The Debate over Mandatory Arbitration in Employment Disputes

Article excerpt

Mandatory arbitration of

statutory employment dis

crimination claims is a subject

of continuous debate in the

employment community. The

author provides a comprehen

sive examination of the courts'

response to such agreements

and notes how improved pro

tection of employees' statutory

rights can in fact impel

expanded use of arbitration

in the workplace.

The United States Supreme Court decision in Gilmer v. Interstate/Johnson Lane Corp.1 enforcing mandatory arbitration2 for statutory employment discrimination claims continues to create a rift in the employment community. Some employers have embraced such agreements, even going so far as to require assent to one as a term and condition of employment. The critical reaction to mandatory arbitration agreements has led to congressional consideration of legislation-the Civil Rights Procedures Protection Act-that would prohibit involuntary arbitration of employment discrimination claims altogether.3 To protect both the employer and the employee, such agreements and the substantive and procedural laws governing them must ensure fairness to all parties. This article examines the benefits and disadvantages of mandatory arbitration agreements for statutory employment disputes, concluding that protection of employee rights may encourage their enforceability.


On Feb. 12, 1925, Congress enacted the Federal Arbitration Act (FAA) to aide the commercial interests of the business community that found its efforts to enforce prospective agreements to arbitrate routinely rejected by the courts.4 The statute put contracts providing for arbitration on the same legal basis as other contracts, eased judicial distrust of private agreements for the resolution of disputes, and provided for more speedy and cost-effective adjudication of disputes.5

The FAA covers all written arbitration agreements involving maritime transactions and interstate commerce.6 Although "commerce" is given an expansive definition in section 1 of the FAA, the statute excludes "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."7 Section 3 allows a party to an arbitration agreement to stay proceedings in a federal district court on an issue in the proceeding subject to the arbitration agreement.8 Under section 4, federal district courts have the power to compel arbitration when a party has failed, neglected, or refused to comply with an arbitration award.9

Under the FAA, arbitrator decisions are final. Although no appellate procedures exist, section 10 provides that an arbitral award may be vacated by a court if: (1) the award was procured by fraud; (2) there is a question regarding the impartiality of the arbitrator; (3) an arbitrator refused to hear material evidence or to postpone a hearing upon a showing of sufficient cause; and (4) the arbitrator exceeded his power in determining the award.10

Early Cases

The Supreme Court upheld the constitutionality of the FAA in 1932.11 However, the court did not deal with a significant case involving the statute until nearly 20 years later in Wilko v. Swan.12 In Wilko, the plaintiff claimed the seller's fraudulent misrepresentation induced him to purchase securities and brought an action for damages under section 12(2) of the Securities Act of 1933. Since the underlying sales contract contained an arbitration clause, the seller moved under section 3 of the FAA for a stay of the suit pending arbitration. The court determined that Congress intended the Securities Act of 1933 to protect investors and concluded that Congress intended the act's provisions to override the general enforceability of arbitration agreements under the FAA. The court held that investors are best protected if they are not bound to arbitration agreements in the sale of securities and voided the arbitration clause at issue. …