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Arbitration Agreements Stir Up a Growing Legal Battle


Employer efforts to keep workplace disputes out of the courts have spawned an unintended side-effect: a backlash in lawsuits challenging the fairness of requiring workers to sign arbitration agreements as a condition of employment.

The California Supreme Court had almost a dozen such cases on its docket last year, and lower courts are routinely asked to rule on the validity of individual arbitration contracts, based on rules established by the state's high court.

Federal appeals courts are split over whether a 1991 U.S. civil rights law exempts discrimination complaints from employer-imposed arbitration agreements.

And, although it was hailed as a victory for employers, a U.S. Supreme Court ruling last month is expected to encourage more legal skirmishing over the controversial workplace practice.

"Arbitration is the most litigated appellate issue in the past few years, and that's not going to stop," said Cliff Palefsky, co-founder of the National Employment Lawyers Assn. "The goal of docket-clearing will never be realized because if people don't agree with the [arbitration] forum, they are going to use every device to avoid it."

The U.S. Supreme Court's decision on a narrow issue did nothing to address the major questions about arbitration brewing in lower courts, the most significant of which is whether someone may be forced to choose between a job and the constitutional guarantee of a jury trial.

"The courts have simply refused to deal with the constitutional issues," said Palefsky, a San Francisco lawyer who has assisted in several key arbitration cases. "Once they deal with the constitutionality, it should end the debate, simply because the established standard for the waiver of constitutional rights is knowing and voluntary, and there's no way to pretend that 'If you don't accept this, you're fired' is voluntary."

Because the latest U.S. Supreme Court case avoided that issue, the ruling was helpful to employers in the sense that it preserved the status quo, said David Kadue, a partner in Seyfarth Shaw law firm's Los Angeles office.

"[The case involving] Circuit City isn't so much a victory for employers. But it did avoid a big defeat," he said.

Several management lawyers said they hope the ruling means the court will be inclined to eventually agree with employers that mandatory arbitration agreements may be enforced in civil rights disputes.

Two national arbitration trade organizations have taken the opposite position and come out in favor of making workplace arbitration agreements voluntary. And the civil rights community sees the movement to keep workplace discrimination complaints out of court as an increasingly important battleground.

"It has turned into a very hot political issue, not only at the state level but in Washington," said Tom Makris, a Sacramento-based management lawyer and legislative affairs advisor for the Northern California Human Resources Assn.

More than 8% of American workers are bound by arbitration agreements, a trend that has grown because employers believe private justice is more expedient and less costly than trial courts.

But recently the California Supreme Court and other courts have required arbitration agreements to afford workers the same rights they would have in court, striking down, for example, caps on monetary awards.

"It's becoming clear that it's not necessarily a good thing from the employers' perspective to have these mandatory arbitration agreements," said Robert Gregory, a senior attorney with the U.S. Equal Employment Opportunity Commission in Washington. "And a lot of employers are having second thoughts about whether they want to have a mandatory arbitration policy."

Both employers and employees have trouble following the patchwork of laws covering workplace arbitration agreements, and the law is still subject to change.

As long as the law is shifting, attorney Makris said he is advising employers who wish to impose arbitration contracts to include a "preamble, which states, for example, 'To the extent permitted by law, the parties agree to arbitrate disputes.' "

If possible, a worker should consult a lawyer to determine what type of rights he may have, said Brad Seligman, a lawyer who heads the Impact Fund and Discrimination Research Center in Berkeley.

"It's also worth exploring whether you can negotiate," Seligman said. "There's . . . no black-and-white rule."

Arbitration Act's Scope

In the case decided by the Supreme Court last month, a salesman in a Santa Rosa Circuit City store who is gay sued in state court under California civil rights laws, alleging he was harassed repeatedly by co-workers and a manager. Circuit City went to federal court to have the suit thrown out because he had signed an arbitration agreement as a condition of employment.

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