Arbitration of Employment Claims: Here to Stay
By: RICHARD A. ROSS
June 2001
The United States Supreme Court, in its recent Circuit City Stores, Inc. v. Adams decision, effectively held that an employer might require, as a condition of employment, an employee to sign an agreement that all disputes arising out of the employment relationship must be submitted to binding arbitration. The Circuit City case involved an employee, Adams, who had signed an employment application with a provision to submit all claims:
"arising out of or relating to my application or candidacy for employment, employment and/or cessation of employment . . . exclusively by final and binding arbitration before a neutral arbitrator" (emphasis in original).
Circuit City hired Adams. Two years later he filed a lawsuit against Circuit City in California state court claiming discrimination under California's Fair Employment and Housing Act and related tort claims under California law. Citing the arbitration provision in Adams' application, Circuit City filed suit in the United States District Court seeking to enjoin the state court action from going forward, and forcing Adams to arbitrate all of his claims. Circuit City argued that the Federal Arbitration Act ("FAA") applied to the arbitration provision in the application and that Adams must be compelled to arbitrate before a neutral arbitrator rather than litigate the claims in state court. Ultimately, the case reached the United States Supreme Court and the Court agreed with Circuit City. The United States Supreme Court held that the FAA did apply to the employment relationship between Circuit City and Adams. As a result, Adams will be required to arbitrate his claims against Circuit City.
The holding in Circuit City will no doubt result in more employers, including those in Minnesota, requiring employees to sign agreements for arbitration or to include language requiring arbitration in their employment applications. As noted in our article in the June 2000 issue of the Employment & Labor Law Focus, "Arbitrating Discrimination Claims in Minnesota: A Bump in the Road," in order to invoke the application of the FAA and insure that the arbitration requirement is upheld, the employer must establish that it is in interstate commerce. If the employer is not in interstate commerce or does not claim that the FAA applies to its arbitration provision, certain claims may be excluded from the arbitration provision. As the previous article indicated, the Minnesota Supreme Court, in Correll v. Distinctive Dental Services, P.A., held that even though an employee signed an arbitration agreement, it would not be enforced in connection with a discrimination claim under the Minnesota Human Rights Act. The Minnesota Supreme Court indicated that had the employer asserted its claim under the FAA, the employee could have been compelled to arbitrate the state discrimination claim.
Arbitrating instead of litigating employment claims can benefit employers in several ways. Arbitration is faster, more private, and less costly. In addition, there is no jury. As a result, employment claims that would ordinarily settle long before a court trial are more likely to proceed to a conclusion before a neutral arbitrator. A potential detriment for arbitration is the potential lack of the discovery mechanisms (i.e. depositions, document requests, interrogatories, adverse medical or psychiatric examinations) provided under the federal and state rules of civil procedure. A well-drafted arbitration agreement, however, can incorporate discovery provisions.
We anticipate that employees or former employees with claims against employers will attempt to undermine the United States Supreme Court holding in Circuit City through a variety of challenges. One of the major attacks presumably will be the fairness of the proceeding depending on any unnecessary hurdles an arbitration provision might create. We suggest that before you require employees or applicants for employment to sign any type of agreement to arbitrate that you consult with your employment law counsel.