Enforcement of Pre-Dispute Arbitration Agreements

The enforcement of pre-dispute agreements to arbitrate civil rights claims is one of the most hotly contested issues in employment litigation. Advocates of the agreements argue that the agreements are legitimate contracts that are supported by strong federal and state policies favoring arbitration. Opponents argue that the agreements are contracts of adhesion that deprive employees of the advantages and protections of a judicial forum. This article will discuss the recent developments concerning pre-dispute arbitration agreements and suggest factors an employer should consider when adopting a pre-dispute arbitration agreement.

Private Pre-Dispute Arbitration Agreements Are Enforceable in Michigan

In Heurtebise v Reliable Business Computers, the Michigan Supreme Court addressed the issue of whether a pre-dispute arbitration provision contained in an employment handbook was enforceable. A majority of the Supreme Court held that the arbitration clause in the handbook was not a contract because the introduction to the handbook stated that the handbook was not a contract and the employer retained the right to change any of its policies at its discretion. The Court held that the arbitration provision of the handbook was unenforceable. Justice Cavanagh, in a minority opinion, opined that pre-dispute arbitration agreements were unenforceable as a matter of law because they violated public policy.

The Michigan Court of Appeals next addressed the issue in Rushton v Meijer, Inc. (On Remand). Like the arbitration clause in Heurtebise, the arbitration clause in Rushton was contained in a handbook. However, the requirement that the employee arbitrate any dispute was also found in a separate document received by the employee. The court found that since the employer was bound by the arbitration provision, it was enforceable. The court held that the plaintiffs contract claim was barred because she failed to exhaust her arbitral remedy. However, the court found the pre-dispute arbitration agreement void as to the plaintiff gender discrimination claim under the Elliott-Larsen Civil Rights Act because it violated public policy. Judge (now Justice) Taylor wrote a dissent in which he argued that the Michigan Arbitration Act as well as Michigan and federal case law required enforcement of the arbitration agreement even in civil rights cases.

The Court of Appeals again addressed this issue in Rembert v Ryans Family Steak House, Inc. Contemporaneously with his hiring, the plaintiff signed a contract in which he agreed to arbitrate all employment related disputes. The court held that it was bound to follow the decision in Rushton. However the court argued that Judge Taylors dissenting position in Rushton was the correct analysis of the issue and recommended that the Court of Appeals convene a special panel to resolve the issue.

A special panel was convened to re-hear Rembert. After considering the issue for over a year, the Special Panel, in a 4-3 decision, reversed Rushton and held that: We join the majority of courts and hold that so long as no rights or remedies accorded by the statute are waived, and so long as the procedure is fair, employers may contract with their employees to arbitrate statutory civil rights claims. The majority reasoned that its holding breaks no new ground, but rather is consistent with our states public policy, and federal public policy, both of which increasingly and overwhelmingly favor arbitration as an inexpensive and expeditious alternative to litigation.

The special panel began its analysis by observing that the Michigan legislature has expressed a strong public policy favoring voluntary arbitration, and that Michigan courts have historically enforced valid agreements to arbitrate. The majority argued that the Michigan Arbitration Act was a strong and unequivocal endorsement of binding arbitration agreementsthat only specifically excepts collective bargaining agreements and certain real estate disputes from its purview. Citing the concept of expression unius est exclusion alterius (the express inclusion of one thing implies the exclusion of things not mentioned), the majority held the Michigan Arbitration Act supported enforcement of pre-dispute arbitration agreements in civil rights cases.

The majority then reviewed federal law and concluded that, although the United States Supreme Court was initially reluctant to endorse pre-dispute arbitration agreements of statutory claims, federal law has long since strongly endorsed arbitration of statutory claims. After reviewing federal law on arbitration generally, the court focused on Gilmer v. Interstate/Johnson Lane Corp. and concluded that the case reinforced the policy favoring arbitration and was authority supporting the enforceability of pre-dispute arbitration agreements even when the employee brings a statutory claim. The majority noted that the Court in Gilmer rejected the arguments, which were similar to the arguments made by the plaintiff in Rembert, that civil rights policy would be thwarted if employees were required to arbitrate their claims. The majority also noted that Gilmer had rejected claims that the arbitration was necessarily unfair to plaintiffs because of arbitral bias, different discovery rules and the inability to promote equitable relief.

