NOVEMBER 2, 2000
LAW OF THE WORKPLACE
A Landmark Case for Mandatory Arbitration | The Supreme Court will determine if employers can force workers to sign away their right to litigation
| In the early fall of 1995, a computer sales and repairman named Saint Clair Adams applied for a job at a Circuit City store in a Santa Rosa (Calif.) strip mall. He filled out a six-page job application, scribbling in the usual information: date of birth, employment history, and the like. Then, according to Adams, he gave a cursory reading and affixed his signature to a section of the application called the Circuit City dispute-resolution agreement.
Adams was hired about a month later for a commission sales job in the store's computer department. But his stay, Adams says, was unhappy. In late November, 1997, he left the job. A year later, he filed suit in state court charging Circuit City with, among other things, violating California state law by discriminating on the basis of sexual orientation.
FORCED NEGOTIATION. Within a short time, Adams' case bumped into a powerful obstacle that he himself had helped erect, albeit unwittingly, he now says. In signing the dispute-resolution document, Adams had agreed to submit all disputes related to his employment to binding arbitration. After learning of the suit, Circuit City invoked the 75-year-old Federal Arbitration Act (FAA), which enables judges to enforce arbitration agreements, and submitted "a petition to compel arbitration" to a federal court.
That's the prelude to a major employment case the U.S. Supreme Court will consider on Nov. 6, when lawyers for both sides will present oral arguments in Circuit City Stores v Saint Clair Adams. The legal argument turns on a seemingly arcane detail -- what Congress meant in the wording of one small
section of the 1925 law. But the outcome could have a major impact on the workplace at the dawn of the new millennium.
Depending on what the justices decide, the case could either boost or stifle the growing practice of requiring nonunion employees to forgo litigation and take complaints to binding arbitration -- including matters involving job discrimination outlawed by state or federal statutes. Union contracts are subject to a different law and aren't at issue in this case.
"It's a very significant case," says Stephen A. Bokat, general counsel of the U.S. Chamber of Commerce, which has filed a friend-of-the-court brief supporting Circuit City's position. If the court decides against the company, he says, "it would mean, in essence, that employers would be precluded from arbitrating their disputes."
SIGNING AWAY RIGHTS? That's the way it should be, Adams argues, at least in serious matters. He says when he signed the agreement, he assumed that it applied only to minor disputes, such as employer/employee disagreements over the size of a commission. He never dreamed, he says, that it applied to rights governed by law. "When it comes to civil rights, I'm sorry. That cannot be arbitrated," he declares. Through a spokesman, Circuit City declines to comment on the case.
There's no question that the FAA was meant to promote the use of arbitration. The question facing the court is whether the law covers arbitration mandated by employment contracts. Adams' lawyers argue that the legislation was targeted squarely at commercial, not workplace, disputes. They point to a section in the statute that says it doesn't apply "to contracts of employment of seamen, railroad employees, or any other class of worker engaged in foreign or interstate commerce." The intent is clear, they assert: The FAA doesn't cover most employees.
The other side disagrees. In a court brief, Circuit City interprets the wording narrowly, arguing that it excludes only employees involved in interstate transport of goods, such as seamen and railway workers.
PRO-EMPLOYERS PRECEDENT. Each side devotes much of its efforts to divining the thinking of a pre-New Deal Congress. But regardless of what the historical record may say, employers have on their side a powerful, recent court precedent. In 1991, the Supreme Court examined the case of Robert D. Gilmer, a senior vice-president of a Charlotte (N.C.) stock brokerage, who charged his former employer with breaching a federal age-discrimination law. The court said because Gilmer had signed an agreement accepting arbitration of employment disputes, he could be compelled to take his case to an arbitrator, not a judge.
