Human Resource E-Bulletin - April 2003

Arbitration and the ADA:

There have been a number of cases lately that have dealt with the workplace and binding arbitration agreements that confront the rights of employees to bring their disputes to a court. The issue has also been pursued by the EEOC in litigation, including two Supreme Court cases (one in March 2001, and one in February of 2002). This E-Bulletin will provide the human resources professional background on these decisions, and the nature of arbitration.

What is Arbitration?

Arbitration is one form of Alternative Dispute Resolution (ADR), or alternatives to litigation. ADR offers opposing parties different forums to bring disputes and hopefully resolve them in a manner less hostile, less expensive, and less complicated than litigation. Arbitration and mediation (another form of ADR) are common provisions in collective bargaining agreements (CBAs). In the union workplace, such agreements are very common, and disputes that grow out of the employer/employee relationships generally have to be submitted to one of those ADR processes.

ADR methods are also growing in popularity in the non-union employment context. Why is this the case? Simply put, it is a matter of money. It is usually far cheaper and faster for an employer to arbitrate claims than to defend a case before a court for issues such as alleged workplace discrimination. It is cheaper in terms of money and faster in terms of how long it takes to resolve a matter. Where there is agreement to arbitrate, there are few barriers to a speedier, if not nearly an immediate resolution of the matter, and no chance of delays in docketing typical in many civil courts. An additional incentive is that the arbitration environment is a private one, and potential publicly volatile disputes can be handled confidentially with both parties bound by non-disclosure agreements.

How does Arbitration generally work?

In arbitration, both parties to an employment contract agree to abide by the decision of an arbitrator (much like a mix between judge and mediator) or several impartial arbitrators. The arbitrators are typically chosen by the parties; or in some instances, the terms of a contract determines that the parties will use a court-ordered arbitrator, or arbitrators. The arbitration agreement may also contain terms addressing which party pays for the proceeding, where the proceeding is to be located (venue), and procedural limitations of the proceeding.

Procedurally, arbitration is less formal than a trial. The Federal Arbitration Act (FAA) does not allow for the prolonged formal discovery of evidence (the process by which one party is able to get opposing party to produce evidence that party desires to support its argument). However, under state laws governing arbitration, such as the Texas General Arbitration Act, formal discovery may be available, and arbitrators in states such as Texas may issue subpoenas for evidence. Most state arbitration laws, and certainly the FAA, are relatively short, straightforward, and aimed at only gap-filling where the terms of a formal agreement to arbitrate are vague. Those laws may also detail certain situations when arbitration is mandatory. After the informal proceeding at which each side has presented evidence and witnesses, the arbitrators' decision is given. The decision can then be enforced by court order pursuant to state or federal law.

What about the recent cases that deal with Arbitration in the workplace?

CASE 1: Circuit City v. Adams1 came before the Supreme Court with an interesting set of facts, but on a very narrow issue. A provision in the employment application that Adams signed contained language that required that all employment disputes be resolved in the process of arbitration. Adams filed a lawsuit, based on state law anti-discrimination grounds in state court. The employer then sued in federal court to enjoin the state law proceeding, to enforce the provision contained in the job application, and move the matter into arbitration pursuant to the Federal Arbitration Act. The federal District court agreed with Circuit City, and entered the order. The Ninth Circuit Court of Appeals reversed on its broad interpretation of an exclusion clause within the FAA for “contracts of employment of seaman, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The U.S. Supreme Court reversed the Ninth Circuit, holding that the definition within the exclusion clause only covered transportation employees, and remanded the case in a 5-4 decision.

The interesting facts of the case, and those most relevant to HR professionals, arise when you look at the nature of the arbitration agreement in this case. The clause was included in the application and was signed by the employee two years before the dispute began. The clause listed a number of employment claims such as the Americans with Disabilities Act (ADA), the Age Discrimination Employment Act (ADEA), and Title VII of the Civil Rights Act and made mention of state and local law claims and tort and contract disputes. Although not central to the dispute before the Supreme Court, the concern that this language was “buried” in the application fine print or was holding potential employees “hostage” was argued by employee and disability rights organizations. This concern becomes more relevant below.

