Diane L. Akers, a partner in our Detroit office, has achieved a significant ruling from the Michigan Court of Appeals favoring an employer's right to condition employment on the employee's agreeing to arbitrate all employment-related disputes, including statutory civil rights claims. Akers successfully argued the case on behalf of the defendant employer in Rembert v Ryan's Family Steak Houses, Inc.("Rembert II") and a special seven member panel of the court of appeals issued its opinion on April 9, 1999.
This opinion resolved for now a conflict that had existed between two panels of the court of appeals. In an earlier case, Rushton v Meijer, Inc. (1997) the two judge majority ruled that Michigan public policy prohibits employers from conditioning employment on an agreement to arbitrate, rather than litigate, civil rights claims. A short time later, the Rembert case came on for hearing before a different panel of the court of appeals, which unanimously concluded that Michigan public policy favors arbitration where the parties have agreed to arbitrate. That panel, however, was compelled to follow the precedent established in Rushton and therefore declared the arbitration agreement to be invalid. Rembert v Ryan's Family Steak Houses, Inc. (1998) ("Rembert I").
As required by court rule, the Chief Judge of the court of appeals polled the entire court, which voted to convene a special seven member conflict panel to resolve the conflict between Rushton and Rembert I. The parties submitted supplemental briefs, numerous entities submitted amicus briefs both supporting and opposing arbitration of civil rights claims and the court of appeals held oral argument on June 1, 1998.
In its comprehensive and thoughtful opinion, the court first noted that its "holding breaks no new ground, but rather is consistent with our state's public policy, and federal public policy, both of which increasingly and overwhelmingly favor arbitration as an inexpensive and expeditious alternative to litigation." The court then reviewed the long line of judicial and statutory pronouncements that establish and explain that public policy.
The court carefully pointed out that, "While our decision upholds the principle of freedom of contract and advances the public policy which strongly favors arbitration, it does so on two conditions generally accepted in the common law: that the agreement waive no substantive rights, and that it afford fair procedures."
The court set forth in detail the criteria to be used in determining whether any particular employer's arbitration procedures are "fair." First, there must be clear notice to the employee that he/she is waiving the right to adjudicate civil rights claims in court and is, instead, opting for an arbitral forum. Second, the arbitration must preserve the right to be represented by counsel. Third, the arbitrator must be neutral, and an arbitration award will be vacated if there is "evident partiality by an arbitrator appointed as a neutral." The arbitrator must be sworn to hear the matter impartially. Fourth, there must be an opportunity for reasonable discovery. Fifth, the arbitral hearing must be fair.
The court refused to rule that all fees must be paid by the employer, but emphasized that the right to shift arbitration costs to the employer, provided by statute and court rule, must be preserved.
The court also ruled that a court, in reviewing an arbitration award, must vacate the award "when the arbitrator's 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 facilitate judicial review of arbitration awards, they "must be in writing and contain findings of fact and conclusions of law."
The court expressly invited employers to consider carefully all of the issues the court addressed in its opinion and to structure their arbitration procedures to ensure that the Rembert II factors are satisfied.
Three members of the panel dissented, arguing that substantive civil rights are necessarily compromised in arbitration and that Michigan's constitution prohibits employers from establishing arbitration as a condition of employment.
Counsel for the unsuccessful plaintiff have filed a motion for rehearing in the court of appeals and have announced their intent to seek leave to appeal to the Michigan Supreme Court.