Client Advisory: Recent United States Supreme Court decision establishes that employers can require employees to use arbitration, rather than lawsuits, to resolve work place disputes.

Recent United States Supreme Court decision establishes that employers can require employees to use arbitration, rather than lawsuits, to resolve work place disputes

The Facts of Circuit City v. Adams

The underlying facts of the Circuit City case are as follows: In 1995, Saint Clair Adams signed an employment application with Circuit City that included a binding arbitration clause. The arbitration clause required that Adams arbitrate "any and all...claims, disputes or controversies" related to his employment. Two years later, Adams brought an employment discrimination suit in California state court against Circuit City, alleging he resigned from employment at Circuit City because he was repeatedly harassed at work because he was gay. Circuit City responded by filing suit in federal court, seeking to enjoin the state court action and compel Adams to arbitrate his claims pursuant to the 1925 Federal Arbitration Act ("FAA").

Adams argued that the FAA was not applicable because the law contains an exception that states the FAA does not apply to employment contracts for "seamen, railroad employees or workers engaged in foreign or interstate commerce." Circuit City argued that the exception to the FAA was limited to workers involved in moving goods from one state to another.

What Did the Supreme Court Decide?

The Supreme Court decided that Adams did not fall within the exception to the FAA and upheld the arbitration clause, noting that to do otherwise would call into question the alternative dispute resolution procedures adopted by many employers. The Court stated that "(a)rbitration allows parties to avoid the costs of litigation, a benefit that may be of particular importance in employment litigation, which often involves smaller sums of money than disputes concerning commercial contracts."

What Factors Should Employers Consider In Light of This Decision?

There are many factors you should consider in deciding whether to require arbitration of employment disputes. They include the following:

• arbitration is generally a faster and less expensive way to resolve employment disputes than litigation;

• employees may have an easier time filing arbitration claims than lawsuits, so there is the potential for more employee claims;

• damages awards against employers traditionally are less in arbitration than in court, and punitive damages generally are not awarded in arbitration;

• courts are requiring "due process" safeguards in arbitration agreements, to ensure fairness to employees. Issues to consider are: how much discovery to allow, employee choice in selection of arbitrator, who will pay for the costs of arbitration, and what remedies can the arbitrator award;

• arbitration is confidential, and there is generally no public record;

• whether to require a mediation step prior to binding arbitration, to give the parties a chance to settle the matter early and with minimum cost;

• appellate review of an arbitration decision is much more limited than review of court decisions;

• how will mandatory arbitration fit in the corporate culture, and whether mandatory arbitration will be a retention and/or attraction of talent issue, as employees could choose to work for an employer who does not have mandatory arbitration.

Where Can I Get Assistance?

The lawyers of the Employment Law Group at Kohrman Jackson & Krantz P.L.L. would be happy to assist you.

We suggest consulting with you, to learn the current state of your employer-employee relations, and then working with you in determining whether an arbitration program is best for your business. If you choose to implement an arbitration program, we would be happy to provide you with our expertise in setting up and/or administering such an arbitration program.

To Whom May I Address Questions?

If you have any questions about anything in this Advisory, or if you would like to consult with us, please contact Robert S. Gilmore or Alan M. Rauss. They have spent their careers representing employers in wrongful discharge and equal employment opportunity litigation, and counseling them on how to avoid such litigation. Both are actively involved in the Labor and Employment Law Sections of the American, Ohio and Cleveland Bar Associations and have lectured and written articles on various employment law topics, and conducted supervisor training programs for many companies. You may contact Mr. Gilmore or Mr. Rauss at 216-696-8700 or by e-mail at rsg@kjk.com or amr@kjk.com, respectively.