No. S075942
________________________________________
IN THE SUPREME COURT
OF
THE STATE OF CALIFORNIA
________________________________________
MARYBETH ARMENDARIZ and
DOLORES OLAGUE-RODGERS,
Plaintiffs/Respondents
v.
FOUNDATION HEALTH PSYCHCARE SERVICES, INC.,
Defendant/Appellant.
________________________________________
On Appeal after a Decision of the
Court of Appeal, First Appellate District, Division One
________________________________________
BRIEF AMICUS CURIAE OF THE
CALIFORNIA EMPLOYMENT LAWYERS ASSOCIATION,
IN SUPPORT OF PLAINTIFF/RESPONDENT
________________________________________
Cliff Palefsky (State Bar No. 77683)
Keith Ehrman (State Bar No. 106985)
McGUINN, HILLSMAN & PALEFSKY
535 Pacific Avenue
San Francisco, CA 94133
(415) 421-9292
Attorneys for Amicus Curiae
TABLE OF CONTENTS
I. INTEREST OF AMICUS CURIAE 1
II. INTRODUCTION & SUMMARY OF ARGUMENT 1
III. LEGAL ARGUMENT 5
AA Public Policy Does Not “Favor” Arbitration of Statutory Claims 5
1a The Historic and Constitutional Roots of Public Policy 6
aA The Declaration of Independence 6
bA Article III of the Constitution 6
cA The Bill of Rights 6
d. The California Constitution 7
2a The Public Policy Underlying the Civil Rights Laws 7
aA Title VII 7
bA The California Fair Employment & Housing Act 9
3a The Federal Arbitration Act Did Not--And Could Not--Create A Public Policy
“Preferring” Arbitration Over Litigation 11
4a Especially Where The Employment Relationship Is One of Unequal Bargaining
Power, Public Policy Does Not Favor Permitting Coercive Arbitration
Agreements Which Threaten Statutory Protections 12
5a The United States Supreme Court Has Recognized That Any “Policy” In
Favor of Arbitration Only Exists With Respect to the Scope of Arbitration
Agreements Which Have Been Entered Into “Voluntarily” 15
B. Mandatory Arbitration Is Not “Just Another Forum” For Resolution of
Statutory Claims 16
1. Employees Lose The Substantive Right to Have the Statutory
Employment Laws Enforced Correctly, Since Arbitrators Are Not
Obligated To Follow Or Apply The Law, And Arbitrators’ Decisions
Are Virtually Unreviewable 17
aA Arbitrators Are Sometimes Expressly Instructed That They Are Not
Obligated To Follow Statutory Law 18
bA The Applicable Standard of Review Makes It Virtually Impossible to
Overturn Arbitrators’ Errors of Law 19
cA Since Arbitrators Often Give No Written Explanation or
Opinion For Their Award, Overturning The Award Is
Virtually Impossible 19
2. The Costs To An Employee To Vindicate His or Her Rights Are
Exorbitant 21
3. In Arbitration, Significantly Limited Discovery Unfairly Burdens Employees
Attempting to Vindicate Statutory Rights 25
4. Employees Lose the Benefit of Evidentiary Protections 26
C. Developments Since Gilmer Have Demonstrated That Mandatory Arbitration
of Statutory Employment Claims Is Inappropriate 26
1. Repeat User Bias 27
2. Surveys Show That Employers Are Far More Successful In
Arbitration 27
3. Counsel For Employers Repeatedly Recommend That Employers
Use Mandatory Arbitration Because They Will Win More
and Pay Less 28
4. Government Agencies, Professional Organizations and Legal
Scholars Have Strongly Opposed and Condemned Mandatory
Arbitration of Statutory Employment Claims 29
aA The Equal Employment Opportunity Commission 29
bA The National Academy of Arbitrators 30
