Employment & Labor Publications

ARBITRATION CLAUSES MAY NOT PROVIDE THE PROTECTIONS EMPLOYERS THINK THEY DO

By Stuart M. Katz

In recent years, employers have increasingly required their employees to sign agreements to arbitrate disputes that arise during the course of employment. By securing written arbitration agreements, many employers assume that they negate their employees' ability to file claims of discrimination and harassment with the EEOC and its affiliated state agencies, such as the Connecticut Commission on Human Rights and Opportunities.
In January, 2002, however, the United States Supreme Court definitively held that arbitration agreements do not bar the EEOC from pursuing victim-specific relief on behalf of an employee. In this decision, the Court clearly resolved the widespread confusion that other lower court decisions reflected. What makes this decision particularly far-reaching is that the facts of the case were not unique.

The Facts
This case arose from the following set of facts: Eric Baker applied for a job as a grill operator at a Waffle House chain restaurant. In his employment application, he agrees that "any dispute or claim" concerning his employment would be settled by binding arbitration." Approximately 2 weeks after he started work, Mr. Baker suffered a seizure at work and was soon thereafter fired.
Rather than initiate arbitration proceedings, Mr. Baker filed a claim with the EEOC, asserting that Waffle House had violated the American with Disabilities Act ("ADA"). After an investigation and an unsuccessful effort to resolve the case, the EEOC commenced an enforcement action in the United States District Court. In its complaint, the EEOC sought, among other things, injunctive relief, back pay, reinstatement, compensatory damages and punitive damages.

Waffle House challenged the ability of the EEOC to seek this type of relief, given the existence of a valid and binding arbitration agreement. Indeed, prior to the Supreme Court's ruling in this case, lower courts had issued conflicting rulings on such issues. The Second Circuit Court of Appeals had held that, in such a situation, the EEOC could pursue injunctive relief, but not monetary relief.
The Sixth Circuit Court of Appeals, by contrast, had held that the existence of an arbitration agreement did not bar the EEOC from seeking the full range of relief on behalf of an employee.

The Decision
In deciding the Waffle House case, the Supreme Court looked closely at the language of Title VII of the Civil Rights Act, as amended by Congress in 1991. The Court noted that this law allows the recovery of compensatory and punitive damages by a "complaining party." This term, the Court concluded, includes both private plaintiffs and the EEOC.
The Court observed that the existence of an arbitration agreement between an employer and an employee does not deprive the EEOC of its right to litigate, since even a valid contract cannot bind a nonparty.

The Court held that in order not to undermine the legislative mandate of the EEOC, the agency should be permitted to seek victim-specific relief, because, in doing so, the EEOC might be seeking to "vindicate a public interest, not simply provide make whole relief for the employee."

The Ramifications
One issue left open by the Court is the question of whether or not a settlement of the employee's claim or an arbitration judgment would affect the "validity of the EEOC's claim or the character of relief the EEOC may seek." Given the facts of the Waffle House case, the answer to this question was not relevant. Based on other existing case law, it seems unlikely, though, that an employee could ever benefit from a "double recovery."
Where does Waffle House leave employers? Certainly, arbitration of employment disputes remains attractive for employers. The prospect of the EEOC commencing on enforcement action is slim, given the enormous volume of pending cases. Perhaps the lesson employers should learn from Waffle House simply is that arbitration clauses - thought still beneficial - do not protect employers from the rigors and risks of litigation in every instance.