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The ins and outs of mandatory arbitration

As I See It

In 1991 the Supreme Court ruled, in Gilmer v. Interstate/Johnson Land, that an employee who had signed a mandatory arbitration agreement as a condition of employment could not sue his employer for age discrimination. The plaintiff, a 62-year-old stockbroker, conceded that he understood the agreement when he signed it and did not allege that he was coerced into signing; rather, he maintained that it was INHERENTLY ILLEGAL to compel arbitration of a discrimination suit.

Not so said the Supreme Court. It upheld the agreement based on a 1925 statute, the Federal Arbitration Act, which says that the parties to a commercial contract can waive court rights in exchange for binding arbitration.

The 1991 ruling has cleared the path out of the discrimination thicket for employers in every industry. Since 1991, more than 200 lower court decisions have expanded the scope of the decision.

A challenge to mandatory arbitration is being raised by Annette Phillips, a bartender for the Hooters restaurant chain. She alleges that a company officer came in, lifted her skirt and whacked her across the hind end. She tried to bypass the mandatory arbitration agreement she signed when hired and sued for sexual harassment. Her theory is that the arbitration agreement is illegal because it caps damages at a lesser amount than established by Congress when it updated the civil rights laws in 1991.

Supporters of mandatory arbitration claim that the process is just as fair as a jury trial and has the added benefit of being swift and relatively inexpensive. Opponents claim it is second-class justice. Opponents, not surprisingly, include civil rights groups like the NAACP and the National Organization for Women.

How does arbitration work? That is a tricky question to answer. There really are no hard and fast rules. Ideally, the employee would pick a representative, the employer does the same and the two arbitrators pick a third. The ruling of this group is binding on both employer and employee. Unfortunately, that is not always the case.

Circuit City, a Virginia-based electronics retailer, has set up an arbitration system that is mandatory for employees only; if the company finds it wants to go to court, it can. Along the same lines, a survey of 36 companies published last year in Dispute Resolution Journal found that 10% did not allow outside counsel for employees, 15% gave employers the sole right to choose the arbitrators and 33% did not provide for “discovery” of relevant information.

It seems to me that our litigious society has forced business to find an alternative to the escalating number of employee lawsuits. Lengthy, expensive litigation plus outrageous damage awards have put a cloud of uncertainty over the business environment. Without doubt, some employee claims are legitimate. Many are not.

The cost of all this needless litigation is borne by you and me through higher product cost. Businesses pass ALL of their costs on to the ultimate consumer. Keep that in mind when you hear about multi-million dollar settlements to assuage questionable wrongs paid to people who could not earn that much money if they worked diligently for 186 years.

While I oppose a deck stacked in favor of the employer, I support mandatory arbitration. I think the process should be fair to both sides and thereby provide a means for quick settlement of disputes.

Thought for the Moment

Committee work is like a soft chair — easy to get into but hard to get out of

— Anonymous

Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. His e-mail address is cpajones@msbusiness.com


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