California Federal Court Further Limits Arbitration of Employment Claims


Duffield v. Robertson Stephens & Company, 144 F.3d 1182 (9th Cir. May 8, 1998), and

Davis v. LPK Corporation, (N.D.Cal. March 10, 1998).


Facts in Duffield:

Tonyja Duffield was required, as a condition of employment mandated by the national securities exchanges, to waive her right to a judicial forum to resolve all "employment related" disputes and to agree instead, by signing a so-called Form U-4, to arbitrate any such disputes under the exchanges' rules. In January, 1995, Duffield brought suit in federal court, alleging sexual discrimination and sexual harassment in violation of Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. ยง 2000e et seq., and California' s Fair Employment and Housing Act (FEHA), breach of contract, deceit, intentional infliction of emotional distress, and negligent infliction of emotional distress. As a threshold matter, she requested a declaratory judgment stating that securities industry employees cannot be compelled to arbitrate their employment disputes under the arbitration provision in Form U-4. After extensive discovery into the arbitration system of the securities' industry, the trial court denied Duffield's request for a declaratory award, granted Robertson Stephens cross-motion to compel arbitration, but certified the issue for an immediate interlocutory appeal.

Held on appeal:

The court conducted a detailed analysis of prior U.S. Supreme Court precedent, including the 1974 Alexander v. Gardner-Denver decision (holding that an arbitration clause in a collective bargaining agreement could not prevent a plaintiff from seeking relief in federal court under Title VII of the Civil Rights Act) and the 1991 Gilmer v. Interstate/Johnson Corp.decision (holding that employees in the securities industry could be required to arbitrate age discrimination claims. The Duffield court noted that Gilmer had not discussed the similarity between age and Title VII Act discrimination claims. More important, Gilmer had made clear that a stronger showing was required--and a more scrupulous examination of congressional legislative history necessary--if a court was to hold that an arbitration of claims under an act was precluded. Accordingly, the court also reviewed the legislative history of the 1991 Act, and subsequent cases interpreting it, at some length.

The Duffield court concluded that Congress had intended to preclude compulsory arbitration of Title VII claims. Accordingly, the U-4 Form agreement was unenforceable as to the Title VII claims. The court reached an opposite conclusion, however, with respect to Duffield's contract and tort claims. Thus, arbitration of the latter claims was ordered; the Title VII claim, presumably, will proceed in federal court.

Facts in Davis:

Davis worked as a bookkeeper for related companies. Employees at each company received a copy of a manual. The manual included a section entitled "Acknowledgement/Arbitration Agreement," which included a state that the employee agreed to arbitrate any and all claims with the company, including employment claims and that the employee would share the costs of the arbitration. Plaintiff was involuntarily separated from the company and filed a lawsuit in federal court. Defendants moved to compel arbitration.

Held in Davis:

An employee can never be required, as a condition of employment, to pay an arbitrator's compensation in order to secure the resolution of statutory claims under Title VII (any more than an employee can be made to pay a judge's salary). The only way that an arbitration agreement of the sort at issue in Davis could be lawful, said the court, was if the employer assumed the responsibility for the payment of the arbitrator's compensation. In support, the court cited a 1997 decision from the federal appellate court for Washington, D.C. The court therefore refused to enforce the arbitration provision.

Comment: The Davis decision predated the broader Duffield decision, and may therefore have only passing interest. The Duffield decision differs from those of other federal circuits on the same or similar questions. Its analysis, however, compels attention. It is quite possible that the U.S. Supreme Court will have the last word, and resolve the question. In the meantime, both decisions dictate caution when seeking to put in place schemes for the mandatory arbitration of statutory employment rights.