Although that case revolved around an employment dispute, it didn't settle the issue of whether the FAA governs employment contracts. That's because the arbitration commitment that bound Gilmer resided not in an agreement with his employer, but in his application to register as a securities representative with the New York Stock Exchange and others. The application, standard in the securities industry, required that brokers and others submit all workplace disputes to arbitration. Last year, the rules changed so that statutory employment-discrimination claims are excluded from mandatory arbitration.
Nonetheless, the Gilmer decision emboldened numerous companies to begin requiring employees to submit grievances to arbitration. Pre-Gilmer, for example, only a handful of companies had filed copies of so-called alternative dispute-resolution policies, most of which include provisions for mandatory arbitration, with the American Arbitration Assn. Today, the number is more than 500 companies, which collectively employ about 5 million workers, according to Robert E. Meade, senior vice-president of the association, a nonprofit dispute-resolution group that administers the agreements. Monthly, 8 to 10 additional companies file policies with the the New York City organization.
FAR-REACHING REQUIREMENTS. The companies come from a variety of industries, including financial services, aerospace, television, and brewing. Mom and pops -- businesses of 50 employees -- are also in the group, as are behemoths employing 200,000 people. The range of occupations covered "cuts across the board," Meade says, "doctors, lawyers, fast-food workers," plus managers and executives.
Employer advocates say the spread of employment arbitration is a welcome development. For one, if workplace arbitration is discouraged, a wave of new discrimination cases could flood the courts as employees turn to the justice system to settle their disagreements, says Christine L. Wilson, a lawyer who wrote another friend-of-the-court brief supporting Circuit City for the Society for Human Resource Management, a human resources professional organization.
Circuit City's supporters also say arbitration is swifter than litigation. The American Arbitration Assn. cites a Justice Dept. study, which found that in 1998, federal district courts took an average of 13 months to handle civil-rights-related cases, including those involving employment discrimination. In contrast, disputes handled by the Arbitration Assn. in 1999 took an average of 118 days to resolve.
SECONDHAND JUSTICE. Furthermore, employers argue that arbitration is cheaper and more efficient than litigation, in which "you end up having weeks and weeks of attorneys' time, and if it's a good attorney, it's $400 to $500 an hour," says the Chamber of Commerce's Bokat. Meade claims that arbitrators, typically employment lawyers or retired judges, are well versed in the law, impartial, and able to render decisions as fair as those handed down in a courtroom. "The principle is important," he says. "The U.S. Supreme Court should not look on arbitration as secondhand justice."
But that's what mandatory arbitration leads to in too many cases, charge arbitration's opponents. Though it has since been changed, the Circuit City dispute-resolution agreement at one time limited punitive damages, even though under some antidiscrimination laws, such damages are uncapped. Moreover, employee advocates question whether any system that requires a person to waive an important right -- the ability to turn to courts to redress grievances as serious as employment discrimination -- can be fair.
Adams' supporters assert that arbitration lacks important safeguards found in the legal system. For example, discovery -- pretrial disclosure of documents and other information related to a case -- is often more limited in arbitration than in courts, says David S. Schwartz, a University of Wisconsin law professor who wrote a pro-Adams friend-of-the-court brief with 15 other law professors. This especially hobbles employees who may need access to all kinds of company records to build a case, notes Schwartz.
DAVID AND GOLIATH. Equally disturbing for employee advocates is the striking imbalance between the power of an employer and all but the rarest job applicants. "How many employees are going to say: 'Before I apply for your $6-an-hour job, I'm going to hire an attorney'" to review the application, asks Paul W. Mollica, a Chicago-based lawyer, who has also written a pro-Adams brief for the NOW (National Organization for Women) Legal Defense & Education Fund, the NAACP Legal Defense Fund, and others. "And even if they did, how likely are they to be hired?"
Answer: Not very. The big question is how many would-be employees will be called on to make that choice -- signing an arbitration requirement they don't like or kissing a job goodbye -- should the justices rule for Circuit City.
By Pamela Mendels in New York
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Copyright 2000, Bloomberg L.P.
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