It’s Not All Bad News in Battle Against Mandatory Arbitration

The recent US Supreme Court decision in the14 Penn Plaza v. Pyett case was a huge blow to employee rights. The case held that a worker can’t go to court on a discrimination case when the union bargaining contract  requires that  civil rights claims must go to arbitration instead of a judge or jury.  There’s are lots of summaries of the case including those in  Ross Runkel’s Law Memo  the SCOTUS BLOG and The Wall Street Journal.

The 14 Penn Plaza case is another chapter in the ongoing battle regarding mandatory arbitration of civil rights and employment claims and the decision couldn’t be worse.

The only bright spot on the topic is that there was a very good decision from the Third Circuit  Court of Appeals just days before 14 Penn Plaza in the case of Kirleis V. Dickie, McCamey & Chlcote, P.C. .

In Kirleis, the Court  held that the plaintiff was not required to arbitrate her civil rights claims. Here’s what happened in the case.

The plaintiff, Alyson Kirleis, practiced law with the firm of Dickie, McCamey & Chilcote. She worked there since 1987. She became a shareholder in 1998.

Kirleis filed complaints against the firm alleging sex discrimination, retaliation, and hostile work environment in violation of state and federal law. The firm filed a motion to compel arbitration  based on a provision of its bylaws which mandated arbitration of any disputes.

Kirleis submitted undisputed evidence stating that: 

  •  she never got a copy of the by-laws
  •  she never saw the document which contained the mandatory arbitration language
  • she was never given a copy of the document which contained the mandatory arbitration language
  • she never signed any agreement to arbitrate
  • she never agreed to arbitrate her claims against the firm 

Therefore, she argued, that since she never agreed to the arbitration provision she could not be bound by it.

The firm argued that Kirleis;

  • got the benefits of the firms by-laws, including generous pay and benefits
  • should not be able to accept the benefits of the by-laws without honoring her responsibilities
  • under corporate law principles, members of corporations are presumed to know and understand the by-laws of the corporation

In rejecting the firm’s arguments, the Court relied on basic contract principles in determining whether there was an agreement to arbitrate. While the Court noted that there is a presumption in favor of arbitration, it said:

this presumption does not apply to the determination of whether there is a valid agreement to arbitrate between the parties. … Before a party to a lawsuit can be ordered to arbitrate … there should be an express, unequivocal agreement to that effect. 

The Court looked at cases in which arbitration provisions were placed in employee handbooks. In many of those cases, employees never read or understood provisions in those documents which required them to arbitrate claims rather than go to court.  As the Court stated:

Contrary to the Firms’ arguments, Quiles is analogous to the present case in at least one critical respect:  like Quiles, Kirleis never received a copy of the only document containing the firm’s arbitration provision.  Without this document, Kirleis cold not have explicitly agreed to arbitrate her claims. . . .

As we have explained, Kirleis cold not have explicitly agreed to arbitrate her claims because she never received a a copy of the bylaws and was unaware of the existence of the arbitration provision contained therein.

In other words, the Court held:

  • under contract law, an explicit agreement to arbitrate is required
  • Kirleis never received, read, or agreed to the arbitration provisions in the by laws
  • therefore, there was no agreement and no contract to arbitrate 
  • Kirleis could go to court on her civil rights claims

It  may seem simple, fair, and pretty straightforward but that’s not usually the way it turns out. The 14 Penn Central case is the opposite example. Overturning what many believe to be thirty years of precedent, the Supreme Court held in effect that a union official can waive the right to go to court on behalf of one of it’s members — no “explicit agreement” by the individual is required.

Equally bad is that employees are given handbooks to sign every day which have mandatory arbitration provisions.  Employees are asked to, and are usually required to,  sign a document which states that they have received the company handbook.  The handbook contains a mandatory arbitration provision.  By signing the document, the employee in many cases gives up the right to take a discrimination or sexual harassment case to court.  If they don’t sign,  they don’t have a job –is that a fair choice?

Those of us who represent employees have been fighting this battle for years.  We believe that employees should have the right to take their cases to court and get the full benefit of laws intended to protect them — including the right to have a judge or jury decide the case.

That’s why legislation has been introduced called the Arbitration Fairness Act of 2009 (on February 12, 2009) which amends the Federal Arbitration Act and states in part:

No predispute arbitration agreement shall be valid or enforceable if it requires arbitration of —

(1) an employment, consumer, or franchise dispute; or

(2) a dispute arising under any statute intended to protect civil rights.

There are many reasons why this is a good and important bill. For those interested,  I suggest taking a look at  the California Employment Labor and Employment Law blog piece on it, which does a great job of dispelling the  mythology on the subject.

It’s also worth mentioning that not all management lawyers are keen on arbitration.  In addition to the many things wrong with mandatory arbitration, it turns out that it’s simply not cost effective from a business perspective.

So while there was very bad news last week on the subject of mandatory arbitration, at least there was one very good case which states the obvious — you can’t (at least you shouldn’t) be bound to something you didn’t agree to.


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