Mandatory Arbitration - Breach of Contract

By Jeffrey Needle

The Seventh Amendment to the United States Constitution provides for a right to a jury trial in civil cases. It is not by accident that this right is contained in the Bill of Rights. It is one of the most important constitutional rights which we possess. The right to trial by jury allows randomly selected citizens to dispense social justice unfiltered by politicians, bureaucrats or the electoral process. It is the most logical and direct extension of the democratic process. Next to voting, the civil justice system provides for the most significant form of citizen participation in a free society. The right to trial by jury empowers ordinary citizens. It allows them to hold the most powerful governmental and corporate forces in our society accountable to the rule of law.

In Colonial America the right to a jury trial in civil cases was celebrated "as a bulwark of liberty, as a means of preventing oppression by the Crown." (1) Colonial Governors relied on civil forfeitures to enforce the Stamp Act and other unpopular tax laws. Local juries, however, not only acquitted citizens of criminal charges, but awarded damages against officials who tried to collect the taxes. (2) England responded by removing many cases from juries to judges appointed by and beholden to the Crown. The result was predictable - forfeitures were upheld and criminal penalties imposed. This experience was fresh in the minds of the Colonists during and immediately after the revolution. "Those who favored juries believed that a jury would reach a result that a judge either could not or would not reach." Parkland Hosery Co. v. Shore, 439 U.S. 322, 343 (1978). The Colonists considered the right to trial by jury in civil cases so important that it was included as a grievance in the Declaration of Independence; "depriving us, in many cases, of the benefits of trial by jury."

James Madison understood that the danger facing the new republic was not only from a potentially tyrannical government, it was also the struggle between the wealthy elite of society and those with less power and influence. (3) According to Thomas Jefferson, "were I called upon to decide whether the people had best be omitted in the legislation or judicial department, I would say it is better to leave them out of the legislative." (4) Jefferson added that right to a jury trial was "the only anchor yet imagined by man, by which a government can be held to the principles of its constitution."(5) As stated by Justice Story, "[o]ne of the strongest objections originally taken against the constitution of the United States was the want of an express provision securing the right of trial by jury in civil cases." Parsons v. Bedford, 28 U.S. 433, 446 (1830).(6)

Based upon their experience, it was understood by the founders that powerful and wealthy interests would seek to usurp this right in the name promoting their own special interest. It was to prevent that usurpation that the right to trial by jury in civil cases was crafted into the Bill of Rights as the Seventh Amendment.

The founders' concerns were obviously justified. Corporations claim euphemistically that private lawsuits make them less "competitive" in international markets. What they really mean is that accountability to the rule of law makes them less "profitable." In their zeal to become more profitable and avoid accountability, corporations and their advocates have attempted to restrict the scope of individual rights and undermine the civil justice system as a vehicle for enforcing those rights. Mandatory arbitration is the latest in a long line of assaults on the right of access to courts and trial by jury in civil cases.

Mandatory arbitration within the employment context poses one of the greatest threats to the fundamental constitutional right of access to courts and necessarily to trial by jury. Within this context, the employer includes a paragraph in all employment applications, usually in fine print, which provides that if the employee accepts employment with the employer, the employee agrees to resolve all disputes in mandatory arbitration. The statute of limitations contained in arbitration provisions may be shorter then in most jurisdictions. Discovery practice may be more limited and the available remedies may provide for significantly less recovery that its statutory or common law counter parts. Although diminished costs are frequently cited as a justification, costs of arbitration may be far greater. Mandatory arbitration agreements often provide that the costs of arbitration are to be shared by the parties. Depending upon the jurisdiction, arbitrators can cost from $250-$450 per hour. Some arbitrations can take weeks. While large corporations may be able to afford such costs, unemployed workers can not.

Unlike her or his counterparts in the judiciary, the arbitrator answers only to the private parties to the dispute, and not to the public at large. Because decisions are private, there is little, if any, public accountability even when arbitrators find that employers have violated the law. The lack of public disclosure not only weakens deterrence but also prevents assessment of whether practices of individual employers or particular industries are in need of reform or broader remedies.

Contrary to the assertion of the proponents, the sky is not falling down. Federal dockets, as a general rule, are not clogged, and the system is not facing meltdown or gridlock. There are no objective studies reflecting that the mandatory ADR districts resolve cases faster or better than the traditional districts i.e., those that resolve unsettled cases by trial to the court or jury. During fifteen years of experimentation, mandatory court-annexed arbitration has demonstrated that it is ineffective and unfair and that there is no empirical support for the glowing reports on the pilot projects. See Dayton, Kim, The Myth of Alternative Dispute Resolution in the Federal Courts, 76 Iowa L. Rev. 889 (1991); Dayton, Kim, Case Management in the Eastern District of Virginia, 26 U. S. F. L. Rev. 445 (1992).

