Mandatory Arbitration vs. Employment Litigation

By Spelfogel, Evan J. | Dispute Resolution Journal, May 1999 | Go to article overview

Mandatory Arbitration vs. Employment Litigation


Spelfogel, Evan J., Dispute Resolution Journal


Opposition and uncertainty continue to surround mandatory arbitration in statutory employment disputes. Evan Spelfogel provides an overview of the seminal cases and shows how the issues have yet to be answered and clarified by the Supreme Court.

Employment litigation has grown at a rate many times greater than litigation in general. Twenty-five times more employment discrimination cases were filed last year than in 1970, an increase almost 100% greater than all other types of civil litigation combined. There is currently a backlog of over 50,000 employment discrimination cases at the EEOC and thousands more at state and local governmental agencies. New cases of discrimination are being filed at a rate 23% greater than last year alone. Discrimination claims under the Americans with Disabilities Act1 have only now begun to impact these statistics. The Equal Employment Opportunity Commission is under tremendous congressional pressure to reduce its budget and to cut back on investigators and support staff needed to handle the influx of new cases.

Currently, there are over 25,000 wrongful discharge and discrimination cases pending in state and federal courts nationwide. Nearly all of these cases involve jury trials with lengthy delays and unpredictable results. Studies indicate that plaintiffs win nearly 70% of these cases and that the average jury award for a wrongfully fired employee is now approximately $700,000 (with many in the millions of dollars), but that it takes three to five years before the case goes to a jury and many jury verdicts are reduced or set aside by the courts.

Alternative dispute resolution presents the only proven alternative to litigation of employment discrimination cases. Voluntary arbitration, at the option of an employee after a dispute has arisen, is non-controversial and of some benefit. Unfortunately, many times after a dispute has arisen, the parties become less flexible, gird for battle, and are less inclined to step back from judicial confrontation. Employee-plaintiffs seek jury vindication; defendant-employers look to the technical rules of evidence, protracted discovery, and judicial scrutiny of technical legal arguments to win the day. The opportunity for the parties to agree to ADR and binding arbitration, available long before a dispute has arisen, has been squandered. Drafting an ADR policy that assures fundamental due process and has proper checks and balances will protect the rights of both parties on a speedy, cost-effective basis and will reduce the burden on our judicial system.

The issue of the enforceability of pre-dispute agreements to arbitrate statutory employment claims has been addressed by the U.S. Supreme Court in two seminal cases: (i) Alexander v. Gardner-Denver Co.2 and (ii) Gilmer v. Interstate/Johnson Lane Corp.3

In 1974, the Supreme Court held in Alexander that an employee could sue in federal court under Title VII for race discrimination notwithstanding an agreement to arbitrate contained in his union's collective bargaining agreement. The union, the Court said, could not waive the employee's statutory rights.

In 1991, the Supreme Court held in Gilmer that courts may compel employees to honor predispute arbitration agreements and to arbitrate age discrimination claims. The arbitration agreement in Gilmer was part of an industrywide application that persons who wished to work as brokers or registered representatives in the securities industry were required to sign ("U-4" forms). In barring Gilmer from suing the company in court for age discrimination, the Supreme Court expressly held that the unequal bargaining power as between the employer and the employee was irrelevant;4 and the agreement to arbitrate could not be set aside unless the employee could (a) prove "fraud in the inducement," or (b) show that he was not aware of the existence of the arbitration language in the agreement and, therefore, did not "knowingly or voluntarily" enter into the arbitration agreement. …

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