Mandatory Arbitration: A Growing Concern for Employees

Our present legal system was built upon a foundation of certain rights and remedies. The most basic and important right is the right an individual possesses to have their grievances settled by a jury.

The Declaration of Independence guarantees the benefit of Trial by Jury. Article III of the United States Constitution provides for due process and jury trials. The seventh amendment of the Bill of Rights provides that "the right of trial by jury shall be preserved." In 1991, Congress amended the Civil Rights Act specifically to add a right to a jury trial because of the deprivation of Due Process associated with limiting the trial of these types of cases to the Judge solely. Lastly, the Texas Constitution provides a person the right to a Jury trial. If the legislature has made its intentions of preserving a person's right to jury trials so perfectly clear, why are certain courts enforcing binding arbitration agreements which preclude one from exercising their right to a jury trial?

The published cases have not previously given attorneys clear guidelines to interpret Mandatory Arbitration Agreements. The primary issue ordinarily involves the Federal Arbitration Act. This Act was passed to allow courts the ability to enforce arbitration agreements. The FAA did not preempt the constitutional right to a jury trial. The Act allowed voluntary arbitration agreements to be enforced the same as any other contractual clause. The issue of arbitration being utilized to resolve employment disputes was first ruled upon in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647 (1991). The Supreme Court held that an employer could enforce the arbitration agreement the employee had signed which required arbitration of all employment disputes. These agreements are typically referred to as U-4 securities registration applications. In the past the cases supporting the Preemption Powers of the FAA were usually based upon the premise that the employee's obligation to arbitrate was based upon the securities registration application and not the employment contract. Cases involving securities registration forms made up the majority of cases supporting binding arbitration. However, recent decisions are now giving the employers the incentive to utilize these types of agreements to avoid being hauled into court over employment disputes. The employees are given the choice of signing the arbitration agreement and waiving any right to have a jury hear any future disputes or let their family starve. Quite a choice isn't it? Arbitration has been accurately described as "LITIGATION WITHOUT DUE PROCESS". Most employment cases are supported by circumstantial evidence since in today's times no employer is either honest or stupid enough to admit that an employee was discriminated against. The burden to prove the allegations requires extensive discovery on behalf of the employee which is not allowed in arbitration. The employer has possession of all relevant documents and can use them to his advantage while denying the employee access to documents which might benefit the employee's position. In Gilmer, the Court held that the FAA is a congressional declaration of a liberal federal policy favoring arbitration instead of judicial litigation. See Id. The decisions seem to indicate that an arbitration agreement is binding if:

In Prudential Ins. Co. v. Lai, 42 F.3rd 1299 (9th Cir.) The federal appellate court held that agreements to arbitrate employment disputes are unenforceable. Incredibly, a Federal Court in Texas has held that a clause inserted into the employee handbook is sufficient to support mandatory binding arbitration. Kennibrew v. Gulf Ins. Co., WL765428. In this case the court held that the Insurance Claim Manager's employment claims were subject to arbitration pursuant to the clause contained in the handbook. The only redeeming effect of this decision was that it happened to an Insurance Claims Manager. Nevertheless, this could establish a very restrictive trend in employment disputes. Additionally, in a recent decision rendered on November 15,1995 the Austin Court of Appeals upheld a binding arbitration agreement. See BWI Companies v. Kurtenbach, 910 S.W.2d 620 (Tex.App.- Austin 1995) In this case the employer, a wholesaler of landscape and garden supplies had entered into an arbitration agreement with its employee, Kurtenbach to

The court applied the above listed criteria defined in Gilmer and held that the FAA preempted his right to file suit in District Court and ordered his case to binding Arbitration. The Court also discussed the applicability of the Texas General Arbitration Act which is codified in Texas Revised Civil Statute Article 224. On a brighter note, a Houston Federal court enjoined the enforcement of an ADR policy as contrary to the principles of Title VII. See United States Equal Opportunity Commission v. River Oaks Imaging and Diagnostic, Civ. Action No. H-95-755 (S.D. Texas April 19,1995. One can see that there is a split of authority on the subject. Nevertheless, any attorney reviewing an employment case should ask the potential client if they have singed one of these agreements and if so the next decision to be made is whether this agreement can be attacked as failing to comply with the provisions of the FAA and TGAA. Hopefully, the courts will realize that mandatory arbitration contracts are contracts extracted under duress and force employees to waive valuable constitutional and statutory rights under the threat of termination.