Employers argue that the right of access to courts is waived when the employee signs the application for employment. If this practice is allowed, the overwhelming majority of employees in the United States will be forced to choose between their fundamental right of access to courts, including the right to trial by jury, and providing an income for their family. The disparity in bargaining position is only too obvious. Subjected to this form of coercion, there is little doubt that a fundamental constitutional right will be significantly usurped despite the founders' best efforts to the contrary.(7)


A. Alexander v. Gardner-Denver Company, 415 U.S. 36, 39 L.Ed.2d 147 (1974).

In Alexander v. Gardner-Denver Company, (Gardner-Denver), the Court considered whether arbitration of a discrimination claim under a collective bargaining agreement precludes the claimant from later filing a lawsuit alleging a statutory discrimination claim, and held that such an arbitration had no preclusive effect under Title VII.

In Gardner-Denver, the plaintiff, an African American employee of the defendant company and a union member, filed a grievance alleging wrongful discharge under the CBA in force between the company and his union. Although the plaintiff's grievance in Gardner-Denver did not expressly allege racial discrimination, the plaintiff filed a racial discrimination charge with the Colorado Civil Rights Commission, which referred it to the Equal Employment Opportunity Commission (EEOC), before the arbitration hearing. 415 U.S. at 39, 42. At the hearing, the plaintiff testified that his wrongful discharge was due to racial discrimination. Id. at 42. The arbitrator ruled that the plaintiff had been discharged for just cause; he did not mention the racial discrimination claim. Id.

After the EEOC rejected the plaintiff's claim and notified him of his right to sue, the plaintiff brought suit under Title VII in United States District Court. 415 U.S. at 43. The district court dismissed the suit on the ground that the Plaintiff had voluntarily submitted his grievance to final arbitration, and the plaintiff was bound by the arbitrator's decision, which considered plaintiff's discrimination claim and resolved it adversely to him. The Court of Appeals for the Tenth Circuit affirmed.

The Supreme Court reversed. The Court ruled that the arbitration did not bar the plaintiff from filing a Title VII suit because contractual arbitration under the CBA did not and could not resolve his claim that the company violated his statutory rights.

. . . Title VII's purpose and procedures strongly suggest that an individual does not forfeit his private cause of action if he first pursues his grievance to final arbitration under the nondiscrimination clause of a collective-bargaining agreement. . . . In submitting his grievance to arbitration, an employee seeks to vindicate his contractual right under a collective-bargaining agreement. By contrast, in filing a lawsuit under Title VII, an employee asserts independent statutory rights accorded by Congress. The distinctly separate nature of these contractual and statutory rights is not vitiated merely because both were violated as a result of the same factual occurrence. And certainly no inconsistency results from permitting both rights to be enforced in their respectively appropriate forums.
415 U.S. at 49-50.

The Court held further that a union cannot waive its employees' statutory rights under Title VII by entering into a CBA with an employer because of "the paramount congressional purpose behind Title VII," and that for the same reason an employee cannot waive Title VII rights by submitting a grievance to arbitration under a CBA. 415 U.S. at 51- 52. The also held that "Arbitral procedures, while well suited to the resolution of contractual disputes, make arbitration a comparatively inappropriate forum for the final resolution of rights created by Title VII." Id.

B. Gilmer v. Interstate/Johnson Lane, 500 U.S. 20, 114 L.Ed.2d 26 (1991).

In Gilmer v. Interstate/Johnson Lane, 500 U.S. 20, 114 L.Ed.2d 26 (1991) (Gilmer), the Supreme Court appeared to create a conflict with its own holding in Gardner-Denver. In Gilmer, the Court held that a securities representative whose registration application with the New York Stock Exchange provided for compulsory arbitration of controversies with his employer could be required to arbitrate a claim under the Age Discrimination in Employment Act, 29 U.S.C. §621 et seq., rather than initially filing suit. 500 U.S. at 23-24. Even though the ADEA, like Title VII, furthers important social policies and not merely individual employees' rights, the Court found that Congress had not precluded the compulsory arbitration of claims under the ADEA. Id. at 29.

The Court also rejected Gilmer's challenges to the adequacy of arbitration procedures for resolving ADEA claims: "[I]n our recent arbitration cases we have already rejected most of these arguments as insufficient to preclude arbitration of statutory claims. Such generalized attacks on arbitration `res[t] on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be claimants,' and as such, they are `far out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes.' [Citation Omitted.]" Gilmer, supra, 500 U.S. at 30. The Court specifically rejected the "view" of Gardner-Denver that arbitration was "inferior to the judicial process for resolving statutory claims. . . [W]e are well past the time when judicial suspicion of the desirability of arbitration and of the competence of arbitral tribunals inhibited the development of arbitration as an alternative means of dispute resolution.' [Citation Omitted .]" Id. at 34- 35, fn. 5.

