INDIVIDUAL EMPLOYMENT ARBITRATION UNDER STATE LAW AND THE FEDERAL ARBITRATION ACT
As previously noted, the enforcement of contracts of employment of individual, nonunion employees is generally covered by state law, not federal law, but the Federal Arbitration Act applies to prevent state law from imposing any special limits on the enforcement of arbitration agreements that are not applicable to other contracts.
Mandatory Employment Arbitration
Beginning with federal antidiscrimination statutes in the 1960s and 1970s, and continuing in the 1980s with judicial changes in nearly all the states in the law concerning wrongful discharge, employees succeeded in collecting substantial monetary awards in court actions for violation of these new legal rights. Many employers responded by requiring their employees or job applicants to agree to arbitrate all employment disputes with their employers, including statutory civil rights claims, rather than sue in the courts. One reputable scholar has estimated that as many as one-fourth to one-third of the nonunion private-sector American workforce may be subject to such so-called “mandatory employment arbitration agreements.” The Supreme Court has upheld such agreements, pointing out that there is only a change of forum and not a loss of substantive rights. See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991); Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001). Some persons have argued vigorously that employees should not have to waive statutory procedures as the price for getting or keeping a job. Others have declared that, as a practical matter, rank-and-file employees have difficulty finding lawyers to take their cases to court and they fare at least as well in arbitration. It seems clear, however, that winning employees get more from juries than from arbitrators.
Conditions for Enforcing Mandatory Employment Arbitration Agreements
In Cole v. Burns International Security Services, 105 F.3d 1465, 1482 (D.C. Cir. 1997), a prestigious federal court held that a mandatory employment arbitration agreement is enforceable as long as it (1) provides for neutral arbitrators; (2) provides for more than minimal discovery; (3) requires a written award; (4) provides for all of the types of relief that would otherwise be available in court; and (5) does not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum (others would say no more than the amount of the filing fee that would be required to get into federal court).
At least two federal courts of appeals (one step below the Supreme Court) have also required that employees have a meaningful voice in the selection of the arbitrator and cannot be confined to a panel chosen solely by the employer, however well-qualified and respected the panelists might be. McMullen v. Meijer, Inc., 355 F.3d 485, 487 (6th Cir. 2004). See also Hooters of America, Inc. v. Phillips, 173 F.3d 933, 938-39 (4th Cir. 1999).
Waiver of Statutory Rights by Employees
As has been seen, the Supreme Court held in the Gilmer case, supra, that employees can, as part of a mandatory employment arbitration contract, waive the right to sue independently in court. That would not prevent the employees, however, from filing charges with the Equal Employment Opportunity Commission. While the EEOC does not have independent decision-making authority, the agency can (but need not) pursue claims in court on the employees’ behalf. EEOC v. Waffle House, Inc., 534 U.S. 279, 286 (2002). In AT&T Mobility, LLC v. Concepcion, 563 U.S. 321 (2011) (5-4 decision), the Court held that the Federal Arbitration Act preempts a California judicial ruling that the waiver of a right to use class actions in arbitration is unconscionable. The effect was to make it extremely difficult to vindicate small monetary claims. See also American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (U.S. 2013) (5-3 decision). Although these were consumer or business cases, not employment cases, the same principles may well be applicable in the employment context.
The National Labor Relations Board has disagreed, however, holding that arbitration agreements in which employees had to waive the use of class or collective actions violated their right to concerted activity under Section 7 of the National Labor Relations Act, as amended, 29 U.S. Code § 157 (2012). D.R. Horton, Inc., 357 N.L.R.B. No. 184 (2012); Murphy Oil USA, Inc., 361 N.L.R.B. No. 27 (2014) (3-2 decision). But enforcement of the Board’s order in Horton was denied on the basis of the Federal Arbitration Act in D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir. 2013). To the same effect are Sutherland v. Ernst & Young, LLP, 726 F.3d 290 (2d Cir. 2013); Owens v. Bristol Care, Inc., 702 F.3d 1050 (8th Cir. 2013).
Section 10(a) of the Federal Arbitration Act, 9 U.S. Code 10(a) (2012), lists four grounds for vacating an arbitration award: (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators; (3) where the arbitrators were guilty of misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a final and definite award upon the subject matter submitted was not made.
In a commercial arbitration case, Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576 (2008), the Supreme Court stated it was only deciding the limits of judicial review under the FAA and was not addressing the arguable scope of review under state statutory or common law. Specifically, the effect of an arbitrator’s “manifest disregard of the law” – an almost defiant, knowing refusal to apply relevant public law – was left unresolved. The federal courts of appeals are divided on this issue, that is, whether “manifest disregard of the law” is a separate, independent basis for vacating an award. If so, it would clearly seem to mean more than a mere mistake of law. Also left undecided is the impact of Hall Street on either labor or employment arbitration awards.