Compulsory Arbitration Agreements in Employment Contracts from Gardner-Denver to Austin: The Legal Uncertainty and Why Employers Should Choose Not to Use Preemployment Arbitration Agreements

By Motley, John-Paul | Vanderbilt Law Review, April 1998 | Go to article overview

Compulsory Arbitration Agreements in Employment Contracts from Gardner-Denver to Austin: The Legal Uncertainty and Why Employers Should Choose Not to Use Preemployment Arbitration Agreements


Motley, John-Paul, Vanderbilt Law Review


I. INTRODUCTION

In Gilmer v. Interstate//Johnson Lane Corp. the Supreme Court enforced a mandatory arbitration clause in a securities registration application and barred the employee from seeking relief in federal court for his Age Discrimination in Employment Act ("ADEA") claim.l Since the Court's decision compelling arbitration of an employee's statutory claim, labor and employment lawyers have encouraged employers to include binding arbitration clauses covering all potential employer-employee claims in employment applications, handbooks, and collective bargaining agreements ("CBAs").2 As one commentator wrote after the Gilmer decision, "[t]he only thing remaining is for employers to begin writing compulsory arbitration clauses into their employment contracts."3

By inserting these clauses, many lawyers fail or refuse to recognize that the Supreme Court distinguished Gilmer from its earlier decision in Alexander u. Gardner-Denver Co.4 In Gardner-Denver, the Court allowed an employee to litigate his claim that the employer violated Title VII of the Civil Rights Act of 1964 ("Title VII") in federal court even though the union's CBA contained a mandatory arbitration provision.5 The Gilmer Court distinguished Gardner-Denver on three issues,6 but lower courts appear to adhere only to the distinction based on the context of the agreement. Courts since Gilmer have tended to enforce arbitration clauses in individual employment contracts but not provisions contained in CBAs.7 The Fourth Circuit in Austin v. Owens-Brockway Glass Container, Inc.,8 however, eliminated this difference just five years after Gilmer. It held that voluntary arbitration agreements are enforceable whether included in an employment contract or a CBA.9 The Austin decision, though, has not been widely adopted.10

With the distinctions between Gilmer and Gardner-Denver are dissolving and the legal precedent becoming increasingly uncertain, employers and their lawyers will be unsure of the appropriate action to take with respect to compulsory arbitration agreements.ll This Note argues that employers should eliminate mandatory arbitration clauses from preemployment agreements. This argument, however, does not rely solely on legal precedent or predictions of the Supreme Court's next decision. Instead, this Note focuses on the negative effects of Austin found by lower courts when following Austin's precedent, recent Congressional action, and public initiatives by government organizations and private arbitration firms. This Note also introduces the perspective of a strategic human resources manager trying to determine the appropriate solution for employers. This Note first analyzes the history of enforceability of mandatory arbitration clauses in employment agreements, examining the Federal Arbitration Act of 1925, Supreme Court history from Gardner-Denver to Gilmer, and decisions by lower courts since Gilmer. Part III studies the Fourth Circuit's opinion in Austin and its effect on cases decided by the few courts that have followed its reasoning. Part IV suggests how the law should proceed as the distinctions between Gilmer and Gardner-Denver begin to dissolve. In this section, the Note argues that legislative history, public rejection of mandatory arbitration agreements by government and private organizations, and a strategic human resources management perspective emphasize the need for voluntary agreements after the dispute arises and not preemployment agreements. Finally, this Note recommends that employers provide a grievance procedure that would allow the employee to discuss any problems that arise with a higherranking employee and, hopefully, resolve any conflict before incurring the necessary expenses and time required by litigation. If arbitration is not a viable option at this point, the employee should be allowed to bring his claim in federal court since federal statutes such as Title VII, the Americans with Disabilities Act ("ADA"), and the ADEA were implemented to "provide minimum substantive guarantees to individual workers. …

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