Finally, the Court distinguished Gardner-Denver, Barrentine, and McDonald, on which Gilmer had sought to rely: "First, those cases did not involve the issue of the enforceability of an agreement to arbitrate statutory claims. Rather, they involved the quite different issue whether arbitration of contract-based claims precluded subsequent judicial resolution of statutory claims. Since the employees there had not agreed to arbitrate their statutory claims, and the labor arbitrators were not authorized to resolve such claims, the arbitration in those cases understandably was held not to preclude subsequent statutory actions. Second, because the arbitration in those cases occurred in the context of a collective-bargaining agreement, the claimants there were represented by their unions in the arbitration proceedings. An important concern therefore was the tension between collective representation and individual statutory rights, a concern not applicable to the present case. Finally, those cases were not decided under the F[ederal] A[rbitration] A[ct], which . . . reflects a `liberal federal policy favoring arbitration agreements.'" Gilmer, supra, at 35.

C. Cole v. Burns Intern. Security Services, 105 F.3d 1465 (D.C. Cir. 1997).

In Cole, the Court considered the enforceability of arbitration agreements in the context of Title VII claims. In that case, the employee, a security guard, filed Title VII claims against his former employer alleging racial discrimination and harassment. He had signed an arbitration form committing himself to arbitrate such claims. The court began its analysis by acknowledging the difficulties inherent in arbitrating employees' statutory rights, difficulties not present in arbitrating disputes arising from employee rights under collective bargaining agreements. The Cole court recognized that Gilmer, both explicitly and implicitly, placed limits on the arbitration of such rights. "Obviously, Gilmer cannot be read as holding that an arbitration agreement is enforceable no matter that rights it waives or what burdens it imposes. [Citation.] Such a holding would be fundamentally at odds with our understanding of the rights accorded to persons protected by public statutes like the ADEA and Title VII. The beneficiaries of public statutes are entitled to the rights and protections provided by the law." Id. at 1482.

Based on Gilmer, supra, 500 U.S. 20, and on the basic principle of nonwaivability of statutory civil rights in the workplace, the Cole court formulated five minimum requirements for the lawful arbitration of such rights pursuant to a mandatory employment arbitration agreement. Such an arbitration agreement is lawful provided:

(1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum. Thus, an employee who is made to use arbitration as a condition of employment ' effectively may vindicate [his or her] statutory cause of action in the arbitral forum.'
Id. at 1482. In articulating these five minimal neutral forum standards, the majority opinion in Cole undertook a lengthy discussion of standard number five -- the arbitrator's fees and costs. According to the majority, compulsory arbitration agreements are only valid and enforceable if they do not require the employee to pay any of the arbitrator's fees or expenses. Were the contract at issue in Cole interpreted to require the plaintiff to pay any of the arbitrator's fees or expenses, the compulsory arbitration agreement would have been unenforceable.

Since Gilmer and the public employment discrimination statutes demanded that employees have an unwaivable right of "access to a neutral forum," the court in Cole effectively ruled that federal courts should closely scrutinize all compulsory arbitration agreements and the arbitration process that each would force upon an employee. Although the Cole majority does not specifically state that federal courts must review the contemplated arbitration system before deciding whether to dismiss an employee's discrimination lawsuit in favor of compelled arbitration, it does quote a law review article suggesting that such close scrutiny is required. [cite]. According to the logic of Cole, federal courts must closely review all arbitration agreements and the arbitral process compelled by such an agreement before dismissing a plaintiff's lawsuit. Close scrutiny by a federal court is effectively required, according to Cole, to ensure that the agreement was validly entered into by the parties and to ensure that the arbitration process provides minimal standards for protecting an employee's right to a neutral forum.

Under Cole, an arbitration agreement can therefore be invalidated if it contains any of the following deficiencies: 1)failure of the text to put an employee on notice that the employee is permanently waiving the right to a jury trial for all statutorily based employment claims; 2)failure in the manner of execution to put an employee on notice that the employee is permanently waiving the right to a jury trial for all statutorily based employment claims; 3)failure of the arbitral process to provide for neutral arbitrators; 4)failure of the arbitral process to provide for discovery; 5)failure of the arbitral process to provide for a written award; 6)failure of the arbitral process to provide for the types of relief otherwise available in a court of law; or 7)failure of the arbitral process to require only the employer to pay for the arbitrator's fees, expenses, and other arbitration costs. According to Cole, every single failure noted above is a fatal flaw. And a finding of any such failure by a reviewing court renders the agreement unenforceable, which thereby ensures the availability of a civil lawsuit to an employee.

D. Duffield v. Robertson Stephens & Co., 144 F.3d 1182, 1202 (9th Cir.), cert. denied, 525 U.S. 982 (1998).

In Duffield, a Securities broker-dealer sued employer, alleging breach of contract and tort claims and sexual discrimination and sexual harassment under Title VII and California's Fair Employment and Housing Act (FEHA), and seeking declaration that securities industry employees could not be compelled to arbitrate employment disputes. The United States District Court for the Northern District of California denied declaratory relief, and granted the employer's motion to compel arbitration. The broker appealed. The Ninth Circuit Court of Appeals, Judge Reinhardt, held that: (1) Civil Rights Act of 1991 precludes compulsory arbitration of civil rights claims; (2) securities exchange registration, or form U-4, was unenforceable to extent it required arbitration of broker's Title VII and FEHA claims as a condition of employment in the securities industry; but (3) no state action was involved in broker's mandatory waiver of judicial forum, and, thus, there was no constitutional bar to enforcing Form U-4 with respect to her state tort and contract claims. At the present moment, Duffield is still good law.(8)