cA The Dunlop Commission 31
dA The National Labor Relations Board 31
e. The Department of Labor 31
f. The Society for Professionals in Dispute Resolution 32
eA Academics and Legal Scholars 32
D. Unilaterally Imposed Arbitration is Inconsistent with the Consensual
Underpinnings of Arbitration, and Forces the Courts to Constantly
Review the Validity and Fairness of Agreements 33
1. From Both a Legal And a Policy Perspective, “Voluntariness” Is the
Key to The Enforceability of Arbitration Agreements 33
2. Arbitration Agreements Drafted and Imposed by Employers Are
Subject to Abuse 34
3. Courts Are Constantly Being Required to Determine The Validity
of Involuntary Employment Arbitration Agreements 35
IV. CONCLUSION 36
TABLE OF AUTHORITIES
Cases
Aetna Life Ins. v. Lavoie
475 U.S. 813 (1986) 27
Albermarle Paper v. Moody
422 U.S. 405 (1975) 29
Alexander v. Gardner-Denver
415 U.S. 36 (1974) 8, 14, 17, 20
Anaconda v. District Lodge
693 F.2d 35 (6th Cir. 1982) 19
Asare v. Hartford
(1991) 1 C.A.4th 856, 869, 2 C.R.2d 452 10
California Teachers Association v. State of California
99 C.D.O.S. 3376 (filed May 10, 1999) 23, 24
Carlsbad Municipal Schools v. Harrell
118 N.M. 470, 882 P.2d 511 (1994) 20
Cheng-Canindin v. Renaissance Hotel
(1996) 50 Cal.App.4th 676 34, 35
Cole v. Burns Intern’l Security
105 F.3d 1465 (D.C. Cir. 1997) 14, 21, 22, 23, 30
Commodore Home Systems v. Superior Court
(1982) 32 C.3d 211, 185 C.R. 270 10
Craft v. Campbell Soup
161 F.3d 1199 (9th Cir. 1998),
rehearing denied en banc 177 F.3d 1083 (9th Cir. 1999) 11
DiRussa v. Dean Witter
121 F.3d 818 (2d Cir. 1997) 19, 24
Duffield v. Robertson Stephens
144 F.3d 1182 (9th Cir. 1998) 9
EEOC v. Children’s Hospital
719 F.2d 1426 (9th Cir. 1983) 8
EEOC v. Commercial Office Products Co.
486 U.S. 107 (1988) 29
First Options v. Kaplan
514 U.S. 938, 115 S.Ct. 1920 (1995) 16, 19
Fuentes v. Shevin
407 U.S. 67, 92 S.Ct. 1983 (1972) 34
Gantt v. Sentry
(1992) 1 C.4th 1083, 1095, 4 C.R.2d 874 6
Gibson v. Berryhill
411 U.S. 564 (1973) 27
Gilmer v. Interstate/Lane Johnson Corp.
500 U.S. 20 (1991) passim
Gould v. Maryland
(1995) 31 C.A.4th 1137, 1147, 37 C.R.2d 718 15
Graham v. Scissor-Tail
(1981) 28 Cal.3d 807, 623 P.2d 165 34
Graham Oil v. ARCO
43 F.3d 1244, 1247-48 (9th Cir. 1995) 1, 34, 35
Great Western Mortgage Co. v. Peacock
110 F.3d 222 (3rd Cir. 1997) 34
Health Services Management v. Hughes
975 F.2d 1253 (7th Cir. 1992) 19
Hooters of America v. Phillips
Case No. 4:96-3360-22 (D.S.C., March 12, 1998) 26, 34, 35
KMC v. Irving Trust
757 F.2d 752 (6th Cir. 1985) 34
Leasing Service v. Crane
804 F.2d 828 (4th Cir. 1986) 34
Lingle v. Norse
486 U.S. 399, 108 S.Ct. 1877 (1988) 14
Maciejewski v. Alpha Systems Lab
1999 Daily Journal D.A.R. 8045 (Aug. 5, 1999) 24, 36
Mastrobuono v. Shearson-Lehman
514 U.S. 52 (1995) 33
Mitsubishi Motors v. Soler Chrysler-Plymouth
473 U.S. 614, 105 S.Ct. 3346 (1985) 15, 16
Moncharsh v. Heily & Blase
3 Cal.4th 1, 832 P.2d 899 (1992) 17, 18, 19
Moore v. Conliffe
(1994) 7 C.4th 634, 659-60, 29 C.R.2d 152 4
Morrissey v. Brewer
408 U.S. 471 (1972) 27
NBC Subsidiary v. Superior Court
1999 D.A.R. 7575 (July 28, 1999) 18
Nelson v. Cyprus Bagdad Copper Corp.
119 F.3d 756 (9th Cir. 1997) 34
Newman v. Piggie Park Enterprises
390 U.S. 400 (1968) 8
O.R. Securities v. Prof. Planning Assoc.
