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Suggested language to include in arbitration agreements

Agreements to Arbitrate
Statutory Employment Claims

For example, the EEOC recently filed an amicus brief challenging an employer's attempt to enforce an arbitration clause providing that, regardless of the arbitrator's award, each party was responsible for its own attorney fees. The EEOC unsuccessfully argued that the arbitration clause should not be enforced because it would require employees to forego a substantive right (that is,the right to recover attorney fees under Title VII). The court acknowledged that, if the arbitrator impaired the employee's TitleVII rights, the agreement might be unenforceable, but nonetheless ordered arbitration, holding that it was up to the arbitrator to interpret the agreement.¹⁸ Other provisions that have drawn challenges include limitations on the right to consult or employ counsel, clauses naming arbitrators employed by the company, provisions requiring employees to pay the costs of arbitration, limitations on the type or amount of damages available, provisions denying any and all discovery, and language imposing far shorter deadlines than provided by statute.¹⁹

To avoid such difficulties, arbitration clauses should not impinge upon any substantive rights provided by applicable statutes. Language expressly providing that the arbitration clause does not prevent employees from consulting counsel, or from filing an administrative complaint, will help minimize challenges to arbitration provisions. The American Arbitration Association's "National Rules for the Resolution of Employment Disputes" incorporate many of these principles.²⁰

The agreement should be drafted broadly so that all claims are covered. Some employers' efforts to require arbitration of employment claims have been frustrated by narrowly drafted arbitration clauses. For example, one employer's effort to compel arbitration was challenged when the arbitration clause only covered disputes over performance of the employment agreement, and did not specifically extend to any other claims.²¹ Similarly, another employer was denied arbitration where the arbitration clause failed to provide that any statutory claims would be subject to arbitration.²²

It is impossible to anticipate all of the potential claims that employees may assert. Accordingly, an arbitration clause should encompass all claims arising out of an employee's employment or termination, regardless of whether such claims are contractual, statutory, common law or based upon any other legal theory. Perhaps the broadest arbitration agreement would cover all disputes whatsoever between the employer and the employee.

The various statutes under which employees often bring claims should be identified specifically so as to subject such claims to arbitration. TitleVII, the EPA, the ADA, the ADEA, and the FMLA should be mentioned. Comparable state laws also can be identified (for example, WFEA and Chapter 109 of the Wisconsin Statutes). Other common theories of employer liability can be mentioned specifically or covered by "catch-all" language. For example, courts have subjected claims of public policy wrongful discharge and whistleblower protection violations to arbitration under broadly worded arbitration clauses.²³

Do not refer to statutory arbitration provisions. At least one Wisconsin employer has included language in an employee's arbitration agreement to the effect that arbitration may be compelled under the Wisconsin Arbitration Act (Chapter 788 of the Wisconsin Statutes). However, section788.01 expressly precludes the enforcement of "contracts between employers and employees" under the Act. Accordingly, no arbitration agreement between an employer and employee should identify the Wisconsin Arbitration Act as an enforcement mechanism.

The Federal Arbitration Act (FAA)²⁵ can provide a statutory mechanism for enforcing arbitration agreements. However, it too contains some pitfalls. For example, employees have challenged efforts to enforce arbitration clauses under the FAA, arguing that its exclusion of "contracts of employment of ... workers engaged in foreign or interstate commerce" bars the enforcement of most contracts between employers and employees. While this argument has been rejected by the Seventh Circuit and most federal courts, it has not been finally settled by the U.S. Supreme Court and continues to be raised by employees opposing arbitration.²⁶

Accordingly, practitioners are well advised not to make reference to any statutory enforcement scheme when drafting arbitration agreements between employers and employees. Instead, such agreements should provide that they may be enforced by injunctive relief requiring specific performance of the obligation to arbitrate, and that arbitration awards shall be final, binding and enforceable.

Conclusion

Arbitration offers employers an opportunity to reduce the costs associated with employment claims. However, an arbitration agreement will be effective only if the employee knowingly waives his or her right to proceed in court. Moreover, an arbitration agreement that attempts to diminish employees' remedies under state or federal employment law may not be enforced. Accordingly, employers must be careful to place such agreements in prominent positions in the documents signed by employees, and to draft them so as to cover desired claims without impinging upon substantive employee rights.

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Endnotes

¹See DiCesare, Alternative Dispute Resolution, Monthly Lb. Rev., Jan. 1996, at 79.