In view of the fact that "the context, language, and [legislative] history of" the 1991 Act "together make out a conclusive case," Thompson, 484 U.S. at 187, 108 S.Ct. 513, that Congress intended to preclude compulsory arbitration of Title VII claims, we think it inescapable that Form U-4 is unenforceable as applied to such claims. Form U-4 compels precisely what Congress intended to prohibit in the 1991 Act: mandatory requirements under which prospective employees agree as a condition of employment to surrender their rights to litigate future Title VII claims in a judicial forum and accept arbitration instead. Because every employer in the securities industry requires its employees to sign Form U-4, the form is especially violative of Congress' limitations. Form U-4 is a take-it-or-leave-it offer for anyone wishing to work anywhere in the United States as a broker-dealer in that industry. It forces individuals like Duffield to opt for one of two "choices": sign Form U-4 or seek another profession. This sort of dilemma is fundamentally at odds with a provision of the Civil Rights Act of 1991, § 118, that was intended to help deter employment discrimination by increasing claimants' choice of fora. Cf. Bercovitch, 133 F.3d at 150 (enforcing arbitration agreement between parents and school as applied to ADA claim because it was purely "voluntary," but suggesting that "involuntary" agreements, or agreements that individuals had no "influence over," would be unenforceable).
Duffield, supra at 1199.

E. Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000).

In Armendariz, the Court considered the validity of "an agreement by an employee to arbitrate wrongful termination or employment discrimination claims rather than filing suit in court, which an employer imposes on a prospective or current employee as a condition of employment." Id. at ___. (9) The employee argued that she could not be compelled to arbitrate a claim for employment discrimination brought under the California Fair Employment and Housing Act (FEHA). The Court ruled that "an arbitration agreement is lawful if it (1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum." Armendariz, supra, 24 Cal.4th at 102. Specifically, the Court stated:

We conclude that such claims are in fact arbitrable if the arbitration permits an employee to vindicate his or her statutory rights. As explained, in order for such vindication to occur, the arbitration must meet certain minimum requirements, including neutrality of the arbitrator, the provision of adequate discovery, a written decision that will permit a limited form of judicial review, and limitations on the costs of arbitration. The employees further claim that several provisions of the arbitration agreement are unconscionable, both because they fail to meet these minimum requirements and because the arbitration agreement is not bilateral. We conclude that the agreement possesses a damages limitation that is contrary to public policy, and that it is unconscionably unilateral.
Id. at 90-91. To support its reasoning, the Court first rejected the Ninth Circuit decision in Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998). It further rejected the employees argument that the Federal Arbitration Act did not apply, a conclusion also rejected by the U.S. Supreme Court in Circuit City. In addition, interpreting the language of the California Arbitration Act, the Court concluded that "an arbitration agreement may only be invalidated for the same reasons as other contracts." Id. Interpreting the FEHA, the Court concluded:
We find nothing in the language or the legislative history of the FEHA that suggests it was intended to prohibit arbitration, and the employees cite us to none. To be sure, the FEHA provides critically important protections against discrimination. But the imperative to enforce such protections does not, as a general matter, "inherently conflict" with arbitration. Assuming an adequate arbitral forum, we agree with the Supreme Court that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." (Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth (1985) 473 U.S. 614, 628 (Mitsubishi Motors).). In short, even assuming that the FAA does not apply to employment contracts, our inquiry into the enforceability of the arbitration agreement at issue in this case entails the same inquiry under the CAA as the FAA: Are there reasons, based on general contract law principles, for refusing to enforce the present arbitration agreement? In the present case, the answer turns on whether and to what extent the arbitration agreement was unconscionable or contrary to public policy . . . .
Id. at ____. The found, however, that arbitration agreements can not "serve as a vehicle for the waiver of statutory rights created by the FEHA."

In reference to remedies, the Court concluded, "[t]he principle that an arbitration agreement may not limit statutorily imposed remedies such as punitive damages and attorney fees appears to be undisputed." Id. at ___. In reference to discovery, the Court agreed that the availability of adequate discovery was essential to the vindication of statutory claims under the FEHA. It found, however, that because the parties agreed to arbitrate those statutory rights, and because they incorporated the provisions of the California Arbitration Act, they "are also permitted to agree to something less than the full panoply of discovery provided [by Court rules]." Id. at ___. While the Court explicitly declined to articulate a standard for review for claims brought under FEHA, Id. at ___, it ruled that even though the CAA didn't require a written order "in order for such judicial review to be successfully accomplished, an arbitrator in a FEHA case must issue a written arbitration decision that will reveal, however briefly, the essential findings and conclusions on which the award is based." Id. In reference to the costs of arbitration, the Court relied heavily upon Cole, supra, and concluded "that when an employer imposes mandatory arbitration as a condition of employment, the arbitration agreement or arbitration process cannot generally require the employee to bear any type of expense that the employee would not be required to bear if he or she were free to bring the action in court." Id.

