Mandatory Arbitration in Civil Rights Claims
Mandatory arbitration of statutory civil rights claims has been the subject of a great deal of judicial attention and controversy in both state and federal courts. An increasing number of employers are requiring as a condition of employment that employees give up their right to pursue employment discrimination claims in court and agree to resolve disputes through binding arbitration. These agreements often appear in employment contracts, employment applications, and employee handbooks.
In Circuit City Stores, Inc v Adams, 532 US 105 (2001), the U.S. Supreme Court held that the Federal Arbitration Act (FAA), which requires enforcement of valid arbitration agreements, applies to most employment contracts and only exempts contracts involving transportation workers. The Court affirmed the basic arbitrability of most employment-related claims by narrowly interpreting an exception to the FAA for “contracts of employment of … workers engaged in foreign or interstate commerce” to apply only to workers actually employed in transporting goods in interstate commerce. On remand, however, the Ninth Circuit held that the arbitration agreement was both procedurally and substantively unconscionable under California law because it lacked mutuality. Employees were required to arbitrate all claims, while the employer was not; the agreement limited relief available to employees; and the employee was forced to share the costs of arbitration. “In short,” the court concluded, the agreement forces plaintiff “to arbitrate his statutory claims without affording him the benefit of the full range of statutory remedies.” 279 F3d at 894–895.
In Rent-A-Center, W, Inc v Jackson, 561 US 63 (2010), the U.S. Supreme Court addressed the issue of who—the district court or the arbitrator—has the authority to review enforceability challenges under the Federal Arbitration Act. The Court held that if an arbitration agreement includes a particular agreement that the arbitrator will determine the enforceability of the arbitration agreement, a challenge to the enforceability of that particular agreement goes to the district court, but a challenge to the enforceability of the arbitration agreement as a whole goes to the arbitrator. See also Granite Rock Co v International Bhd of Teamsters, 561 US 287 (2010) (holding that parties’ dispute over collective bargaining agreement’s ratification date was matter for district court, not arbitrator, to resolve).
In Floss v Ryan’s Family Steak Houses, Inc, 211 F3d 306 (6th Cir 2000), cert denied, 531 US 1072 (2001), the Sixth Circuit found that the arbitration agreement plaintiffs signed as a condition of employment was unenforceable for lack of consideration. Although the agreement promised plaintiffs an arbitral forum for resolution of employment disputes, the promise was “fatally indefinite” in that it authorized the arbitration service to alter the applicable rules and procedures without notice or consent of the employees. “Where a promisor retains an unlimited right to decide later the nature or extent of his performance, the promise is too indefinite for legal enforcement.” 211 F3d at 316. Even if the agreement were valid, the court expressed “serious reservations” about the suitability of the proposed forum because the arbitration service had a financial interest in maintaining its contracts with employers, and the agreement required the employee to pay half of the arbitrator’s fee.
Even where arbitration of statutory rights may be mandated in lieu of court proceedings, the court will enforce arbitration “only if the arbitral forum permits the effective vindication of those rights.” Morrison v Circuit City Stores, Inc, 317 F3d 646 (6th Cir 2003). In McMullen v Meijer, Inc, 355 F3d 485 (2004), reh’g en banc denied, No 01-1211, 2004 US App LEXIS 6369 (6th Cir Mar 18, 2004) (unpublished), after remand, No 04-2478, 2006 US App LEXIS 1249 (6th Cir Jan 13, 2006) (unpublished), the Sixth Circuit refused to enforce an arbitration clause that granted the employer exclusive control over the pool of potential arbitrators from which the arbitrator was selected. The court explained that the selection procedure allowed the employer to create a “symbiotic” relationship with its arbitrators; that the risk of bias inherent in the procedure was demonstrated by the fact that the employer used the same panel of arbitrators in all of its Michigan arbitration hearings; and that the employer’s exclusive control over the pool of potential arbitrators was particularly problematic because the employer could easily have adopted a procedure in which an unbiased third-party such as the American Arbitration Association selected the pool. However, the court also found that an issue remained as to whether the arbitrator selection provision could be severed from the rest of the arbitration agreement. After remand, the Sixth Circuit agreed with the district court that the selection procedure could be severed from the remainder of the agreement and that the rules of the American Arbitration Association could be used an alternative means of choosing an arbitrator.
In EEOC v Waffle House, Inc, 534 US 279 (2002), the U.S. Supreme Court held that an agreement between an employer and an employee to arbitrate employment-related disputes does not bar the EEOC from pursuing victim-specific judicial relief, such as back pay, reinstatement, and damages, in an enforcement action under the Americans with Disabilities Act. See also EEOC v Circuit City Stores, Inc, 285 F3d 404 (6th Cir 2002).
Where an employee agrees to arbitrate his or her discrimination claims, this does not preclude the EEOC from bringing an action against the employer. EEOC v Frank’s Nursery & Crafts, Inc, 177 F3d 448 (6th Cir 1999) (“Given the plain language of Title VII and the unequivocal intent of Congress that the EEOC should possess an independent right to eradicate employment discrimination on behalf of the public interest,” individuals cannot deprive EEOC of authority to pursue claim in court).
In Heurtebise v Reliable Bus Computers, 452 Mich 405, 550 NW2d 243 (1996), cert denied, 520 US 1142 (1997), the Michigan Supreme Court left open the question whether prospective arbitration agreements in employment contracts were enforceable under Michigan public policy. However, in Rembert v Ryan’s Family Steak Houses, Inc, 235 Mich App 118, 596 NW2d 208, leave to appeal denied, 461 Mich 927, 605 NW2d 318 (1999), a special panel of the court of appeals held that predispute arbitration clauses are valid and enforceable with respect to claims brought under the ELCRA and the PDCRA, provided that no rights or remedies according to statute are waived and that the procedure is fair. The court further held that employers may condition employment on the agreement to arbitrate. Although the court declined to “catalog exhaustively” all of the requirements for an enforceable agreement, the court summarized its holding as follows:
(1) Predispute agreements to arbitrate statutory employment discrimination claims are valid as long as the employee does not waive any rights or remedies under the statute and the arbitral process is fair;
(2) to ensure that employees have a fair opportunity to vindicate effectively statutory rights, the arbitration procedures must include: (1) clear notice, (2) right to counsel, (3) reasonable discovery, (4) a fair hearing, and (5) a neutral arbitrator;
(3) if arbitral awards are challenged, the standard of judicial review will be the standard articulated in [DAIIE v Gavin, 416 Mich 407, 331 NW2d 418 (1982)]; and
(4) to allow for sufficient review, arbitral awards must be in writing and contain findings of fact and conclusions of law.
235 Mich at 165–166.
This analysis does not apply to employees whose agreements to arbitrate are contained in collective bargaining agreements. In Arslanian v Oakwood United Hosps, Inc, 240 Mich App 540, 618 NW2d 380 (2000), the court clarified that mandatory arbitration of civil rights claims is inappropriate in the collective bargaining arena because the union is in control of the arbitration process and the interests of the individual in enforcing his or her statutory rights may be subordinated to the collective interest of the bargaining unit.
In Hall v Reagan, 493 Mich 903, 903, 823 NW2d 274 (2012), the court reversed the court of appeals holding that the matter at issue was not subject to arbitration under the parties’ shareholder’s agreement, holding:
The dispute in this case concerns the motives of the defendant shareholders in invoking the separation provisions of the Shareholders’ Agreement … with respect to the plaintiffs. This is a ‘dispute regarding interpretation or enforcement of … the parties’ rights or obligations’ under the Shareholders’ Agreement, and is therefore subject to binding arbitration pursuant to Article 14.1 of the Agreement.