857 F.2d 742 (11th Cir. 1988) 20
Paladino v. Avnet Computer
134 F.3d 1054 (11th Cir. 1998) 23, 24, 25
Patterson v. ITT
(1993) 14 C.A.4th 1659, 1665 23, 34
Payne v. Superior Court
(1976) 17 C.3d 908, 911, 132 C.R. 405 7
Perry v. Thomas
482 U.S. 483, 107 S.Ct. (1987) 15
Prudential v. Lai
42 F.3d at 1299 (9th Cir. 1994) 8, 26, 34
Remmey v. Paine Webber
32 F.3d 143 (4th Cir. 1994) 19
Rosenberg v. Merrill Lynch
76 FEP 681 (D.Mass. 1998) 18, 20, 30, 34, 35
Shankle v. B-G Maintenance
163 F.3d 1230 (10th Cir. 1999) 22
Stirlen v. Supercuts
(1997) 51 Cal.App.4th 1519 34, 35
Thomas v. Union Carbide
473 U.S. 568 (1985) 6
United Steelworkers v. American Mfg. Co.
363 U.S. 564 (1960) 14
United Steelworkers v. Enterprise Car and Wheel
363 U.S. 593 (1960) 14
United Steelworkers v. Warrior & Gulf Navigation Co.
363 U.S. 574 (1960) 14
Wright v. Universal Maritime Services
119 S.Ct. 391 (1998) 14, 16
Statutes
California Constitution, Article 1, §16 7
California Evidence Code §783 26
California Government Code §12920 10
California Government Code §12965 10, 24
California Labor Code §206 15
California Labor Code §216 15
Labor Code §229 14, 15
Labor Code §923 13
U.S. Constitution, Article III 6
U.S. Constitution, Amendment V 7
U.S. Constitution, Amendment VII 7
U.S. Constitution, Amendment XIV 7
9 U.S.C. §1 2
9 U.S.C. §10 19
29 U.S.C. §151 13
29 U.S.C. §201 13
29 U.S.C. §204 32
42 U.S.C. §1981 8
42 U.S.C. §2000 7, 13, 24
Amendments to 42 U.S.C.] Pub.L.No. 102-166; § 102, § 1977A(c),
105 Stat. 1071, 1073 (1991) 2, 8
Other Authorities
R. Alleyne, Statutory Discrimination Claims: Rights “Waived” and Lost
in the Arbitration Forum, 13 Hofstra Labor L.J. 381 (1996) 28, 32
L. Bingham, Employment Arbitration: The Repeat Player Effect
(1 Emply.Rts. & Empl.Policy Journal 1 (1997) 27
Bompey & Pappas, Is There A Better Way? Compulsory Arbitration of Employment
Discrimination Claims After Gilmer, 19 Emp.Rel.L.J. 197 (1994) 28
Presidential Commission on the Future of Worker-Management Relations (the “Dunlop
Commission”), “Report and Recommendations” (Dec. 1994) 31
P. Carrington & P. Haagen, Contract and Jurisdiction
1996 Sup.Ct.Rev. 331, 344-45 (1997) 17, 18, 20, 32
137 Cong. Rec. H9526 (daily ed. Nov. 7, 1991) 9
Declaration of Independence (U.S. 1776) 6
Department of Labor, Amicus Curie Brief, Gerke v. Waterhouse Securities, N.D.Cal. Case
No. C-98-4081-CAL 32
Equal Employment Opportunity Commission, Policy Statement on Mandatory Binding
Arbitration of Employment Discrimination Disputes as a
Condition of Employment, 133 Daily Lab.Rep (BNA) E-4 (July 11, 1997) 29
R. Fallon, Of Legislative Courts, Administrative Agencies and Article III
101 Harv.L.Rev. 916, 943 (1988) 6
M. Finkin, Employment Contracts Under the FAA--Reconsidered,
1997 Lab.L.J. 329 (June 1997) 11
M. Finkin, Workers’ Contracts Under the United States Arbitration Act:
An Essay In Historical Clarification,
17 Berkeley J.Emp. & Lab.L. 282 (1996) 11, 12
General Accounting Office, Report HEHS-94-17, Employment Discrimination:
How Registered Representatives Fare in Discrimination Disputes
(March 30, 1994) 21
J. Grodin, Arbitration of Employment Discrimination Claims: Doctrine and Policy In
Wake of Gilmer, 14 Hofstra Lab.L.J. 1 (1996) 32
S. Hoffman, Mandatory Arbitration: Alternative Dispute Resolution or Coercive Dispute
Suppression?, 17 Berk.J.Empl.&Lab.L. 131 (1996) 32
H.Rep. No. 102-40(I), 102d Cong., 1st Sess.d (1991),
reprinted in 1991 U.S.C.C.A.N. 549, 635 9
Model Rules of Professional Conduct, Rule 4.2 (1995) 25, 26
Model Code of Professional Responsibility DR 7-104(A) (1989) 25
National Academy of Arbitrators, Amicus Curiae Brief, Duffield v. Robertson
Stephens, Appeal No. 97-15698 (9th Cir., filed August 6, 1997) 15, 30, 33
National Academy of Arbitrators, Statement and Guidelines (May 21, 1997)
103 Daily Lab. Rep. (BNA) E-1 (May 29, 1997) 15, 30
National Labor Relations Board, “General Counsel Report,” 1996 Daily Lab.Rep.
