Employers May Require Employees To Sign Arbitration Agreements

Article by Peter D. Holbrook and Christopher Scheithauer

Granting a significant and long overdue win for employers, the U.S. Court of Appeals for the Ninth Circuit recently ruled that an employer may require its employees to sign arbitration agreements for employment-related disputes. EEOC v. Luce, Forward, Hamilton & Scripps, 2003 DJDAR 11055 (9th Cir. Sept. 30, 2003). The Ninth Circuit’s en banc decision in the Luce Forward case expressly overturned its previous decision in Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998), which had wrongfully held that the Civil Rights Act of 1991 precluded mandatory arbitration of Title VII claims. The practical outcome of this new decision is that most employers may terminate or decline to hire an employee who refuses to give up his or her right to a jury trial by signing an arbitration agreement.

On his first day of work as a legal secretary at a law firm, the plaintiff was presented with the law firm’s standard offer letter. The offer letter included an arbitration provision requiring the plaintiff to submit all "claims arising from or related to [his] employment" to binding arbitration. The plaintiff refused to sign the arbitration provision because he believed that he needed to retain his "civil liberties, including the right to a jury trial and redress of grievances through the governmental process." The law firm told the plaintiff that the arbitration agreement was a non-negotiable condition of employment and, therefore, refused to hire him. It was undisputed that the only reason the plaintiff did not commence work was because he refused to sign the arbitration agreement.

The plaintiff sued the law firm in state court, alleging wrongful termination in violation of public policy and of California’s Unfair Competition Law. The state court dismissed the case and the California Supreme Court denied review. The U.S. Equal Employment Opportunity Commission (EEOC) filed a separate case in federal court alleging that the Ninth Circuit’s decision in Duffield prohibited an employer from requiring an employee to sign an arbitration agreement for Title VII claims. The district court, following Duffield, entered a permanent injunction against the law firm precluding it from conditioning employment on mandatory arbitration of Title VII discrimination claims. A three-judge panel of the Ninth Circuit determined that Duffield was no longer good law and, therefore, reversed the district court’s decision. The Ninth Circuit then voted to reconsider the decision en banc.

The Ninth Circuit noted that its decision in Duffield stood alone and all "the other circuits have concluded that Title VII does not bar compulsory arbitration agreements." The Ninth Circuit explained that it had erroneously decided Duffield. "The presumption in Duffield . . . that allowing compulsory arbitration weakens the 1991 [Civil Rights] Act is inconsistent with the Supreme Court’s endorsement of arbitration." The Ninth Circuit determined that the U.S. Congress passed the Civil Rights Act of 1991, which provides a right to have discrimination claims heard by a jury, knowing that the U.S. Supreme Court had already ruled in favor of mandatory arbitration provisions for claims filed under the Age Discrimination Employment Act, which also provides a right to a jury trial. The court reasoned that had Congress wanted to preclude arbitration of Title VII claims, then it would have explicitly stated as such. The fact that the Civil Rights Act of 1991 provides a right to have Title VII claims adjudged by a jury does not preclude an employer from requiring an employee to waive that right as a condition of employment.

Notwithstanding the Ninth Circuit’s new position on mandatory arbitration provisions for employment-related claims, the decision does not alter the fact that a court must still scrutinize the arbitration clause for due process protections. Thus, employers using an arbitration provision for employment-related claims must still ensure that the agreement does not include unlawful terms or affect the substantive rights afforded by a statute. Moreover, the Federal Arbitration Act does not apply to transportation workers, such as seamen, railroad employees or truckers,