Supreme Court’s Ruling Re: Binding Arbitration Of Statutory Discrimination Claims

Many employers prefer to resolve discrimination claims through arbitration rather than a judge or jury trial. In the last few years, a growing number of companies have attempted to require employees to submit discrimination claims to arbitration. Some courts, particularly the Ninth Circuit, which covers Washington, Oregon, and California, have been antagonistic to these efforts. The U.S. Supreme Court recently sent signals as to the direction that this area of law is developing. This article will interpret the Court's signals to guide both unionized and non-unionized employers who want to use alternative dispute resolution for discrimination claims, and provide practical advice on how to maximize the likelihood that an arbitration agreement will be enforceable.

In a recent case, Wright v. Universal Maritime Serv. Corp., a longshoreman worked under a collective bargaining agreement (CBA) which contained a grievance and arbitration clause. Wright was awarded permanent disability benefits for job-related injuries. When his employer-stevedoring companies subsequently learned of his workers' compensation award, they refused to re-employ him because they regarded him as permanently disabled. Wright sued for discrimination under the Americans with Disabilities Act (ADA). The trial court dismissed the case because Wright had failed to pursue his claim through the arbitration procedure provided by the CBA. The Appeals Court affirmed, and Wright appealed to the U.S. Supreme Court.

The Supreme Court reviewed this case to address the question whether a general arbitration clause in a CBA requires an employee to use the arbitration procedure for an alleged violation of the ADA. The Court held that the general arbitration clause in this case, which provided that "matters under dispute" would be arbitrated, did not require Wright to use the arbitration procedure for an alleged violation of the ADA. Significantly, the Court left for another day the resolution of the issue whether unions can prospectively waive employees' discrimination claims in a CBA.

In its holding, the Court addressed an apparent contradiction between two lines of cases. The first line, represented by Alexander v. Gardner-Denver Co.,¹ held that "there can be no prospective waiver of an employee's rights under Title VII" under an arbitration provision in a CBA. This case allowed employees represented by a union to bring discrimination claims both through the CBA's grievance procedure and in court. The second line of cases, represented by Gilmer v. Interstate/Johnson Lane Corp.,² arose in a non-union setting, in the context of an arbitration provision in a securities registration form which all securities industries employees must sign as a condition of employment. Gilmer held that in that context, the right to sue in a court for age discrimination could be waived through the individual arbitration agreement.

In Wright, the Supreme Court was potentially faced with having to reconcile Gardner-Denver's statement that "an employee's rights under Title VII are not susceptible of prospective waiver," with Gilmer's holding that an individual employee has effectively waived his right to a judicial forum for an age discrimination claim.

The Wright case did not, however, completely resolve the issue. Instead, the U.S. Supreme Court issued a narrow decision based on the arbitration clause in the CBA. The Court found that there was no waiver of a right to a judicial forum, because the language of the arbitration clause was not "clear and unmistakable." The CBA's arbitration clause was found to be too general. Because it provided for arbitration of "matters under dispute," it could be understood to mean just matters in dispute under the contract, rather than claims that may arise under federal anti-discrimination statutes. Also, the remainder of the CBA contained no anti-discrimination provisions, which could have explicitly brought the statutory prohibitions against discrimination within the contract.

However, the Court's opinion seems to signal that Gilmer has eroded Gardner-Denver's apparently absolute prohibition of union waivers of employee's federal forum rights. In the future, the Court might find such a waiver enforceable if the CBA requirement to arbitrate is both "clear and unmistakable." The Court expressly reserved that question for another case, but its willingness to consider the issue and its analysis suggest that there might be room for a CBA to operate as a bar to a court claim of discrimination.

Union contracts increasingly contain clauses prohibiting discrimination on the same basis as the federal, state and local anti-discrimination laws. In such instances, an employee may bring both a grievance and a lawsuit alleging discrimination, effectively getting two bites of the apple. However, if the employer and the union clearly and unmistakably agree that statutory discrimination claims were to be resolved under the CBA's arbitration clause, an employer might be able to avoid this problem.

