United States: New Opportunities for Mandatory Arbitration

Over the past few years, many employers have adopted programs that require their employees to agree, as a condition of employment, to arbitrate employment disputes, rather than file lawsuits over those disputes. The advantages to both parties are many. Disputes can be resolved in arbitration in far less time, and with far less expense than usually is incurred in litigation. For employers especially, the chance to have disputes heard by an experienced arbitrator trained in the law is far more attractive than having a jury decide disputes. Stories of runaway jury verdicts costing employers millions of dollars are legendary, and have frightened many employers into settling an otherwise strong case, just to avoid that risk.

As arbitration law developed during the mid to late 1990’s, the Ninth Circuit issued decisions that were demonstrably hostile to arbitration in general, and to employment arbitration in particular. The court held that the Federal Arbitration Act simply didn’t apply to employment contracts. Every other federal circuit court of appeal in the country had addressed this same issue, and reached the opposite conclusion. The Ninth Circuit’s decision was overturned by the United States Supreme Court in Circuit City v. Adams. The Supreme Court made clear that the FAA applies to employment agreements.

The Ninth Circuit also issued Duffield v. Robertson Stephens & Co., in which it held that an employee could not be required, as a condition of employment, to enter into a pre-dispute agreement requiring arbitration of discrimination claims brought under Title VII. Again, the Ninth Circuit was alone in this holding, as every other federal appeals court to consider the question found Title VII claims to be fully subject to arbitration.

This month, in EEOC v. Luce, Forward, et al., the Ninth Circuit reversed itself, and held that Title VII claims are subject to mandatory arbitration. Now, employers in the Ninth Circuit, like employers in the rest of the country, may fashion a mandatory, pre-dispute arbitration program that encompasses virtually all types of employment-related disputes. In addition, the Ninth Circuit also clearly stated for the first time that there is nothing illegal or improper about an employer requiring that prospective employees agree to mandatory pre-dispute arbitration as a condition of employment.