The issue of unconscionability was decided exclusively within the context of California law. Whether Washington Courts will reach a similar conclusion remains to be seen. Nevertheless, the California Court found that mandatory arbitration agreements were not generally unconscionable. Firstly, the Court found that there was little dispute that the arbitration agreement was "adhesive." The reasoning of the Court is instructive.

It was imposed on employees as a condition of employment and there was no opportunity to negotiate. Moreover, in the case of preemployment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement. While arbitration may have its advantages in terms of greater expedition, informality, and lower cost, it also has, from the employee' s point of view, potential disadvantages: waiver of a right to a jury trial, limited discovery, and limited judicial review. Various studies show that arbitration is advantageous to employers not only because it reduces the costs of litigation, but also because it reduces the size of the award that an employee is likely to get, particularly if the employer is a "repeat player" in the arbitration system. (Bingham, Employment Arbitration: The Repeat Player Effect (1997) 1 Employee Rts. & Employment Policy J. 189; Schwartz, supra, 1997 Wis. L.Rev. at pp. 60-61.) It is perhaps for this reason that it is almost invariably the employer who seeks to compel arbitration. (See Schwartz, supra, 1997 Wis. L.Rev. at pp. 60-63.).
Id. at ____.

In order to avoid a finding of unconscionability, the arbitration agreement must mutual in that all disputes are subject to arbitration, and not just those disputes that the employee may have with the employer. "But an arbitration agreement imposed in an adhesive context lacks basic fairness and mutuality if it requires one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences." Id.

Finally, the Court concluded that the unconscionable claims were severable from the remaining portions of the arbitration agreement. Id.

The Court specifically declined to decide whether the arbitration agreement was sufficient to waive the right to trial by jury. 24 Cal.4th at p. 99, fn. 7.

F. Circuit City Stores, Inc. v. Adams, --- U.S. ----, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001).

In Circuit City Stores, Inc. v. Adams, the Court held that virtually all employment agreements are subject to the Federal Arbitration Act ("FAA").  In Circuit City, the Plaintiff worked as a sales counselor at a Circuit City store in Santa Rosa, California. When he was hired, Circuit City required Adams to sign an employment application that contained the following provision:

I agree that I will settle any and all previously unasserted claims, disputes or controversies arising out of or relating to my application or candidacy for employment and/or cessation of employment with Circuit City exclusively by final and binding arbitration before a neutral Arbitrator....
Two years after he was hired, Adams filed a civil complaint in state court against Circuit City, alleging claims for discrimination under the California Fair Employment and Housing Act (FEHA) and various state tort claims. Circuit City filed a complaint in federal court to enjoin the state court action and to compel arbitration under the FAA.

The U.S. District Court ordered Adams to arbitration and enjoined the state court action. On appeal, the Ninth Circuit Court of Appeals reversed the lower court, finding the FAA did not apply to employment contracts. Circuit City appealed to the U.S. Supreme Court, which reversed the Ninth Circuit's ruling and held that mandatory arbitration agreements can be enforced.

The FAA excludes from its reach "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. § 1. The Court interpreted this section as applying only to employment contracts of individuals directly engaged in interstate transportation, and not to employees in other industries.

In reversing the Ninth Circuit, the Supreme Court's conservative majority (Justices Rehnquist, O'Connor, Scalia, Kennedy, and Thomas) relied on traditional statutory construction principles to conclude that the FAA's exclusion provision 1 should be read narrowly. The Court explained that its statutory construction best serves the public policy interests favoring arbitration of employment claims:

[T]here are real benefits to the enforcement of arbitration provisions. We have been clear in rejecting the supposition that the advantages of the arbitration process somehow disappear when transferred to the employment context....Arbitration agreements allow 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....The construction of § 1 urged by respondent would call into doubt the efficacy of alternative dispute resolution procedures adopted by many of the Nation's employers, in the process undermining the FAA's proarbitration purposes and 'breeding litigation from a statute that seeks to avoid it.'
Id. at ____.

Although the Circuit City case answered a fundamental question about the applicability of the FAA to employment contracts, the issue of the enforceability of specific arbitration agreements remains undecided. Issues which remain of concern are, inter alia, whether agreements are knowing and voluntary; whether they are mutual in their obligations - all disputes must be subject to arbitration and not just those of the employee; whether the costs are paid by the employer; whether the remedies are the same as available under statutory law; whether discovery procedures are adequate; whether written opinions of are required; and whether the selection process of the arbitrator is adequate. In addition, individual states are free to apply their law in reference to unconscionability.

