Ninth Circuit Court of Appeals Permits Mandatory Arbitration of Title VII Discrimination Claims

Volume 1, Issue 9
September 4, 2002

In a much-awaited decision for employers and a defeat for the Equal Employment Opportunity Commission, the Ninth Circuit Court of Appeals yesterday held 2-1 that employers may, as a condition of employment, require employees to agree to arbitration of Title VII discrimination claims. In so doing, the court majority dissolved an EEOC-obtained injunction precluding an employer (a law firm) from requiring employees to agree to arbitrate all claims - including Title VII claims of race, gender, national origin and religious discrimination. The Ninth Circuit also has now joined the rest of the U.S. in permitting employers to mandate arbitration as a condition of employment. EEOC v. Luce Forward Hamilton & Scripps, Nos. 0057222 & 0155321 (9th Cir. September 3, 2002).

As court-watchers may recall, in 1998's Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998), the Ninth Circuit Court departed from virtually every other federal court to preclude enforcement of an arbitration agreement, obtained as a condition of employment, that required an employee to arbitrate Title VII claims. This ruling had the practical effect of precluding enforcement of arbitration agreements within Nevada and the rest of the Ninth Circuit when an employee brought a Title VII claim for race, gender, national origin, or religious discrimination. Employers still could require that age discrimination cases, however, be arbitrated under the Supreme Court's 1991 ruling in Gilmer v. Interstate/Johnson Lane, Inc., 500 U.S. 20 (1991).

Duffield was almost universally criticized, since the Ninth Circuit based its ruling upon a tortured construction of a provision of the 1991 Civil Rights Act that seemingly encouraged alternative dispute resolution (rather than the jury trials provided in the 1991 Act). In 2000, the Nevada Supreme Court rejected Duffield's applicability in Kindred v. Second Judicial District Court, 996 P.2d 903 (Nev. 2000), creating somewhat of an anomaly in Nevada. California's Supreme Court also permitted arbitration of Title VII claims. Then, in Circuit City v. Adams, 532 U.S. 105 (2001), the Supreme Court (reversing the Ninth Circuit) held that an employment agreement to arbitrate could be enforced under the Federal Arbitration Act, and noted that arbitration provided a forum for employees to vindicate their rights even in discrimination cases.

This new holding overrules Duffield, in reliance upon the Supreme Court's discussion of the viability of arbitration as a forum seemingly as effective as jury trials in Circuit City and its view that theDuffield decision had been both inappropriately reasoned and criticized by most courts.

In addition to allowing employers to require employees to sign non-negotiable arbitration provisions as a condition of employment, and to enforce them, the Ninth Circuit majority also held that the employer in this particular case did not retaliate against an the employee when it withdrew a job offer following an employee's refusal to sign the arbitration agreement. The employee had refused to sign the agreement in 1997, at the time of hire, prior to the 1998 Duffield decision, at a time that most courts enforced arbitration agreements to preclude court actions in discrimination cases. The reasoning of the court on the Title VII retaliation issue will likely also be of broader application, and of use to employers arguing for a lack of employee "reasonable good faith belief" that the employer's action is unlawful, a critical issue in such cases.

For employers who already have arbitration programs as well as those considering them, Luce Forward (as did Circuit City) clears the way for enforcement of those agreements in the Ninth Circuit. Those employers seeking or considering arbitration should keep the following in mind, given the hostility to arbitration of a substantial number of the Ninth Circuit judges and civil rights proponents, even in the face of extremely crowded court dockets that greatly slow these cases:

  • Given the fact that the Luce Forward decision was a non-unanimous 3-judge panel decision (one of the Ninth Circuit's more liberal judges wrote a stinging dissent), and one of the judges in the majority was a lower-court judge rather than a member of the appellate court, it is likely EEOC will request the entire Ninth Circuit Court of Appeals review the decision. The full court has, in the past, taken far different views compared with a panel of 3 judges. The issue may yet be decided by the Supreme Court.

  • Arbitration has many advantages for employers, but there are also disadvantages, and all must be carefully considered by employers before adopting any arbitration program. At our web site, you may review an article by Gregory J. Kamer and Carol Davis Zucker discussing these issues, "Arbitration of Employment Discrimination Claims: Do Businesses Really Want to Go There?".

  • Arbitration programs should be carefully and thoughtfully designed. The Ninth Circuit Court has been very exacting in its interpretation of arbitration agreements, and any agreement that limits the employee's rights to full recovery under the statutes - such as a limitation on pre-hearing discovery, allowing a recovery less than that provided by statute, requiring high start-up costs for the employee compared with court - may be held unenforceable.

  • Congress may act to attempt to preclude arbitration of employment claims. Stay on top of this issue and write your congressman to set forth your views.

  • Even when an employee is subject to an enforceable agreement, the employee may still file an administrative charge and the EEOC may still seek full Title VII remedies, including a jury trial, on behalf of employees, as the U.S. Supreme Court held in this year's decision in EEOC v. Waffle House, 122 S.Ct. 754 (2002).

  • EEOC may, in the future, promulgate its own guidelines regarding enforceable arbitration agreements, as has been urged by a few commentators.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.