36 E-4, E-6,7 (Feb. 23, 1996) 31
R. Reuben, Public Justice: Toward a State Action Theory of Alternative Dispute Resolution,
85 Calif.L.Rev. 3 (1997) 32
D. Schwartz, Enforcing Small Print to Protect Big Business: Employee
and Consumer Rights Claims in an Age of Compelled Arbitration,
1997 Wisc. L.R. 33, 73-81, 122-23 (1997) passim
Securities Industry Conference on Arbitration, Arbitrator’s Manual 18
Society of Professionals in Dispute Resolution, “Statement on Arbitration of Statutory
Rights Imposed as a Condition of Employment,” Approved by SPIDR Board
of Directors January 24, 1998 32
J. Stempel, Reconsidering the Employment Contract Exclusion in Section
1 of the Federal Arbitration Act: Correcting the Judiciary’s Failure
of Statutory Vision, 1991 J.Disp.Resol. 259, 265--6 (1991) 12
J. Sternlight, Panacea or Corporate Tool?: Debunking the Supreme Court’s
Preference for Binding Arbitration,
74 Wash. U. L.Q. 637, 647-52 (1996) 12, 14, 27, 32
J. Sternlight, Rethinking the Constitutionality of the Supreme Court’s
Preference for Binding Arbitration: A Fresh Assessment of Jury Trial,
Separation of Powers and Due Process Concerns,
72 Tulane L.R. 1, 7 (1977) 14, 20
I. INTEREST OF AMICUS CURIAE
TO THE HONORABLE CHIEF JUSTICE AND THE ASSOCIATE JUSTICES OF THE
CALIFORNIA SUPREME COURT:
This Amicus Curiae brief is submitted by the California Employment Lawyers Association
(“CELA”), a statewide organization of attorneys primarily representing employees in employment
termination and discrimination cases.
For an employee, compulsory arbitration means forfeiting numerous constitutional and
statutory rights. Recently developed empirical and statistical evidence, as well as the experience
of CELA members over the last eight years, confirms that mandatory arbitration is not “just
another forum” for the vindication of statutory employment rights. To the contrary, mandatory
arbitration puts employees at a severe disadvantage, imposes exorbitant forum costs that deter
vindication of statutory rights and transforms employees’ statutory entitlements into a matter of
arbitral discretion.
CELA fully supports and encourages the use of all voluntary forms of alternative dispute
resolution (including arbitration), provided the parties to a dispute are permitted to knowingly and
voluntarily select the most appropriate form of ADR for their particular dispute.
II. INTRODUCTION & SUMMARY OF ARGUMENT
Over the past 15 years, it has become commonplace for economically powerful parties to
impose arbitration on those with whom they deal. Frequently, the motives behind this require-
ment are transparent: to bypass the constitutional and statutory rights and remedies of the
economically weaker party and to impose exorbitant costs on employees and consumers in order
to frustrate their ability to vindicate their rights. Mandatory arbitration has become a form of “do
it yourself tort reform” by which parties being regulated by state and federal statutes have
attempted to unilaterally deprive consumers and employees of the right to have their statutory
protections properly enforced in a court of law.
Following Gilmer v. Interstate/Lane Johnson Corp., 500 U.S. 20, 111 S.Ct. 1647 (1991),
employers have made a concerted effort to avoid both the judicial system and the Civil Rights Act
of 1991, by requiring employees to submit discrimination claims to arbitration as a condition of
employment, even though the very purpose of the 1991 amendments was to add a new right to a
jury trial. Many lower courts have contributed to this dangerous process by expanding and
misapplying Gilmer. These courts have mistakenly proclaimed that there is a “public policy”
favoring arbitration over our constitutional jury trial system. This position is not only unsupport-
able as a matter of constitutional law, it conflicts with the purposes underlying the civil rights
laws, and the intent of the Federal Arbitration Act. In the United States, and particularly in
California, “public policy” favors the right of access to the courts and to a jury. And it is the
constitutional responsibility of the courts to protect these fundamental constitutional rights.