E. Tjart v. Smith Barney.

Arlene Tjart was a stockbroker at E.F. Hutton, which was acquired by Shearson Lehman Brothers, which was later acquired by Smith Barney. When she was hired by E.F. Hutton, she signed the Form U-4, as well as a trainee agreement which contained an arbitration clause. When Hutton was acquired by Shearson, she completed an employment application which contained another agreement to arbitrate any controversies between her and her employer.(10)

After Tjart was terminated, she sued Smith Barney, alleging that she had been fired for discriminatory reasons in violation of the Washington Law Against Discrimination and in violation of public policy, and that Smith Barney's conduct had constituted sexual harassment and/or creation of a hostile work environment. Smith Barney maintained that she was bound by her agreements to arbitrate and the trial court entered an order staying the proceedings and compelling arbitration. After she failed to arbitrate, the trial court dismissed her complaint. On appeal, Tjart argued that her statutory discrimination claims should not be subject to arbitration. The Court of Appeals affirmed, ruling that the Shearson Application is an enforceable agreement to arbitrate.

Before the trial court, Tjart argued:

that the FAA did not apply to the claims made in her complaint and that she had not waived her right to a judicial forum. In support of her position, Tjart submitted a declaration in which she testified that she was never provided with a copy of the rules of the American Stock Exchange (AMEX), National Association of Securities Dealers (NASD) or of the New York Stock Exchange (NYSE). She testified that she was never told that any of the arbitration clauses were to apply to state or federal discrimination claims. She further testified that it was never explained to her that, under the documents she executed, she would be obligated to arbitrate any state or federal law discrimination claims, that she had never agreed to arbitrate state or federal law discrimination claims, and that she had never knowingly waived her rights to a judicial forum.
Id. at ___. All these arguments were rejected.

Relying upon Circuit City and Gilmer, the Court held that state anti-discrimination claims are arbitrable to the same extent as Title VII claims, and that Congress has not evinced an intention to overcome the liberal federal policy favoring arbitration agreements. Id. As a consequence the FAA applies.

Addressing the enforceability of the agreement under contract principles, the Court ruled that the agreement was not unconscionable. The court recognized that there are two types of unconscionability; substantive and procedural. Substantive unconscionability 'involves those cases where a clause or term in the contract is alleged to be one-sided or overly harsh....' The parties did not dispute that pre-dispute arbitration agreements are not substantively unconscionable. Id. at ___. "Procedural unconscionability has been described as the lack of a meaningful choice, considering all the circumstances surrounding the transaction including " '{t}he manner in which the contract was entered,' whether each party had 'a reasonable opportunity to understand the terms of the contract,' and whether 'the important terms {were} hidden in a maze of fine print....' " Id. The Court dealt with the claim of unconscionability in two short sentences.

Tjart had a reasonable opportunity to understand that she was agreeing to arbitrate her future statutory claims, and the arbitration provision was obvious in the fairly short contract. Under all the circumstances presented here, the clause was not procedurally unconscionable.
Id. at ____. The Court also summarily disposed of the Plaintiff public policy arguments relying again upon Circuit City and that "Tjart has not made out a clear case that enforcement of the arbitration clauses would contravene Washington's public policy against discrimination." Id. The Court reasoned "the United States Supreme Court noted that arbitration agreements can be enforced under the FAA without contravening the policies of congressional enactments giving employees specific protection against discrimination." Id. at ____.

The Court in Tjart did not discuss or rule on any of the following issues: 1) the remedies available under arbitration; 2) the costs of arbitration 3) whether findings and conclusions must be written and what is the standard for review; 4) what discovery must be available; 5) whether the arbitration requirements must be mutual; 6) whether Plaintiff knowingly and voluntarily waived her right to trial by jury; and 7) whether the Plaintiff knowingly and voluntarily waived her right of access to courts.


R.W.C. 7.04.010 excludes arbitrations involving employers and employees. It provides as follows:

Two or more parties may agree in writing to submit to arbitration, in conformity with the provisions of this chapter, any controversy which may be the subject of an action existing between them at the time of the agreement to submit, or they may include in a written agreement a provision to settle by arbitration any controversy thereafter arising between them out of or in relation to such agreement. Such agreement shall be valid, enforceable and irrevocable save upon such grounds as exist in law or equity for the revocation of any agreement.

The provisions of this chapter shall not apply to any arbitration agreement between employers and employees or between employers and associations of employees, and as to any such agreement the parties thereto may provide for any method and procedure for the settlement of existing or future disputes and controversies, and such procedure shall be valid, enforceable and irrevocable save upon such grounds as exist in law or equity for the revocation of any agreement.

In Department of Social & Health Services v. State Personnel Board, 61 Washup. 778, 812 P.2d 500 (1991), the Court of Appeals had to decide what rule to apply to review of an arbitration decision when the arbitration occurred outside the purview of the Act because it involved employers and employees. The Court held common law principles applied "to resolve a problem where the arbitration statute is also inapplicable." Id. at 784, 812 P.2d 500.


1.Coverage:a) Are all employees covered by the program or only certain categories of employees? b) Are all employment issues subject to arbitration or are the issues limited to terminations?

2.Arbitrability: Who determines any issues of Arbitrability? How are arbitrators selected?

3.Representation: Obviously the employee has a right to be represented by counsel and the agreement should so advise.

