Outten & Golden: Empowering Employees in the Workplace

Employees May Lose Right to Jury Trial in 9th Circuit Mandatory Arbitration Opinion

October 1st, 2003 | Paula Brantner

Many people think that if you have been discriminated against or otherwise harmed in the workplace, that you have a right to take that case to court and to have a jury of your peers determine whether or not your employer’s conduct violated the law. In an increasing number of cases, that assumption would be incorrect. Why? Because employers are increasingly turning to arbitration to settle disputes, which means no courtroom, judge and jury, and few of the protections contained in laws and prior court cases. And yesterday (9/30), the 9th Circuit Court of Appeals, which previously had been one of the only courts nationwide to resist this development, overruled its own prior ruling to allow employers to force their employees to sign away their rights to a jury trial as a condition of getting a job.

Donald Lagatree applied for a legal secretary position at the law firm of Luce, Forward, Hamilton & Scripps, when he was told that he must sign an agreement with the law firm that in the event of any dispute about his employment, he must submit any future employment-related legal claims to arbitration. He thought this was “unfair,” and worked for two days without signing the agreement, before he was fired simply for his refusal, because Luce Forward considered the practice “non-negotiable.” (See EEOC v. Luce, Forward, Hamilton & Scripps, p.14524) So Lagatree decided to fight back and challenge whether employers really could force their employees to sign their rights away in order to get a new job.

Why is arbitration such a bad thing that Lagatree didn’t just give in and sign the form like everyone else at Luce Forward? After all, we frequently hear about how clogged our courts are, and how long it takes to resolve lawsuits, so perhaps an alternative to a long expensive legal battle isn’t a bad idea. (And it isn’t a bad idea if it’s voluntarily chosen by both sides.) However, an increasing number of employers, instead of waiting until a dispute arises and then working with the employee to figure out the best way to resolve it, now require arbitration, and you can believe that they would not require it if it was not in their best interest to do so.

What is the most important reason that employers choose to implement mandatory arbitration programs? It is because they believe that they have a better chance of winning in these programs than they do in a courtroom, and they’re generally right. Here are some of the many objectionable aspects of mandatory arbitration, from an employee’s perspective:

Arbitration Often Limits or Eliminates Essential Procedural Protections

• Arbitrators do not have to know or follow the law

• Arbitrators do not grant injunctive or remedial relief

• Arbitration does not contain the procedural safeguards of court

• Arbitrators do not have to abide by the Federal Rules of Evidence

• Arbitrators do not have to abide by the Federal Rules of Discovery

• Limited compensatory and attorneys’ fees makes hiring a lawyer difficult

• Arbitrators do not have to be lawyers

• Arbitrators rarely issue written opinions

• Arbitrators do not have to justify their rulings

• Arbitrators are only regulated in two states

Arbitration Interferes with the Ability to Fully Enforce Civil Rights Laws

• The EEOC, DOL and NLRB agree that arbitration interferes with their agency’s

ability to fully enforce civil rights laws

• Undermines Congress’ intent in passing civil rights laws

Arbitration Often Favors Employers

• Studies show that arbitrators favor large corporations

Arbitration Often Requires Workers to Pay for the Process

• High fees discourage or make it impossible for individuals to pursue their cases

• Arbitration fees can reach the tens of thousands of dollars, depending on the case

Arbitrators Often Have Conflicts of Interest

• Some arbitration firms have financial ties to the companies they preside over

(See NELA Fact Sheet: Mandatory Arbitration Subverts Civil Rights Laws.)

Back to the ruling: here’s what the 9th Circuit Court of Appeals had to say, in an 8-4 majority en banc (decided by a larger 12-judge panel) opinion: Writing for the majority, Judge A. Wallace Tashima, stated that the court’s prior precedent, in the case of Duffield v. Robertson Stephens was incorrect, and must be overruled. While Lagatree and the Equal Employment Opportunity Commissiobn (EEOC), supporting Lagatree, had argued that Duffield prevented employers from imposing mandatory arbitration agreements, this view was rejected by the court.

A little history is now in order to explain the court’s ruling: over a decade ago, Congress passed the Civil Rights Act (CRA) of 1991, designed to overturn several decisions of the U.S. Supreme Court that had been considered detrimental to workers. A key provision of the CRA provided for a right to certain damages and to trial by jury, previously unavailable under federal law. However, the CRA also contained language encouraging the use of “alternative dispute resolution,” that is, resolution of legal disputes by means other than the courts, such as arbitration and mediation. Workplace advocates maintained that the alternative dispute resolution clause did not trump the jury trial provision–otherwise, the jury trial provision would have little meaning.