Unfortunately, many courts have elevated a desire to clear dockets into a judicially-created public
policy that supercedes these express constitutional guarantees. Scores of arbitration opinions
have been written in recent years that fail even to mention the Constitution or the constitutional
nature of the rights being coercively taken away.
What makes mandatory arbitration particularly insidious in the employment setting is the
fact that employer-mandated arbitration is not simply “another forum” for the resolution of
statutory employment claims. Mandatory arbitration, unilaterally designed and imposed by
employers, has proven itself to be a grossly inferior, ineffective, exorbitantly expensive and
inappropriate method for employees to enforce their statutory rights.
In the wake of Gilmer, numerous courts made unfounded assumptions about the supposed
“benefits” of arbitration. Courts speculated about the “low cost” of arbitration; the benefits of
“streamlined discovery”; how the elimination of appeals and the absence of judicial review would
ensure “swiftness” and “finality”; and how both sides would benefit from such a process. Over
the past fifteen years, the “reality” of the compulsory arbitration experience has proven these
assumptions and speculations to be incorrect. Indeed, a national consensus has developed in
opposition to the practice among academics, governmental agencies and the arbitrator community
itself.
First, the cost of arbitration has proven to be exorbitantly expensive. Whereas employees
filing a claim in state or federal court pay only an initial filing fee of roughly $150, and thereafter
have free access to the judicial system (paid for by their tax dollars), parties to arbitration are
routinely required to pay literally thousands of dollars per day in arbitration “forum fees”. For
example, the filing fee alone at the American Arbitration Association is as high as $7,000 in some
employment cases, and the arbitrator’s fees typically exceed $3,000 per day per arbitrator. The
cost for arbitration of a typical employment case can easily exceed $25,000.
Second, the severe limitations on discovery which exist in arbitration have been of
substantial benefit to one side: the defendant employer. The reason is simple: in most employ-
ment cases, the employer controls virtually all of the witnesses, documents and information
needed in the case. Without proper pre-trial discovery, the plaintiff--who has the burden of
proving his or her claim--is at a severe disadvantage, especially when the primary issue in dispute
is the “state of mind” of the defendant.
Third, the “finality” of arbitration, i.e., the absence of any meaningful judicial review of
arbitrators’ rulings, has resulted in arbitrators being free to disregard or completely misapply the
relevant statutes and laws which have been passed to protect employees. When arbitrators--who
are often unfamiliar with employment law--misapply or ignore relevant laws, employees are left
with no recourse.
Fourth, employers are the parties who draft and impose compulsory arbitration agree-
ments. When employers are permitted to unilaterally design and impose a system upon
employees, they frequently insert limitations and restrictions on employees’ rights and remedies,
such that employees are left with far fewer rights than they would have in a court of law. For
example, employers routinely attempt to limit or eliminate statutory remedies (attorneys fees,
punitive damages, non-contract damages), as occurred in this case, shorten applicable statute of
limitations periods, or even require the use of arbitration panels which are inherently biased in
favor of the employer.
In this case, this Court has the opportunity to correct many of the problems which now
exist in this area, by carefully distinguishing between voluntary and mandatory arbitration and by
acknowledging the “reality” of compulsory arbitration, as it has been practiced in the employment
area.
There are several subjects which need clarification from this Court.
First, with respect to statutory employment rights, there is no “public policy” favoring
employer-mandated arbitration imposed as a condition of employment. Rather, public policy
favors the right of employees to have access to state and federal courts, as well as to low-cost
administrative agencies such as the Department of Fair Employment and Housing and the
California Labor Commission, in order to vindicate their statutory entitlements in the manner
expressly provided for by the Constitution and various statutes.
Second, arbitration agreements are only enforceable if they are both knowing and truly
voluntary. This is consistent with the Federal Arbitration Act, the California Arbitration Act and
the traditional judicial standard applied to a waiver of constitutional and statutory rights.
Third, the parties being regulated by a statute cannot unilaterally “opt-out” of the strict
enforcement of that statute. Although both parties may elect to settle their dispute by the use of a
non-judicial procedure, that decision cannot be made unilaterally by the party being regulated by
the statute.
III. LEGAL ARGUMENT
A. Public Policy Does Not “Favor” Mandatory Arbitration of Statutory Claims
Parties and courts seeking to enforce arbitration clauses routinely state that, “public policy
favors arbitration.” In fact, this assertion is completely unsupportable in the context of
unilaterally imposed arbitration of statutory employment rights. Public policy does not “favor”
arbitration. To the contrary, public policy mandates preserving the right to a jury trial, to due
process, and to a citizen’s being able to enforce his or her legal rights in a public court before
neutral judges who are required to follow the law.