The majority cited cases from the United States Third, Fourth, Fifth, Sixth, Seventh, Eighth and Tenth circuits, the Eastern and Western Districts of Michigan and six states for the proposition that, the vast majority of federal and state courts which have addressed this issue have followed Gilmer and held that statutory employment discrimination claims are subject to pre-dispute compulsory arbitration by way of employment contracts. The majority then focused on Cole v. Burns International Security Services, as being the most instructive federal case concerning the issue.

The majority also discussed the procedures required for a valid arbitration agreement. First, there must be a valid, binding, contract covering civil rights claims. The court held that, so long as the arbitration provision is reasonable, i.e., it does not waive any statutory rights and employs fair procedures, employment-related arbitration agreements are not contracts of adhesion.

Second, the statute in question may not prohibit such agreements. The court found that the Elliott-Larsen Civil Rights Act and the Persons With Disability Civil Rights Act did not prohibit arbitration agreements.

Third, the arbitration agreement must afford the plaintiff all the substantive rights and remedies offered by the statute in question and the arbitral procedures must be fair. Although the court declined to exhaustively catalog all the circumstances in which arbitration agreements will or will not satisfy these basic requirements, the court set forth the following basic requisites for a fair arbitration agreements:

The majority further noted that, to ensure fairness, courts would review and vacate an arbitration award if an arbitrator exceeds his or her contractual authority or if the procedures contained in MCR 3.602(J)(1) were followed. The courts would review an arbitrators award for legal error, and may vacate an arbitration award if the legal error is so material or so substantial as to have governed the award, and but for which the award would have been substantially otherwise. To insure a meaningful review, the court also required that the arbitrator issue a written opinion which included findings of fact and conclusions of law.

In a dissenting opinion joined by Judges Hood and McDonald, Judge Cavanagh argued that the majority opinion contradicts Michigans long-standing public policy entitling civil rights plaintiffs to direct review of their claims in the courts . . . . To support this view, Judge Cavanagh relied on Justice Cavanaghs concurring opinion in Heurtebise, and a series of cases which provide that individuals whose civil rights have been denied have a remedy in the courts. Judge Cavanagh also cited an excerpt of legislative history which he argued established that Congress explicitly rejected a proposed amendment that would have permitted mandatory pre-dispute arbitration agreements and instead chose only to encourage voluntary agreements.

Judge Cavanagh proceeded to argue that it is a fallacy that prospective workers make an informed, rational decision to enter into pre-dispute arbitration agreements because they are usually signed as a condition of employment at a time the employee cannot foresee the need to file a civil rights claim and that the average employee cannot meaningfully evaluate exactly what he is waiving and the practical effects of the waiver. In addition, Judge Cavanagh argued that arbitration may result in structural biases in favor of employers because employers will be more familiar with the arbitration process, have more information about the various arbitrators and because arbitrators may feel subtle pressure to find for the employer, because employers are more likely than the employees to give the arbitrator repeat business. Finally, Judge Cavanagh contended that arbitration does not allow for development of the law, does not always realize the purported benefits and permits corporations to use a private process to avoid public scrutiny.

The plaintiff in Rembert has filed for rehearing and will most likely appeal the special panels decision. However, until the special panels decision is reversed, employers may require that non-bargaining unit employees sign agreements to arbitrate any civil rights claims that may arise out of the employment relationship.

Pre-Dispute Arbitration Agreements Are Generally Unenforceable in Collective Bargaining Agreements.

In Alexander v. Gardner-Denver Co., the United States Supreme Court held that an employee covered by a collective bargaining agreement did not waive his right to file a civil rights claim in federal court by arbitrating his discrimination claim under the collective bargaining agreements grievance procedure.