In a case decided about six months prior to the 1991 CRA going into effect (before the jury trial right was established), Gilmer v. Interstate/Johnson Lane Corp., the U.S. Supreme Court approved of arbitration in a case involving an age discrimination claim under the Age Discrimination in Employment Act (ADEA), which muddied the waters considerably because it was not clear whether the 91 CRA was intended to incorporate that case or not, and whether the case’s holding could be extended to Title VII claims brought under a different statute that the ADEA. Duffield attempted to clarify this by holding that “what Congress intended to prohibit in the 1991 Act [was] mandatory requirements under which prospective employees agree as a condition of employment to surrender their rights to litigate future Title VII claims in a judicial forum and accept arbitration instead.” However, both before and after the Duffield decision, every other court which looked at the same issue disagreed with the Duffield ruling, leaving the 9th Circuit standing alone when it came to prohibiting mandatory arbitration agreements.

The court’s ruling essentially says “oops, we were wrong and they were right,” and not much more than that. It analyzes each of the grounds that Duffield was based upon, and determines that they were incorrectly decided. While there has been an intervening 2001 U.S. Supreme Court case (Circuit City v. Adams) that some thought could provide a basis for overturning the decision, the court makes clear that its ruling is not based on the Circuit City case. Otherwise, it almost appears to be a matter of peer pressure: “when other courts looked at this issue, they ruled the other way, so maybe we should too.” This statement in the ruling typifies the court’s approach to analyzing this issue: “In the post-Gilmer world, our decision in Duffield stands alone. All of the other circuits have concluded that Title VII does not bar compulsory arbitration agreements.” (See EEOC v. Luce, Forward, Hamilton & Scripps, p.14530)

This approach provoked bitter dissents from two of the members of the panel participating in the decision. Judge Pregerson in one of the dissents writes “The underlying purpose was not to allow employers to shove arbitration provisions down the throats of individual employees as a non-negotiable precondition of employment. But sadly that is the consequence of the majority’s holding.” (See EEOC v. Luce, Forward, Hamilton & Scripps, p.14552) In the other dissent, authored by Judge Reinhardt, the judge forcefully chastises his colleagues who joined the majority, stating “my colleagues continue the current judicial trend of closing the doors to the federal courts to those who most need our protection. This time the majority closes those doors to employees against whom employers discriminate on the basis of race or sex. Regrettably, my colleagues in the majority have joined a number of other circuits in rewriting Title VII’s mandates to comport with the judiciary’s historic disregard for workers’ rights and its elitist preference for fewer jury trials and less crowded appellate dockets.” (See EEOC v. Luce, Forward, Hamilton & Scripps, p.14554) Strong stuff, but it is clear that Judge Reinhardt understands what is at stake in this decision.

Here’s what Cliff Palefsky, Lagatree’s attorney, has to say about the decision:

Arbitration is not a separate but equal forum. The civil rights laws have no meaning if you are forced to waive the right to have them enforced correctly as a condition of getting a job. The very purpose of the 1991 amendments was to give employees the right to have these claims heard by a jury in a public court, not secret tribunals with no right of appeal.

What is the effect of this ruling? After all, it merely adopts what is already the law in many other courts around the country, but it is nonetheless a significant opinion. After this week’s ruling, more and more employers, especially those in the eight states that are part of the 9th Circuit, are likely to implement mandatory arbitration programs, to the extent that it benefits the employer’s financial interest to do so (and it often does.) National employers who want to have uniform policies for their employees throughout the country are no longer held back by a differing 9th Circuit view. There no longer exists an alternative precedent for courts which have not yet resolved this issue, so thus more courts are likely to join the overwhelming judicial tide (just like the 9th Circuit did) now in support of these agreements.

Since employers in California are bound by a state court decision, Armendariz v. Foundation Health Psychcare Services (PDF), which requires that the agreements be fair and not overwhelmingly biased in favor of the employer, the battle in California will now shift to whether a particular agreement is fair, and not whether it is legally permissible in the first place. Armendariz requires such minimum protections as neutrality of the arbitrator, the provision of adequate discovery, a written decision that will permit a limited form of judicial review, limitations on the costs of arbitration, and the availability of all types of relief (damages, attorneys’ fees, etc.) that would otherwise be available in court. However, one way that California residents can fight back is to encourage Gov. Gray Davis to sign pending legislation, AB 1715, which would prohibit mandatory arbitration agreements in California regarding rights guaranteed by the state’s Fair Employment and Housing Act. To write a letter to Gov. Davis urging him to sign AB 1715, please visit our site’s new Action Alert.

Those of you in the rest of the country, especially in the seven other Western states affected by this legislation, should consider urging your representatives to pass similar legislation to that proposed in California, and should support Congress taking action to outlaw mandatory arbitration agreements passed on the federal level. To learn more about federal legislation, see NELA’s Mandatory Arbitration page. (This legislation has not been reintroduced this year, but is expected to be reintroduced soon.)

Only if employees and others affected by these decisions speak out will legislators be motivated to stem the tide of mandatory arbitration sweeping our country; it is now clear that not many courts will any longer protect the interests of employees when confronted with mandatory arbitration agreements.

Additional Information About EEOC v. Luce Forward:

9th Circuit Tosses ‘Duffield’ in Dustbin (The Recorder article)

Appeals Court OKs Workplace Discrimination Arbitration (AP article)

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