Arbitration uses a neutral third party to resolve disputes with an arbitrator experienced in the substantive law of the case. Arbitration is often more advantageous than court decisions. For an employer, arbitration of disputes is more expeditious and will likely substantially reduce the cost of employment litigation and the risk of large damage awards. Arbitration is also advantageous for the employee because it provides a quick and less expensive means of resolution. Yet the enforcement of arbitration agreements involving employment discrimination remained open to attack.
Current Michigan Law Favors Arbitration
Prior to, DeCaminada v Coopers & Lybrand et seq, 1998 Mich App. Lexis 303 (November 17, 1998) a battle raged among Michigan courts regarding the arbitration of employment discrimination disputes. DeCaminada seemingly puts this argument to rest. The plaintiff in DeCaminada was terminated after thirty years of service. He filed suit alleging age discrimination and conversion. In response, Coopers & Lybrand sought to compel arbitration based upon an arbitration agreement the plaintiff signed. The Michigan Court of Appeals said that the Federal Arbitration Act ("FAA") preempted the plaintiff's age discrimination and conversion action and compelled arbitration. In particular, the DeCaminada Court said that Michigan law is preempted to the extent that it would undermine the enforceability of arbitration agreements that meet the ordinary requisites of contract law or the extent that it would undermine the goals and policies of the FAA. The FAA states, in pertinent part, that "[a] written provision in... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ...shall be valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract.
In making its decision, the court rejected the argument that the FAA did not apply because the agreement was an employment contract involving a class of workers exempt under the Act. The court relied on the Sixth Circuit Court of Appeals decision of Asplundh Tree Expert Co. v Bates, 71 F. 3d 592 (6th Cir. 1995), which decided that the Exclusion Clause should be construed narrowly to include employees directly engaged in the movement of goods in interstate commerce, e.g. truck drivers. Because the plaintiff worked for an accounting firm, the exclusion did not apply.
Second, the plaintiff argued that his claims were outside the scope of the arbitration agreement. The court declined to narrowly read the agreement and stated that "any doubts about the arbitrability of an issue should be resolved in favor of arbitration." The parties agreed to arbitrate claims "arising out of.... the practice, business or affairs of the Firm." Thus, the plaintiff's claims were arguably covered by the agreement.
Third, the plaintiff asserted that his claims could not be arbitrated because he did not knowingly and voluntarily agree to arbitrate them. The court rejected this argument and stated that there is nothing in the FAA to support a "knowledge" requirement." Furthermore, the court stated that under the FAA an arbitration clause "shall be valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of a contract."
Finally, and perhaps most importantly, the court rejected the argument that arbitration of employment disputes violates public policy as discussed in Heurtebise v Reliable Business Computers, Inc., 452 Mich 405 (1996); Rushton v Meijer (On Remand), 225 Mich App 156 (1997) and Rembert v Ryan's Family Steak House, 226 Mich App 821 (1997) (vacating prior opinion). Specifically, the court said that the FAA applied and that the plaintiff's claims were preempted by the FAA. The application of the FAA implicates the Supremacy Clause of the United States Constitution and precludes the court from applying Michigan's state constitution or laws to defeat federal legislation. The FAA, thus, preempts any state law or policy that invalidates arbitration agreements -- public policy arguments.
Current Federal Law Favors Arbitration
DeCaminada follows federal precedent which permits the arbitration of employment discrimination disputes. In Gilmer v Interstate/Johnson Lane Corp., 500 US 20 (1991), the U.S. Supreme Court enforced an agreement requiring arbitration of a claim under the Age Discrimination in Employment Act. The plaintiff in Gilmer, contemporaneous with hiring signed a registration application that required all disputes arising out of employment with, or termination of employment by, the employer to be resolved through arbitration. The employer sought to compel arbitration pursuant to the FAA.
Applying the FAA, the Supreme Court held that plaintiff's age discrimination claim was subject to arbitration and noted that "it is by now clear that statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the Federal Arbitration Act." In so holding, the Supreme Court rejected arguments that arbitration panels could be biased, discovery would be limited, arbitration could not adequately further the ADEA's purpose and that arbitration would somehow undermine the role of the Equal Employment Opportunity Commission in enforcing the ADEA.
Similarly, post-Gilmer decisions have found its rationale to be equally applicable to the arbitration of claims under federal civil rights statutes. For example, in Cosgrove v Shearson Lehman Brothers, 1997 U.S. App. Lexis 392 (6th Cir. 1997) cert. denied 118 S. Ct 169 (1997), the plaintiff signed an employment application which included the following clause: "I hereby agree that any controversy arising out of or in connection with my compensation, employment or termination of employment shall be submitted to arbitration..." The plaintiff later contended that the employment disputes were not subject to arbitration. The court disagreed and held that discrimination, as well as a state law claim for intentional infliction of emotional distress, were subject to arbitration.
Precautions to Help Ensure Validity of An Arbitration Agreement
To help ensure the availability of arbitration, employers should take the following steps:
- Make certain that the arbitration clause applies to all employment-related claims, the time period the agreement covers (e.g. claims rising before, during or upon termination of the employment relationship), and briefly list a sample of Title VII discrimination and other employment claims the agreement covers.
- Make certain that the language used in the agreement is clear and unambiguous and give employees a meaningful opportunity to review the agreement so that they can make an effective waiver of their judicial right to judicial determination.
- Maintain records that show an acknowledgment by the employee that he or she received a copy of the arbitration agreement.
- Ensure fairness in the formation of the agreement -- e.g.provide for limited but fair discovery and provide a process for selection of a competent neutral arbitrator.
Conclusion
Because DeCaminada does not discuss the reasons for the application of the FAA, it may be ripe for attack. In Heurtebise, Rushton and Rembert, the court rejected the defendants argument that the contracts evidenced a transaction involving commerce within the meaning of the FAA because the transactions were localized. Only time will tell whether Michigan courts will accept the DeCaminada rationale and require the arbitration of employment discrimination disputes, pursuant to the FAA.