4.Discovery: ADR programs should afford rights to conduct reasonable discovery prior to the hearing. This right of discovery should be available to the employer, the employee, and the arbitrator. The right of discovery should be limited beyond what is allowed is a court of competent jurisdiction.

5.Remedies: To the extent that an employer's ADR program limits the remedies available to a prevailing employee or ex-employee, it invites attack in the courts. The decision in Cole, supra, requires the availability of similar remedies if the ADR program is to be upheld as valid.

6.Applicable law: Clearly, the applicable statutory discrimination law must be applied to an employee's claims if the employee's case is to be handled in a neutral forum.

7.Mediation: Should the ADR policy provide an informal means for resolving the dispute prior to arbitration? Although not required as a minimal standard, it is something to consider in drafting a compulsory ADR program.

8.Selection of Arbitrator(s): It is critical that the ADR program provide for joint participation in the selection of a neutral, or neutrals, to mediate or arbitrate the dispute. If the forum is to be neutral, the selection of the forum's arbitrator also must be neutral.

9.Written Opinion: The ADR agreement should require the arbitrator to issue a written opinion that explains the basis of any award. This is a requirement of Gilmer, Cole and the ABA protocol. The written opinion must, at a minimum recite the essential findings and conclusions upon which the award is based.

10. Cost of Arbitration: It is violative of an employee's rights to a neutral forum to require an employee to submit to a system of ADR in which she must bear the cost of having her claims adjudicated. Were that employee allowed to proceed in court, the cost of litigation would be limited to basic filing fees.

11.Appeal: Is any review of the neutral's award permitted? The opportunity for judicial review of any award should be considered by employers. However, federal law already provides that an arbitrator's decision can be reviewed by the court under certain circumstances.

12.Evidence: Will the rules of evidence apply in the arbitration proceedings? It is probably neither necessary nor advisable to impose a strict evidentiary standard - both sides should agree to a relaxed set of rules..

13.Procedure: What procedures will govern arbitration? While some employers have drafted detailed procedural schemes, many employment arbitration agreements refer to the procedures of a recognized dispute resolution organization such as the AAA. Although it is acceptable to rely upon such established procedure rules, the mandatory ADR program should allow for deviation on any point that would frustrate an employee's right to a neutral forum.

14.Knowing Waiver: Must the employee knowingly waive his or her rights under the terms of the arbitration agreement? According to Lai, it is essential that both the text of the arbitration agreement, and the manner in which employees execute that agreement, put the employee on notice that he or she is waiving the right to a jury trial for all statutory discrimination claims surrounding their employment. Thus, the text of the agreement should indicate exactly what is being waived, and the employer should name the discrimination statutes to which the agreement applies. The employee also should be given sufficient time to read, review, and execute the agreement at his or her leisure. In addition, the employer should consider allowing the employee to rescind the contract within seven days of its execution. The employer might even wish to consider advising the employee to consult with an attorney before signing the agreement.

15.Voluntary Waiver: Must the employee voluntarily waive his or her rights? The waiver of an employee's rights by signing the arbitration agreement must be voluntary.


Legislation has been introduced in both the House and the Senate which would severely limit enforceability of pre-dispute agreements requiring mandatory arbitration of employment claims. The Civil Rights Procedures Protection Act of 2001, S. 163 and H.R. 2282 [1489] (see attachments for full texts), would amend certain federal civil rights statutes to prevent the mandatory arbitration of claims that arise from unlawful employment discrimination based on race, color, religion, sex, national origin, age or disability. Taken together, these bills would prohibit mandatory arbitration under numerous federal laws, including the Age Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the Americans with Disabilities Act, the Fair Labor Standards Act of 1938 and the Family and Medical Leave Act of 1993. The bill has not been adopted by either chamber; but the issue is very much alive.(11)

The bill, which is cosponsored by 38 members of Congress, reverses the U.S. Supreme Court's decision in Circuit City v Saint Clair Adams.

1. Austin Wakement Scott, Trial by Jury and the reform of Civil Procedure, 31 Harv.L.Rev. 669, 676 (1918).

2. Renee B. Lettow, New Trial for Verdict Against Law: Judge-Jury Relations in Early Nineteenth-Century America, 71 Note Dame L. Rev. 505, 517 (1966).

3. Jeffrey Robert White, The Civil Jury: 200 Years Under Siege, Trial Magazine, at 20 June, 2000.

4. Letter from Thomas Jefferson to L'Abbbbe Arnoux (July 19, 1789), reprinted in 15 The Papers of Thomas Jefferson 282, 283 (Julian P. Boyd ed., 1958).