This Court has repeatedly stated that “public policy” should not be created by the courts;
it must emanate from the Constitution or statutory provisions. See, e.g., Gantt v. Sentry (1992) 1
C.4th 1083, 1095, 4 C.R.2d 874. This country’s “public policy” concerning its citizens’ right of
access to the courts and a jury is easily discerned and indisputable.
1. The Historic and Constitutional Roots of Public Policy
a. The Declaration of Independence
The Declaration of Independence is an appropriate place to start an examination of
“public policy” in this context. It lists the grievances against the King that justified the creation of
this country. Among the specific reasons stated was, “for depriving us, in many cases, of the
benefit of Trial by Jury.” The Declaration of Independence (U.S. 1776).
b. Article III of the Constitution
Article III of the United States Constitution created a public civil justice system
administered by impartial judges, appointed for life and bound to follow the law of the land. By
this scheme, Article III “protect[s] the role of the independent judiciary within the constitutional
scheme of tripartite government and assure[s] the impartial adjudication in federal courts.”
c. The Bill of Rights
The importance attached to the jury trial was next reflected in the United States
Constitution’s Bill of Rights--perhaps the most compelling statement of “public policy.” The
Seventh Amendment provides that, “the right of trial by jury shall be preserved.” U.S. CONST.
amend. VII (emphasis added). It is thus the express duty of the courts to protect and preserve
this right, and not to condone its being coercively taken away by employers.
The Fifth Amendment to the Constitution further guarantees to citizens the right to “due
process of law.” U.S. CONST. amend. V. The Fourteenth Amendment to the Constitution
guarantees the right to “equal protection of the laws.” U.S. CONST. amend. XIV. At a
minimum, “due process” and “equal protection” mean the right to have the laws passed for one’s
protection enforced correctly.
d. The California Constitution
Article 1, Section 16 of the California Constitution provides that, “Trial by jury is
an inviolate right and shall be secured to all...” (emphasis added).
In addition to stressing the critical importance of the right to a jury trial, this Court has
also emphasized the importance of a citizen’s right of access to the courts. “Few liberties in
America have been more zealously guarded than the right to protect one’s property in a court of
law...In a variety of contexts, the right of access to the courts has been reaffirmed and strength-
ened throughout our 200 year history.” Payne v. Superior Court (1976) 17 C.3d 908, 911, 132
C.R. 405.
2. The Public Policy Underlying the Civil Rights Laws
a. Title VII
Congress considered the federal anti-discrimination laws to be statements of
critical public policy. They were deemed laws of the “highest priority” and of “paramount impor-
tance.” Newman v. Piggie Park Enterprises, 390 U.S. 400, 402 (1968).
Title VII of the Civil Rights Act of 1964 was landmark legislation in large part because it
intended that employees would have access to the federal courts when bringing discrimination
claims. Prior to Gilmer, the courts consistently construed the language and legislative history of
Title VII as precluding any binding arbitration of statutory employment claims, even where the
arbitration agreement was both voluntary and knowing. Alexander v. Gardner-Denver, 415 U.S.
36, 47-51, 94 S.Ct. 1011 (1974); Prudential v. Lai, 42 F.3d 1299, 1303-04 (9th Cir. 1994); EEOC
v. Children’s Hospital, 719 F.2d 1426, 1431 (9th Cir. 1983).
In 1991, after the Gilmer decision, Congress passed the Civil Rights Act of 1991
(“C.R.A.”), expressly giving employees the right to a jury trial when bringing federal discrimi-
nation claims. The jury right was given to employees in exchange for a cap on damages. In
the C.R.A., Congress encouraged the use of all forms of alternative dispute resolution mecha-
nisms, but only where both parties knowingly and voluntarily agreed to submit their dispute to the
non-judicial forum that the parties deemed “most appropriate” for their particular case. As
Representative Edwards explained, “The section contemplates the use of voluntary arbitration to
resolve specific disputes after they have arisen, not coercive attempts to force employees in
advance to forego statutory rights.”
Thus, Congress has made it clear that the federal civil rights laws: a) represent a public
policy of the highest national priority; b) assure employees of the right of access to the federal
courts and a jury trial; and c) mandate that employers cannot compel employees to forfeit these
rights prospectively as a condition of employment. Duffield v. Robertson Stephens, 144 F.3d
1182 (9th Cir. 1998).