Recently, in Wright v. Universal Maritime Service, the Supreme Court, once again, addressed the issue of mandatory arbitration of a statutory disputes where the arbitration clause is found in a collective bargaining agreement. The Supreme Court refused to resolve the issue of whether a union-negotiated waiver contained in a collective bargaining agreement could prevent an employee from bringing an action under the ADA. The Court held that it did not need to reach the issue because the language in the collective bargaining agreement was not specific enough to waive the plaintiffs statutory right to bring an action under the ADA. In reaching this result, the Court initially held that the presumption favoring arbitration that generally attaches to collective bargaining agreements does not apply because the plaintiff's ADA claim concerned a federal statute, not the interpretation of a collective bargaining agreement. The Court also held that any waiver of an employee's statutory right must be clear and unmistakable. The Court found that the arbitration clause in this case was very general, requiring the arbitration of matters under disputewhich could be understood to mean matters in dispute under the contract. The Court also found that the language stating, this Agreement is intended to cover all matters affecting wages, hours, and other terms and conditions of employment was not sufficiently specific to require arbitration.

Most federal courts continue to follow Alexander and prohibit employers forcing employees to arbitrate civil rights claims under an arbitration agreements contained in a collective bargaining agreement. However, in Martin v. Dana Corp., the Third Circuit found that the collective bargaining agreement required the plaintiff to arbitrate his statutory discrimination action. The collective bargaining agreement stated: Any and all claims regarding equal employment opportunity provided for under this Agreement or under any federal, state or local fair employment practice law shall be exclusively addressed by an individual employee or the Union under the grievance and arbitration provisions of this Agreement. Relying on the fact that the employee could initiate the arbitration and that the collective bargaining agreement required arbitration of statutory disputes, the court concluded that the employee was required to arbitrate his race claim. Judge Anthony J. Scirica dissented, concluding that Alexander should apply.

Given the Supreme Courts reasoning in Wright and the decision in Martin, employers may seek more specific language in the collective bargaining agreement to require employees to arbitrate their statutory civil rights claims. However, employers will have to secure the union's approval to change any language in an existing collective bargaining

Pre-Dispute Arbitration Agreements Do Not Bar Actions By The EEOC

In EEOC v Frank=s Nursery and Craft, the employee signed an application containing an agreement to arbitrate any employment dispute and limited the time to file for arbitration to six months. When the plaintiff was passed over for a promotion, she quite and filed a charge with the Equal Employment Opportunity Commission. After an investigation and an attempt to conciliate, the EEOC brought an action against the defendant seeking back pay, compensatory and punitive damages. The defendant moved for summary judgment on any claim for damages citing the plaintiff=s failure to arbitrate the case. The district court granted defendants motion.

On appeal to the Sixth Circuit, the court did not address the issue of whether arbitration clauses included in an employment applications were enforceable. The court did address whether the EEOC had the right to seek damages for the claimant who did not file an individual action. The court noted that the EEOC possessed an independent right to bring an action. 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, the court reversed the district court. The court held that the EEOC could seek to recover back pay, future pay and compensatory and punitive damages for claimants who sign pre-dispute arbitration agreements.

While the Second Circuit has reached a different result on this issue, the Sixth Circuits decision may result in employees who sign pre-dispute arbitration agreements seeking relief through the EEOC rather than filing individual civil rights actions.

Procedural Safeguards

The decision in Rembert, places Michigan with the majority of jurisdictions that enforce pre-dispute arbitration agreements and require an employee to follow the arbitration procedure when bring a civil rights action. The next potential battle ground will concern whether the arbitration agreement contains the necessary safe guards. Employers adopting pre-dispute arbitration plans should consider the following procedures:

When designing a pre-dispute arbitration agreement, employers may wish to review the American Arbitration Associations= book AResolving Employment Disputes A Practical Guide@ and AThe Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship.

With the decision in Rembert, pre-dispute arbitration agreements covering civil rights claims are enforceable in Michigan. However, employees may challenge the procedures used to obtain pre-dispute arbitration agreements and the procedures used in the arbitration.