: Supreme Court case to decide whether employers can force their workers to settle
disagreements through arbitration.
Pull quote: "It is important that arbitration is voluntary, and a number of employers have
made it involuntary." John Kagel, president, National Academy of Arbitrators.
The U.S. Supreme Court is pondering a case that could have a significant impact on the
way employees are hired. The issue involved is the enforceability of a contract clause
requiring the parties to submit their employment disputes to mandatory arbitration. A
decision will be delivered no later than June, but it could be handed down any time.
.
According to the U.S. General Accounting Office, employment-related litigation has
risen by more than 40 percent in the past decade. Even when the employer has prevailed
the cases have taken their toll in both time and money.
That reality has caused a growing number of firms to explore such alternatives as
arbitration. The Supreme Court case could determine just how successful arbitration
agreements will be in keeping employment disputes out of court.
The high court heard arguments Nov. 6 in Circuit City Stores Inc. v. Adams (99-1379).
The case involves the giant electronics and appliance chain and a former employee
named Saint Clair Adams. Adams went to work for Circuit City in 1995 in Santa Rosa,
Calif. A year later, he quit and filed a state lawsuit alleging that he had been harassed
because he is gay, and that Circuit City did nothing to stop it.
Circuit City claims Adams signed paperwork agreeing to take any employment squabbles
before an arbitrator rather than a judge or jury. Adams maintains he had to sign the
agreement to get the job. When the U.S. 9th Circuit Court of Appeals ruled in 1999 that
the state lawsuit could proceed, Circuit City appealed to the Supreme Court.
Does the Law Apply or Not?
At issue is whether the 1925 Federal Arbitration Act, or FAA, applies to this case, or for
that matter to any employment contract. The law may be old, but the use of arbitration
clauses as a stipulation for employment has gained steam only in recent years, spurred in
part by mid-1990s federal policies promoting alternative dispute resolution in
government and private workplaces.
Until now, lower courts have given mixed signals about how federal law applies. The
FAA requires enforcement of arbitration provisions in contracts relating to commercial
transactions, but also excludes employment contracts of seamen, railroad employees and
other workers involved in foreign or interstate commerce.
Representing Circuit City, attorney David E. Nagle of Richmond, Va., told the justices
that the law clearly excludes only the employment contracts of transportation workers,
who he said had lobbied Congress for the exception. Nagle argued that about a dozen
federal appeals courts have seen matters his way.
Attorney Michael Rubin of San Francisco, representing Adams, countered that the FAA
exclusion covers a lot more than just transportation workers by mentioning "any other
class of workers engaged in foreign or interstate commerce." He claimed that the
legislative history of the FAA suggests its authors never intended for the act to cover any
employment disputes.
Arbitrators Argue Both Sides
Two major U. S. arbitration groups have taken opposing sides on the Adams case. The
National Academy of Arbitrators, a society of those involved in arbitration, opposes
mandatory arbitration and filed a brief with the Supreme Court on behalf of Adams.
"It is important that arbitration is voluntary, and a number of employers have made it
involuntary," says the group's president, John Kagel. "For example, an executive would
have a chance to bargain regarding the clauses of his contract, but your average worker
usually does not." Kagel says arbitration would not provide Adams the same rights he
would have in court, including the right to seek punitive damages.
The American Arbitration Association, which administers arbitration cases, filed a brief
supporting Circuit City. Robert Meade, that group's senior VP vice in charge of
employment services, says an employee's claim is more likely to be heard on its legal
merits than it is through the court system. "Courts toss out employees' cases 98 percent of
the time; only 2 percent are upheld for trial. Arbitration gives employees a chance to be
heard."
Implications of the Case
Justice Stephen Breyer asked what would happen if the court agreed with the 9th Circuit
that the FAA doesn't apply to employment contracts. It wouldn't kill the concept of
arbitration, he reasoned, so long as both sides voluntarily submit to it.
Kagel of the National Academy of Arbitrators says upholding the 9th Circuit would
simply mean that state laws governing arbitration would apply instead of the federal
statute. He concedes that the implications would "depend a lot on the state law of the
state that you're in. Laws differ from state to state."
That inconsistency is part of the problem, Circuit City's attorney told the high court
justices. What's more, Nagle worried, a ruling in favor of Adams would "lead to a period
of tremendous turmoil," because lawyers, judges and arbitrators would be forced to
discern which existing arbitration agreements would remain enforceable and which
would have to be scrapped.
As it is, about a fifth of the American workforce is covered by some sort of arbitration
agreement, according to a 1997 General Accounting Office study, though it's unclear how
many of those arbitration arrangements are mandatory for workers. If the Supreme Court
decides in favor of Circuit City, more companies are likely to institute arbitration clauses
in their hiring agreements, predicts Norman Brand, a mediator and arbitrator in San
Francisco.
On the other hand, if the high court holds that the FAA doesn't cover employment
contracts, Brand believes more arbitration agreements will wind up before state courts,
which still might uphold the arrangements. Court watchers expect a decision virtually any
time between now and June.
Related Links
<a href="http://www.adr.org">American Arbitration Association</a>
<a href="http://www.igc.org/naarb/"> National Academy of Arbitrators</a>
<a href="http://www.adr.org/law/statutes/federal_act.html">1925 Federal Arbitration
Act</a>
SOURCES:
John Kagel, President
National Academy of Arbitrators
650-368-7977
medarb@ibm.net
Robert Meade, Sr. VP.
American Arbitration Association
335 Madison Avenue, Floor 10
New York, NY 10017-4605
212-716-5800
Norman Brand
Mediator and Arbitrator
San Francisco, CA
415-982-7172
Attorney for Circuit City Stores Inc.
David E. Nagle
707 E. Main Street
804-343-4077
11th Floor
Richmond, VA 23219
Attorney for Saint Clair Adams
Michael Rubin 415-421-7151 fax: 415-362-8064
Altshuler Berzon Nussbaum
177 Post Street, #300
San Francisco, CA 94108
US Supreme Court Docket:
http://www.supremecourtus.gov/docket/99-1379