In Duffield, supra, the Ninth Circuit Court of Appeals held that employers may not
condition employment upon signing an arbitration agreement covering Title VII claims. The
Court further held that the same result applies to civil rights claims brought under the California
anti-discrimination statutes, because those statutes are expressly incorporated into Title VII’s
enforcement mechanism. See, Duffield, supra, fn. 3. Contracts in violation of public policy should
not be enforced regardless of whether the public policy in question is of federal or state origin.
b. The California Fair Employment and Housing Act
California’s employment discrimination laws are also statements of fundamental
public policy. Government Code § 12920. In enacting the comprehensive scheme underlying
the Fair Employment and Housing Act, the Legislature was seeking to ensure a full range of
remedies for victims of discrimination. Thus, employees who bring claims for discrimination are
not only entitled to the full range of tort remedies, but are also entitled to an award of attorneys
fees. And, even though an administrative scheme exists for resolution of such claims
(Government Code § 12960 et seq.), victims of employment discrimination are always entitled to
bring their statutory claims in a civil court action (Government Code § 12965) and are entitled to
a jury trial on such claims. Asare v. Hartford (1991) 1 C.A.4th 856, 869, 2 C.R.2d 452.
It is apparent from the above constitutional and statutory provisions that there is no public
policy which “favors” mandatory arbitration over the right to a jury trial of statutory civil rights
claims. Indeed, allowing the party who is regulated by these laws--the employer--to unilaterally
“opt out” of these provisions is completely inconsistent with the purpose of either Congress or the
California Legislature in passing these statutes.
An accurate statement of public policy would be that public policy under the civil rights
laws encourages and permits parties to voluntarily select an appropriate alternative dispute resolu-
tion mechanism to meet the needs of a particular case, after a dispute has arisen. But it is clearly
against the policy behind the civil rights laws for employers to coerce employees into forfeiting
their constitutional and statutory rights to judges, juries, the Department of Fair Employment &
Housing and the California Labor Commission by requiring employees to arbitrate any future
disputes as a condition of obtaining employment.
3. The Federal Arbitration Act Did Not--And Could Not--Create A Public Policy
“Preferring” Arbitration Over Litigation
Some courts (including the lower court in this case) have sought to justify a policy
“favoring” arbitration in the context of statutory employment laws by mistakenly pointing to the
Federal Arbitration Act, claiming that its passage was meant to indicate a new “preference” for
arbitration of employment disputes. Once again, this is completely unsupportable.
First, a legislative statute such as the FAA cannot create a “public policy” which
contradicts the express public policy set forth in the United States Constitution, i.e., a policy
guaranteeing the right to a jury trial and access to an Article III court.
Second, the FAA was passed 40 years before the first federal employment discrimination
laws were enacted, and 65 years before the 1991 amendments to those laws. Thus, it can hardly
be argued that the FAA was ever intended to create a “policy” superseding the provisions of the
civil rights laws which ensured victims of discrimination access to federal courts and the right to a
jury trial. In fact, as the Ninth Circuit Court of Appeals recently held following an exhaustive
examination of the language and legislative history of the FAA, Congress never intended for the
FAA to apply to employment contracts at all. See, Craft v. Campbell Soup, 161 F.3d 1199 (9th
Cir. 1998), rehearing denied en banc177 F.3d 1083 (9th Cir. 1999). The court below did not have
the benefit of the Craft decision when it wrote its opinion. The significance of the Craft decision
is enormous because it renders much of the public policy language relied on by the court below,
and the preemptive effect of that policy, inapplicable to arbitration clauses contained in
employment contracts, as is the case here.
Third, the FAA was never intended to create a “preference” for arbitration, much less a
“public policy” favoring arbitration. The original intent of the FAA was simply to allow commer-
cial entities of equal bargaining power the right to use arbitration as a dispute mechanism, at a
time when arbitration was held in such low regard that many courts flatly refused to enforce pre-
dispute arbitration agreements, even if they were voluntary.
In sum, Congress passed the FAA not to give a “preference” to arbitration, but simply to
allow courts to permit arbitration of contractual matters arising out of a “transaction” between
commercial entities when such agreements were wholly voluntary. There is a vast difference
between removing a “prohibition” on arbitration and creating a “preference” for it.
4. Especially Where The Employment Relationship Is One of Unequal Bargaining
Power, Public Policy Does Not Favor Permitting Coercive Arbitration Agreements
Which Threaten Statutory Protections
Employers who seek to enforce mandatory arbitration agreements claim that they are
merely seeking to uphold “freedom of contract.” Congress and the California Legislature long
ago determined that an unregulated free market is not appropriate in the employment relation-
ship. That the FAA would exclude employment contracts from its intended coverage makes
perfect sense, since Congress has always recognized that the employment relationship is one of
inherently unequal bargaining power.
