New Supreme Court Ruling Affects Arbitration Agreements

What this episode covers

Legal analysis of alternative dispute resolution What are the issues that arise when considering whether or not to offer alternative dispute resolution (ADR) to employees in the hope that they will use ADR in lieu of litigation? An employer wants to be sure this process will be: fair and objective; cost effective; capable of protecting the employer’s interests; reliable; binding on all parties; and a mechanism to provide closure. Arbitration Many employers are requiring, as a condition of employment, that applicants and employees give up their rights to pursue employment discrimination claims in court and agree to resolve disputes through binding arbitration. The agreements to arbitrate may be contained in an employment contract, employee handbook, or employment application. The use of such agreements can be found in various sectors of the workforce, including the securities industry, retail, restaurant and hotel chains, health care, broadcasting, and security services. Enforceability. The enforceability of mandatory arbitration of statutorily protected employee rights, such as the right to be free of discrimination on the basis of race, color, religion, national origin, age or disability, has been debated. In two decisions by the U.S. Supreme Court, the controversy was essentially put to rest. In 1991, the Court ruled in Gilmer v. Interstate/Johnson Lane Corp. that a claim subject to the Age Discrimination in Employment Act could be subject to compulsory arbitration as required by an agreement ( 5). Then, in 2001, the Court ruled in Circuit City Stores, Inc. v. Adams that arbitration clauses in most contracts of employment (excluding employment contracts for transportation workers) are enforceable under the FAA ( 10). The rulings give employers broad authority to require employees to arbitrate employment disputes. Agreements to arbitrate often contain two relevant provisions: one providing for arbitration of all disputes arising out of the employment relationship, and one giving the arbitrator exclusive authority to resolve the “gateway”question of enforceability (the delegation provision). Where an agreement to arbitrate includes a delegation provision, it is for the district court to consider a specific challenge to the enforceability of that particular agreement. But if a party challenges the enforceability of the agreement as a whole, the challenge is for the arbitrator. This is the result of a 2010 U.S. Supreme Court decision in Rent-A-Center, West, Inc. v. Antonio Jackson, where it was decided that where an agreement to arbitrate employment disputes gives the arbitrator exclusive authority to resolve the “gateway” question of enforceability, and where that party challenges specifically the enforceability of that particular agreement, the district court considers the challenge, but if a party challenges the enforceability of the agreement as a whole, the challenge is for the arbitrator to decide (...