² Pryner v. Tractor Supply Co., 109 F.3d 354 (7th Cir.), cert. denied, 118 S. Ct. 295 (1997)(declining to compel arbitration of Title VII, ADA and ADEA claims under collective bargaining agreement); Peacock v. Great Western Mortgage Corp., 110 F.3d 222 (3d Cir.), cert. denied, 118 S. Ct. 299 (1997)(requiring arbitration of sexual harassment claim); DeMeo v. Smith Barney Inc., cert. denied, 118 S. Ct. 329 (1997)(refusing to suspend arbitration of age discrimination claim of securities industry employee).

³ Austin v. Owens-Brockway Glass Container Inc., 78 F.3d 875 (4thCir.), cert. denied, 117 S. Ct. 432 (1996).

⁴ Brown v. Trans World Airlines, 74 FEP Cases 1675 (4th Cir. 1997) (BNA).

⁵Pryner v. Tractor Supply Co., 109 F.3d 354 (7th Cir.), cert. denied, 118 S. Ct. 295 (1997).

⁶ The U.S. Supreme Court may modify this rule in a case recently accepted for review in which the district court compelled arbitration of an ADA claim under a collective bargaining agreement and the appellate court affirmed. See Wright v. Universal Maritime, 121 F.3d 702 (4th Cir. 1997), cert. granted, __ S. Ct. __, 66 U.S.L.W. 3399 (March 2, 1998).

⁷ Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756 (9th Cir. 1997).

⁸Patterson v. Tenet Healthcare Inc., 113 F.3d 832 (8th Cir. 1997).

⁹ O'Neil v. Hilton Head Hosp., 115 F.3d 272 (4th Cir. 1997). See also, Topf v. Warnaco Inc., 942 F. Supp. 762 (D. Conn. 1996).

¹⁰ See Clay v. Horton Mfg. Co. Inc., 172 Wis. 2d 349, 493 N.W.2d 379 (Ct. App. 1992)(holding that an employee handbook alone does not constitute an enforceable contract).

¹¹ Sheller v. Frank's Nursery & Crafts Inc., 957 F. Supp. 150 (N.D. Ill. 1997). See also, Cole v. Burns Int'l Sec. Serv., 105 F.3d 1465 (D.C. Cir. 1997); Brown v. KFC Nat'l Mgmt. Co., 921 P.2d 146 (Haw. 1996).

¹² Bungard v. Rural Mut. Ins. Co., 1995 WL 215500 (Ct. App. 1995)(unpublished decision).

¹³ NBZ Inc. v. Pilarski, 185 Wis. 2d 827, 520 N.W.2d 93 (Ct. App. 1994).

¹⁴ For additional discussion of other jurisdictions, see Andrew W. Volin, Recent Developments in the Arbitration of Employment Claims, 52 Disp. Resol. J. 16 (Summer 1997).

¹⁵ EEOC Notice 915.002 (July 10, 1997).

¹⁶ See, e.g., Rosenberg v. Merrill Lynch, 1998 U.S. Dist. Lexis 877 (D. Mass. 1998).

¹⁷EEOC v. Kidder, Peabody & Co., 74 FEP Cases 1833 (S.D.N.Y. 1997).

¹⁸Johnson v. Hubbard Broad. Inc., 940 F. Supp. 1447 (D. Minn. 1996).

¹⁹ See EEOC Notice 915.002 (July 10, 1997) n.18.

²⁰ The rules are available through the American Arbitration Association Internet site, or by calling (800) 671-2678.

²¹ Bungard v. Rural Mut. Ins. Co., 1995 WL 215500 (Ct. App. 1995) (unpublished decision).

²² Rudolph v. Alamo Rent-A-Car Inc., 952 F. Supp. 311 (E.D. Va. 1997).

²³ See Oldroyd v. Elmira Sav. Bank FSB, 1998 WL11056 (2d Cir. 1998); In re Prudential Ins. Co. of America Sales Practice Litig. All Agent Actions, 1998 WL 2844 (3d Cir. 1998).

²⁴Orlando v. Interstate Const. Corp., 1996 WL 638211 (3d Cir. 1996).

²⁵ 9 U.S.C. §§ 1-14.

²⁶ Miller Brewing Co. v. Brewery Workers Local Union No. 9, 739 F.2d 1115, 1162 (7th Cir.), cert. denied, 469 U.S. 1160 (1984).