Of course, until the U.S. Supreme Court decides the ultimate issue, no unionized employer can be certain if Gardner-Denver has been overruled. However, a unionized employer interested in having discrimination claims resolved by arbitration should attempt to negotiate two provisions: (a) a separate anti-discrimination provision that explicitly provides that the same conduct that is illegal under specifically identified antidiscrimination statutes is also prohibited under the CBA; and (b) an appropriately worded arbitration clause that provides that a judicial forum for employment discrimination claims is waived in favor of the grievance procedure and binding arbitration. Before negotiating such a waiver, however, an employer should consider whether it is likely to face more claims if an employee is encouraged to use a more accessible grievance procedure. While resolution through arbitration is often less expensive and more efficient, it could result in more disputes.

Although this case arose in the context of a unionized employer, the Court's opinion also has implications for non-unionized employers. Historically, the Ninth Circuit has been hostile to individuals being forced to waive statutory rights as a condition of employment. In a case decided earlier this year, Duffield v. Robertson Stephens & Co.,³ the Ninth Circuit held that employers may not require, as a condition of initial employment, arbitration of Title VII claims. That case like Gilmer, involved compulsory arbitration of employment disputes by securities industry employees. The Ninth Circuit allowed, however, that in light of Gilmer, Title VII claims can be arbitrated by an individual arbitration agreement, if the waiver of the judicial forum is both "voluntary" and "knowing."

Interestingly, just a week before it issued its decision in Wright, the Supreme Court declined to review this Ninth Circuit ruling. But in Wright, perhaps in a nod to the Ninth Circuit, the Court said that the "clear and unmistakable" standard that it will apply to waivers negotiated by unions in CBA "is not applicable" in the context of "an individual's waiver of his own rights." Thus, the Court may be signaling that the "voluntary and knowing" standard for an individual's waiver of a judicial forum will be something less than the "clear and unmistakable" standard required for union-negotiated waivers.

The Wright decision is also important to non-unionized employers because it acknowledges that since 1971, when Gardner-Denver was decided, there has been an increasing support for alternative dispute resolution, specifically arbitration of statutory discrimination or other employment-related claims. This shift may in time encompass even those waivers that are now disapproved by the Ninth Circuit.

Open questions also remain for non-unionized employers. Can they require, as a condition of employment, waiver of federal and state statutory or common law claims? And what exactly are the parameters of a "knowing and voluntary" agreement.

In the meantime, the Ninth Circuit has just made it even more difficult to enforce agreements to arbitrate any types of employment-related claims. In Craft v. Campbell Soup Co., the Ninth Circuit held that the Federal Arbitration Acts ("FAA") does not apply to employment contracts. Prior to this decision, the most common method of enforcing arbitration agreements was a motion to dismiss the plaintiff's lawsuit on the grounds that the FAA preempted it in favor of arbitration. This decision, however, is not likely to be the last word on the subject. As there is now a clear split of authority in the Circuits, the entire Ninth Circuit panel of judges may rehear the case, and the Supreme Court may ultimately review the decision.

Non-unionized employers who want to maximize the likelihood that courts will allow binding alternative dispute resolution for employment discrimination claims may wish to keep in mind the following. First, it is clear that requirements to arbitrate cannot be buried in handbooks. Not only would this probably not meet the standard for a "knowing" waiver, it would be inconsistent with any disclaimer that the handbook was not a contract, but only a statement of policy.

Second, although it is clear in the Ninth Circuit that agreements to arbitrate Title VII claims cannot now be conditioned on initial employment, it may still be possible to condition employment on agreement to arbitrate other claims, such as state common law and contractual claims. Thus, it may still be worthwhile to require an arbitration agreement at the inception of employment, covering all employment-related claims except those arising under the federal and state anti-discrimination laws, like Title VII. It is also probably advisable to include a severability provision in the agreement, to ensure that the entire agreement is not rendered unenforceable if one provision is found unenforceable.

Finally, an appropriately worded agreement to arbitrate all statutory and common law discrimination claims may be enforceable in exchange for additional consideration, such as a raise, additional benefits, or opportunities for promotion, if the agreement is entered into after the inception of employment.

1 415 U.S. 36 (1974)

2 500 U.S. 20 (1991)

3 144 F.3d 1182 (9th Cir. 1998), cert. denied 1998 WL 635704