50 for 50: Five Decades of the Most Important Discrimination Law Developments - Number 31: Discrimination Claims are Arbitrable

by Hirschfeld Kraemer LLP

Arbitration agreements are a common feature of employment relationships today, widely used as a tool for avoiding jury trials of discrimination, harassment and other employment-related disputes.  But before 1991, when the U.S. Supreme Court decided Gilmer v. Interstate/Johnson Lane Corp., arbitration of discrimination and harassment claims was unheard of.  Before then, employment arbitration was limited to contract claims arising from collective bargaining agreements in unionized workplaces.  

This was because in 1974, ten years after the enactment of Title VII, in Alexander v. Gardner-Denver Co., the Supreme Court had decided that an employee could not be forced to arbitrate his Title VII claims under an arbitration provision of a collective bargaining agreement.  In reaching this decision, the Court found “no suggestion” in Title VII that an arbitration decision resolving an employee’s discrimination claims under a collective bargaining agreement “forecloses an individual’s right to sue” to vindicate statutory rights under the anti-discrimination laws.  Specifically, the court held that because the right to be free from discrimination is an individual right, a union could not agree to mandatory arbitration of the employee’s discrimination claims, and allowing a union to waive court action “would defeat the paramount congressional purpose behind Title VII.”  The Court also expressed a lack of confidence in the adequacy of arbitration procedures, doubting that they could provide sufficient due process to discrimination plaintiffs.  Gardner-Denver thus appeared to flatly reject arbitration as an appropriate forum for resolving discrimination claims.  Case closed.

Fast forward to the mid-1980’s, when the Supreme Court began embracing arbitration as an method for resolving statutory claims in commercial disputes, such as antitrust claims under the Sherman Act.  E.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth.  The court interpreted the Federal Arbitration Act (FAA) as having a broad preemptive effect against any state laws that would limit the enforcement of agreements to arbitrate, and placed the burden on those resisting arbitration of federal statutory claims to prove that in enacting the statute, Congress intended to foreclose arbitration.  Employers saw the court’s about-face as a hopeful sign that the same principles would apply in the employment context.  Their hopes were realized in 1991 in Gilmer v. Interstate/Johnson Lane.

Gilmer involved age discrimination claims under the Age Discrimination in Employment Act (ADEA), brought by a former financial services manager.  Mr. Gilmer’s job had required that he register as a representative with the New York Stock Exchange (NYSE), whose rules require arbitration of any dispute between a registered representative and any NYSE member organization arising out of employment or employment termination.  This requirement was reflected on the registration application that Mr. Gilmer filed, in which he agreed to arbitration of such disputes.  Relying on Alexander v. Gardner-Denver, Mr. Gilmer ignored the arbitration agreement and filed an ADEA lawsuit in federal court.  But what Mr. Gilmer did not count on what the extent to which the federal courts were rethinking employment arbitration after Mitsubishi and other pro-arbitration Supreme Court decisions.  Long story short, when Mr. Gilmer got to the Fourth Circuit Court of Appeals, the court told him that he had to arbitrate his claims and not bother the federal courts with them.

In a remarkable about-face from Alexander v. Gardner-Denver, the U.S. Supreme Court agreed.  Now, arbitration could be an appropriate method for protecting the social policies animating the ADEA, and could not only remedy but also deter discrimination.   In so holding, the Court flatly rejected the previous notion arbitration was per se inadequate to redress civil rights claims.  Instead, the Court distinguished Gardner-Denver, as presenting an altogether different issue, “whether arbitration of contract-based claims” operated to waive the judicial forum for statutory claims.  The question answered itself:  of course not.  Gardner-Denver also presented the different question whether a union could waive an individual’s right to a judicial forum for civil rights claims that are individual in nature.  Again, the question answered itself:  of course not.  In contrast, in Gilmer the plaintiff had individually waived a judicial forum because he had signed the arbitration agreement himself.  The question was different:  was the arbitration agreement signed by the plaintiff was enforceable under the FAA?  This question also answered itself because the Supreme Court had already endorsed the FAA as providing for broad enforceability of arbitration agreements in general:  of course.

The rest, as they say, is history.  Although Gilmer left numerous questions unanswered, the Supreme Court has never looked back.  In 2002, it extended Gilmer to all forms of statutory employment discrimination in Circuit City Stores v. AdamsIn 2009, the Court held that employers and unions could agree that statutory employment discrimination claims must be submitted to arbitration, completely gutting Gardner-Denver, in 14 Penn Plaza LLC v. Pyett, 129 S. Ct. 1456.  And in 2011, the Supreme Court held that a state law banning class action waivers in arbitration agreements was invalid and preempted by the FAA in AT & T Mobility LLC v. Concepcion.

Even so, employment arbitration remains controversial.  Despite the Supreme Court’s consistent endorsement of arbitration under the FAA, many state courts, including those in California, remain highly skeptical of arbitration as an appropriate forum for vindicating workplace civil rights.  The fight over arbitration has now shifted to a question the U.S. Supreme Court did not decide: whether the mandatory arbitration agreements can be denied enforcement under state law “unconscionability” rules as contracts of adhesion that are unfairly one-sided in favor of the employer.  See, e.g., Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109 (2013). This is where the action is these days in California. 

Written by:

Hirschfeld Kraemer LLP

Hirschfeld Kraemer LLP on:

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