Greenberg Traurig Alert
Employers’ Mandatory Arbitration Agreements Do Not Bar The EEOC From
Seeking Victim-Specific Relief On Behalf Of Employees
By Leigh Anne Ciccarelli, Esq.,
Greenberg Traurig, Phoenix Office
View or download the PDF version of this Alert
On January 15, 2002, the U.S. Supreme Court issued a 6-3 decision in
EEOC v. Waffle House, Inc., No. 99-1823, ___ U.S. ___ (2002), holding
that a private mandatory arbitration agreement entered into between an employee
and employer does not prevent the Equal Employment Opportunity Commission
(EEOC) from seeking victim-specific relief in a separate civil action brought
by the agency on the employee’s behalf. This Alert discusses the Waffle
House ruling and the potential effects the ruling will have on the use
of arbitration agreements in the employment setting.
Status of the Law Before Waffle House
|"The Court noted that '[t]o hold
otherwise would undermine the detailed enforcement scheme created
by Congress simply to give greater effect to an agreement between
private parties that does not contemplate the EEOC’s statutory function.'"
With the proliferation of employment litigation over the last decade,
employers increasingly have turned to the use of pre-dispute mandatory arbitration
agreements as a way to keep litigation costs under control. Typically, these
agreements include language providing that both parties agree to use binding
arbitration for any and all disputes that arise in the context of an individual’s
employment, thereby waiving the right to a jury trial. Not surprisingly,
the use of such agreements has been challenged in court by employees and
employee advocacy groups – with varying degrees of success and inconsistent
rulings among the courts. Much of the uncertainty in this area of employment
law was cleared up in March of 2001, when the U.S. Supreme Court held in
Circuit City v. Adams that employment disputes could be subject to
mandatory arbitration. (See our GT Alert, April 2001.)
Because the Circuit City decision gave sanction to the use of
arbitration agreements, many employers who previously had refrained from
using them for fear of the legal uncertainty, began to implement such agreements
with confidence that they would be upheld in the courts. However, the
Circuit City decision left undecided (at least) one important issue
– the relationship between these private arbitration agreements and the
remedial power of the EEOC. Several lower federal courts addressed the issue,
and reached contradictory holdings regarding what effect, if any, private
arbitration agreements had on the EEOC’s enforcement powers, and what remedies,
if any, the EEOC could pursue on behalf of an employee who has signed a
binding agreement to arbitrate employment disputes.
The Facts in Waffle House
When Eric Baker applied for a job at Waffle House restaurants, he was
required to sign an arbitration agreement, providing that "any dispute or
claim" regarding his employment would be "settled by binding arbitration."
Shortly after Baker started working at the restaurant, he suffered a seizure;
shortly after the seizure, he was discharged. Baker subsequently filed a
discrimination charge with the EEOC. He did not initiate arbitration under
the agreement. After an investigation, the EEOC filed suit in its own name,
both in the public interest and on Baker’s behalf. Waffle House sought to
stay the lawsuit and compel arbitration pursuant to the agreement. This
request was denied by the district court. On appeal, the Fourth Circuit
Court of Appeals held that a valid, enforceable arbitration agreement did
exist, but that the EEOC still had independent authority to file its own
lawsuit. However, the Fourth Circuit also held that the EEOC’s remedies
were limited to injunctive relief only, and that the agency could not seek
victim-specific relief on behalf of Baker.
The Supreme Court’s Decision
The issue presented to the U.S. Supreme Court was whether a binding arbitration
agreement between an employer and an employee bars the EEOC from pursuing
victim-specific relief, such as backpay, reinstatement and damages, in an
enforcement action. Reversing the Fourth Circuit’s decision, a six-justice
majority of the Court found that private arbitration agreements do not limit
the EEOC to seeking only injunctive relief and that the EEOC, as the "master
of its own case," has the authority to alone determine whether it will commit
its resources to the recovery of victim-specific relief.
In reaching this decision, the Court explained that despite the federal
policy favoring arbitration, the EEOC cannot be bound by a private arbitration
agreement to which it was not a party. According to the Court, the EEOC
is not required to "relinquish its statutory authority if it has not agreed
to do so." The Court noted that "[t]o hold otherwise would undermine the
detailed enforcement scheme created by Congress simply to give greater effect
to an agreement between private parties that does not contemplate the EEOC’s
Recognizing the growing use of arbitration agreements in the employment
context, the Court reasoned that if injunctive relief were the only remedy
available, employees who sign such agreements would have little incentive
to file a charge with the EEOC. The Court noted its reluctance to issue
a judicial ruling that would jeopardize the agency’s ability to investigate
and select cases for prosecution.
"Open Questions" After Waffle House
While the Court was very specific that the EEOC could pursue relief on
behalf of individual victims, it pointed out that there remained the "open
question whether a settlement or arbitration judgment would affect the validity
of the EEOC’s claim or the character of relief the EEOC may seek." While
the Court did cite cases holding that EEOC recovery would be limited where
an employee had failed to mitigate damages or had accepted a monetary settlement,
the Court did not address this question as it was not properly before the
The Effect of the Ruling
As noted by Justice Thomas in dissent, the ruling in Waffle House
will likely discourage the use of arbitration agreements in the employment
setting. If an employer is faced with the prospect of defending itself in
an arbitration against an employee and then again in court against the EEOC,
where both parties are seeking much the same relief, it is difficult to
see the incentive in having an arbitration agreement at all.
The Court’s majority sought to minimize this argument by pointing out
the statistically low percentage of cases the EEOC decides to litigate on
its own behalf as compared to the actual number of claims filed each year.
In our opinion, however, the majority’s statistical argument fails to consider
that many employers may not want to take the risk that one of their employee’s
EEOC claims might happen to be one of the few that the EEOC chooses to litigate.
Employers will now need to consider this risk and weigh it against the potential
benefits that binding arbitration agreements offer.
In light of the Waffle House ruling, employers might consider
other options, such as implementing (or amending their existing) arbitration
agreements so as to limit the types of claims subject to mandatory arbitration.
For example, if federal discrimination claims are exempted, the employer
will not be confronted with the potential "two-front war" that the Waffle
House employer faced. However, such a broad exemption clearly weakens
the arbitration agreement, so much so that many employers may decide there
is little benefit to using such an agreement.
The bottom-line: Absent Congressional action "overruling" the Court’s
decision, employers will need to re-evaluate under what circumstances they
wish to require employees to agree to mandatory arbitration of workplace
© 2002 Greenberg Traurig
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or feel free to contact one of our attorneys.
This GT ALERT is issued for general purposes only and is not intended
to be construed or used as legal advice. Greenberg Traurig attorneys provide
practical, result-oriented strategies and solutions tailored to meet our
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