United States: United States Supreme Court Rules That Federal Arbitration Act Covers Most Employment Contracts

In a 5-4 decision, the United States Supreme Court ruled on March 21, 2001, that the Federal Arbitration Act of 1925, which requires enforcement of valid arbitration agreements, applies to most employment contracts and only exempts contracts involving transportation workers. Circuit City Stores, Inc. v. Adams, 121 S.Ct. 1302 (2001)

In Circuit City, when the employee applied to work for the company, he signed an employment application containing an arbitration provision. The employee later sued the company in state court, bringing state law employment discrimination and tort claims. The company sued in federal court and succeeded in obtaining an injunction against the state court claims, and in compelling the employee to arbitrate his claims. Although the Ninth Circuit reversed the district court’s injunction and compulsion of arbitration, the Supreme Court reversed the Ninth Circuit’s decision.

Section 2 of the Federal Arbitration Act, 9 U.S.C. § 2, provides that:

Section 1 of the Arbitration Act, 9 U.S.C. § 1, exempts from the Act’s coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."

The employee’s attorney argued that the Federal Arbitration Act only covered commercial contracts because of Section 2’s reference to "transactions." However, the Supreme Court found that this reasoning would make Section 1 unnecessary because "[i]f all contracts of employment are beyond the scope of the Act under the §2 coverage provision, the separate exemption for ‘contracts of employment of seamen, railroad employees, or any other class of workers engaged in . . . interstate commerce’ would be pointless." The Supreme Court held that Section 1’s exemption of "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce" only referred to the various types of transportation workers.

In back-to-back cases of first impression, two federal appellate courts have held that disability-based harassment is a cause of action under the Americans with Disabilities Act (ADA).

The first such decision came from the U.S. Court of Appeals for the Fifth Circuit in Flowers v. Southern Regional Physician Services Inc. and the second decision, which followed an analysis similar to that of Flowers, came from the U.S. Court of Appeals for the Fourth Circuit in Fox v. General Motors Corp.

In the Fifth Circuit case, Sandra Flowers, who was employed for two years as a medical assistant at Southern Regional Physician Services in Baton Rouge, La., claimed that her working environment changed dramatically for the worse after her supervisor discovered that she was infected with HIV, which she had contracted from her husband.

The changes included: Flowers’ supervisor allegedly ceased socializing with her, and began intercepting her phone calls and eavesdropping on her conversations; her boss lowered her high performance appraisals to the point that she was placed on probation and forced to undergo four random drug tests in one week; and Southern Regional's president allegedly refused to shake hands with Flowers, called her a "bitch," and discharged her.

In the Fourth Circuit case, Robert Fox had worked in General Motors' Martinsburg, W.Va. plant for 12 years when he severely injured his back. After an extended disability leave, he returned to work in October 1994 under medical restrictions that he only perform light-duty work. From then until August 1995, he claimed, he was subjected to a barrage of harassment from supervisors and co-workers, and ordered to perform jobs that went beyond his medical restrictions. As a result, he re-injured his back.

On one occasion, a supervisor told him, "I don't need any of you handicapped m--f--s. As far as I am concerned, you can go the hell home." Other plant workers with disabilities also testified that supervisors referred to them as "911 hospital people."

Both General Motors and Southern Regional argued that disabled people cannot sue for workplace harassment under the ADA because neither the Supreme Court nor the federal appellate courts had expressly upheld such a claim.

In coming to the conclusion that disabled people can sue for workplace harassment under the ADA, both appellate panels focused on the similarity in the language of the ADA and Title VII of the 1964 Civil Rights Act, prohibiting discrimination in "terms, conditions, or privileges of employment," and in the remedial purposes of the two statutes. Because the ADA expressly refers to Title VII and both have the same purpose – to eliminate discrimination in the workplace – courts use the Title VII precedent in ADA cases. As such, both panels concluded that the ADA includes a cause of action for hostile work environment harassment modeled after the Title VII cause of action.

To establish a claim for hostile work environment harassment under the ADA, the panels said, a plaintiff must prove:

• that he or she is a qualified individual with a disability;
• that he or she was subjected to unwanted harassment;
• that the harassment was based on the disability;
• that the harassment was sufficiently pervasive or severe as to alter a term, condition or privilege of employment; and
• some factual basis to impute liability for the harassment to the employer.

Although employees are entitled to an additional cause of action under the ADA as a result of these appellate decisions, employers will also have available to them an additional affirmative defense as recognized by the high court in Title VII harassment claims: an effective, anti-harassment policy in place that the victim unreasonably fails to invoke. Thus, the importance of such a policy and its effective enforcement cannot be overlooked.

The Eastern District of Pennsylvania recently ruled in Fraser v. Nationwide Mutual Insurance Co., U.S. Dist. LEXIS 3241 (2001), that an insurance company did not violate state or federal wiretapping laws when it retrieved stored e-mail communications from a computer used by one of its agents. The insurance agent’s agreement with the company provided that he would be an independent contractor and would represent only that company in the sale and service of insurance. The insurance agent leased computer hardware and software from the company for business purposes. The lease agreement specifically stated that the computer system was the property of the company, and whenever logging onto the computer, a notice appeared on the screen that informed the user that the system, including e-mail, could be monitored to protect against unauthorized use.

The company’s director of electronic communications searched its electronic file server for e-mails after receiving evidence that the agent had breached his agreement to represent only the company. The director retrieved a relevant e-mail that the agent had sent to a coworker from the coworker’s file of received and discarded messages stored on the server. The agent sued, alleging that the company had unlawfully intercepted his e-mail communication when it retrieved the message from its electronic store sites in violation of the Wire Tap Act and also maintained that the company unlawfully accessed his e-mail from storage in violation of the Stored Communications Act.

The court found that the Wire Tap Act protects against unauthorized "interception" of electronic communication, and that the company did not "intercept" the communication, but rather retrieved the e-mail after it had been sent and received. The court stated that retrieval of the message from storage while it is in the course of transmission is an interception under the Wire Tap Act, but retrieval of a message from storage after transmission is complete is not interception under the Act.

The Stored Communications Act prohibits unauthorized "access" to an electronic communication while it is in "electronic storage" during the course of transmission, the court stated. The Act defines "electronic storage" as temporary storage incidental to the electronic transfer of the message or storage by an electronic communications server for purposes of backup protection. The court stated that the Act would protect a message in "intermediate storage," or the storage that occurs after the message is sent, but before the recipient receives it. But, the court held that the Stored Communications Act does not cover retrieval of a message from post-transmission storage.