CASE 2: EEOC v. Waffle House2 , involved an issue not addressed by the Circuit City decision --- what effect does a mandatory arbitration clause in the employment setting have on claims brought by the EEOC? The background facts in this case are similar to those in Circuit City in as much as you have an employer who required all employees to agree to arbitration in employment claims. Here, Baker [the employee] had a seizure on the job and soon after was dismissed by Waffle House. The employee filed a discrimination charge with the EEOC.

The EEOC then intervened and filed a lawsuit to enforce the ADA, alleging that Waffle House, intentionally or with reckless indifference, engaged in unlawful employment practices (including discharging Baker). The EEOC sought a remedy that would specifically reinstate Baker, provide him back pay and other compensatory damages, and allow for punitive damages as provided for in the ADA. Waffle House, asserting the FAA, then sought to stay the EEOC suit, and force the matter into arbitration pursuant to the employer-employee agreement. The District Court denied that stay. On appeal, the Fourth Circuit held that the “agreement” between Waffle House and Baker did not preclude the EEOC from seeking independent action under its statutory authority. However, that court held that only remedy available to the EEOC was injunctive relief, not the victim-specific remedy that would directly benefit Baker based on the FAA.

On appeal, the Supreme Court held that the FAA did not present a bar to the EEOC’s action to enforce the ADA. Specifically, the EEOC was not a party to the arbitration agreement, and it preserves the right to pursue enforcement of employment discrimination actions. The court further detailed that the EEOC may even pursue enforcement of discrimination lawsuits that seek individual remedies (reinstatement, back-pay, etc.) even in the face of an otherwise enforceable arbitration agreement. This means that even with a binding agreement, where the EEOC believes that discriminatory practices were exercised, they may act to protect employee rights. It seems clear, however, that the EEOC is unlikely to interject their enforcement action into every situation where discrimination is alleged and an arbitration agreement is in place.

CASE 3: Circuit City Redux, Circuit City Stores v. Adams3 : The Supreme Court, in the first Circuit City v. Adams case discussed above, basically stated that the FAA did not exclude all workplace contracts. With that premise in place, the case was reversed and remanded back to the Ninth Circuit. That court was charged with rendering a decision. It did so, but while acknowledging that the arbitration agreement at issue here was enforceable under the FAA, the appellate court decided that the agreement was not enforceable under state law. Specifically, the court cited the lack of “bilaterality” in the contract that contained the arbitration clause. The appellate court stated that it found the contract too “one-sided”, and in its decision, the court expounded upon several issues it had with the contract. Held in particular disdain were clauses that forced employees to arbitrate but allowed the employer to choose arbitration or litigation venues. Further, the contract sought to limit the amount of damages and cost-shifted the burden of the litigation to the employee; despite the potential for cost savings to employer for seeking resolution through the use of alternative dispute resolution methods as here.

How should I let this knowledge about arbitration inform my HR practices?

First, you should not be discouraged from developing an arbitration program for your workplace because of the cases discussed above. ADR can be a great venue to use to resolve employment disputes because the process is designed to be much less adversarial than litigation. A good program can be developed where all involved in the dispute can have their “voices heard” in this less formal venue. Resort to litigation costs all involved more. Clearly, there are a few cautions to attend to during development of such a program --- the foremost is to be fair, to develop a policy that doesn’t force employee’s to use a particular venue to get their grievances resolved.


1. Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).
2. E.E.O.C. v. Waffle House, Inc., 534 U.S. 279 (2002).
3. Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir. 2002).

The Human Resource E-bulletin for employers, human resource  professionals and others interested in learning more about how to successfully implement the employment provisions of the Americans with Disabilities Act in the workplace.  On a monthly basis, you will receive information on resources, updates on litigation, EEOC guidance and policy letters that will enhance your understanding of the employment provisions of the ADA.  DLRP staff and the Outreach Manager of the Houston District office of the Equal Employment Opportunity Commission facilitate the HR E-bulletin. 

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