5. The Writings of Thomas Jefferson 71 (Washington Ed. 1861).

6. In Chauffeurs Local 391 v. Terry, 494 U.S. 558 (1990), Justice Brennan discussed the Seventh Amendment as follows:

"What Blackstone described as "the glory of the English law" and "the most transcendent privilege which any subject can enjoy," 3 W. Blackstone, Commentaries 379, was crucial in the eyes of those who founded this country. The encroachment on civil jury trial by colonial administrators was a "deeply divisive issue in the years just preceding the outbreak of hostilities between the colonies and England," and all 13 States reinstituted the right after hostilities ensued. Wolfram, The Constitutional History of the Seventh Amendment, 57 Minn.L.Rev. 639, 654-655 (1973). "In fact, '[t]he right to trial by jury was probably the only one universally secured by the first American constitutions.'" Id. at 655 (quoting L. Levy, Freedom of Speech and Press in Early American History -- Legacy of Suppression 281 (1963 reprint)). Fear of a Federal Government that had not guaranteed jury trial in civil cases, voiced first at the Philadelphia Convention in 1787 and regularly during the ratification debates, was the concern that precipitated the maelstrom over the need for a bill of rights in the United States Constitution. Wolfram, supra, at 657-660."
Id. at 551.

7. "The United States Equal Employment Opportunity Commission (EEOC), the federal agency charged with the interpretation and enforcement of this nations employment discrimination laws, has taken the position that agreements that mandate binding arbitration of discrimination claims as a condition of employment are contrary to the fundamental principles evinced in these laws." EEOC Motions on Alternative Dispute Resolution, Motion 4 (adopted Apr. 25, 1995), 80 Daily Lab. Rep. (BNA) E-1 (Apr. 26, 1995). According to the EEOC, 1) the federal courts are charged with the ultimate responsibility for enforcing the discrimination laws; 2) the courts are responsible for the development and interpretation of the law; 3) the public nature of the judicial process enables the public, higher courts, and congress to ensure that the discrimination laws are properly interpreted and applied; 4) the courts play a crucial role in preventing and deterring discrimination and in making discrimination victims whole; 5) the private right of action with its guarantee of individual access to the courts is essential to the statutory enforcement scheme; 6) mandatory arbitration of employment discrimination disputes "privatizes" enforcement of the federal employment discrimination laws, thus undermining public enforcement of the laws; 7) mandatory arbitration has limitations that are inherent and therefore cannot be cured by the improvement of arbitration systems; and 8) mandatory arbitration systems include structural biases against discrimination plaintiffs. See Policy Statement on Mandatory Binding Arbitration of Employment Discrimination Disputes as a Condition of Employment; The U.S. Equal Employment Opportunity Commission.

8. In Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756, 762 (9th Cir.1997), the employer issued an employee handbook containing an arbitration clause. The employee then signed an acknowledgement, which declared that he had received the handbook and agreed "to read it and understand its contents." Nelson, 119 F.3d at 758. The acknowledgement did not, however, mention the arbitration clause. The Court concluded that the employee had not knowingly agreed to the arbitration clause because "[n]othing in that acknowledgement notified [the employee] either that the Handbook contained an arbitration clause or that his acceptance of the Handbook constituted a waiver of his right to a judicial forum in which to resolve claims covered by the ADA." Id. at 761.  See Also cf. Prudential Ins. Co. of America v. Lai, 42 F.3d 1299, 1304-05 (9th Cir.1994).

9. The arbitration agreement at issue specifically provided: "I agree as a condition of my employment, that in the event my employment is terminated, and I contend that such termination was wrongful or otherwise in violation of the conditions of employment or was in violation of any express or implied condition, term or covenant of employment, whether founded in fact or in law, including but not limited to the covenant of good faith and fair dealing, or otherwise in violation of any of my rights, I and Employer agree to submit any such matter to binding arbitration pursuant to the provisions of title 9 of Part III of the California Code of Civil Procedure, commencing at section 1280 et seq. or any successor or replacement statutes. I and Employer further expressly agree that in any such arbitration, my exclusive remedies for violation of the terms, conditions or covenants of employment shall be limited to a sum equal to the wages I would have earned from the date of any discharge until the date of the arbitration award. I understand that I shall not be entitled to any other remedy, at law or in equity, including but not limited to reinstatement and/or injunctive relief."

10. The agreement to arbitrate provided as follows: "I hereby agree that any controversy arising out of or in connection with my compensation, employment or termination of employment shall be submitted to arbitration before the National Association of Securities Dealers, Inc., the New York Stock Exchange, Inc. or the American Stock Exchange Inc. and be resolved in accordance with the rules, then in effect, of such entities. Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction thereof. In the event that I fail to abide by these terms, this section shall in no way limit the Company's other legal rights, including the right to enforce said provisions in a court of competent jurisdiction."

11. According to the House of Representatives sponsor, Edward J. Markey, "the Civil Rights Procedures Protection Act would prevent discrimination claims from being involuntarily sent to binding arbitration. In short, this bill prevents employers in all industries from forcing employees to give up their right to go to court when they are discriminated against on account of race, sex, religion, disability, or other illegal criteria. . . . By reinforcing the fundamental rights established under various civil rights and fair employment practice laws, our bill restores integrity to employer-employee relationships. No employer should be permitted to ask workers to check their Constitutional and civil rights at the front door." Congressional Record - February 9, 1999.