This country’s entire body of labor law was created in response to this inequality in
bargaining power between employers and individual employees. The California Legislature has
similarly recognized the inability of individual employees to bargain fairly with employers, and, in
Labor Code § 923, has stated unequivocally that,
“the public policy of this State is declared as follows: Negotiation of terms and
conditions of labor should result from voluntary agreement between employer and
employees. Governmental authority has permitted and encouraged employers to
organize in the corporate and other forms of capital control. In dealing with such
employers, the individual unorganized worker is helpless to exercise actual liberty
of contract and to protect his freedom of labor, and thereby obtain acceptable
terms and conditions of employment...” (emphasis added).
During this century, Congress and the state legislatures have created an extensive scheme
of statutory protections for workers.
Whenever Congress has imposed some restraint on the way an employer can treat its
employees, it has enunciated a public policy reflecting values it considered important. These
statutes reflect a strong public policy of protecting employees where they cannot protect them-
selves, due to the vastly superior bargaining power of employers. In the context of mandatory
arbitration agreements, imposed by employers as a condition of employment, this disparity in
“bargaining” power is obvious. There is rarely any “bargaining” available to a prospective
employee presented with an arbitration agreement; his or her “alternative” is often to go without
work.
The insidious nature of compulsory employment arbitration in the face of such unequal
bargaining power was also recognized by the Legislature in Labor Code § 229, another unequivo-
cal statement of California public policy. That section prohibits the enforcement of an arbitration
agreement between an employer and an employee whenever an employee brings an action to
collect unpaid wages.
The employment relationship is perhaps the most regulated relationship in this nation. The
reliance by many courts upon a “free market analysis” in the employment relationship is simply
inappropriate. That is why the National Academy of Arbitrators, the nation’s leading professional
organization of labor-management arbitrators, while strongly supporting arbitration in the
collective bargaining context, has condemned the concept of mandatory pre-dispute arbitration
agreements in the individual worker context.
5. The United States Supreme Court Has Recognized That Any “Policy” In Favor of
Arbitration Only Exists With Respect to the Scope of Arbitration Agreements
Which Have Been Entered Into “Voluntarily”
The United States Supreme Court has recognized that, despite much of the rhetoric
concerning a “liberal” federal policy favoring arbitration, this simply means that if two parties
have entered into a valid, consensual agreement to arbitrate, the courts will thereafter liberally
construe the scope of that agreement. Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S.
614, 625--27, 105 S.Ct. 3346 (1985). And in First Options v. Kaplan, 514 U.S. 938, 115 S.Ct.
1920, 1925 (1995), the Court made clear that:
...the basic objective in this area is not to resolve disputes in the quickest manner
possible, no matter what the parties’ wishes, but to ensure that commercial
arbitration agreements, like other contracts, are enforced according to their terms,
and according to the intentions of the parties.
First Options, supra, 115 S.Ct. at 1925 (emphasis added).
The Court of Appeals in this case completely misinterpreted and misapplied public policy
in order to uphold an illegal and unconscionable arbitration agreement.
B. Mandatory Arbitration Is Not “Just Another Forum” For Resolution of Statutory Claims
In Gilmer, the Court upheld an arbitration agreement which required arbitration of a
statutory age discrimination claim . The Court’s ruling was based on several critical assump-
tions. First, the Court assumed that, “by agreeing to arbitrate a statutory claim, a party does not
forego the substantive rights afforded by the statute; it only submits to their resolution in an
arbitral, rather than a judicial, forum.” 500 U.S. at 26. In other words, the Court assumed--in the
absence of proof to the contrary--that arbitration of statutory employment disputes would be “just
another forum,” essentially equivalent to federal court for purposes of vindicating statutory rights.
The Court’s second critical assumption in Gilmer was that, “the prospective litigant
effectively may vindicate [his or her] statutory cause of action in the arbitral forum,” such that the
specific statute at issue would “continue to serve both its remedial and deterrent function.”
Gilmer, 500 U.S. at 28 (emphasis added).
In the context of employer-mandated arbitration, both of these assumptions have proven
simply incorrect. Arbitration is not “just another forum,” and employees are often not able to
effectively vindicate their statutory rights. Employees do lose substantive rights, including the
right to have the civil rights laws applied and enforced as written. The result is that the remedial
and deterrent functions of the nation’s employment laws are being undermined.
1. Employees Lose The Substantive Right to Have the Statutory Employment
Laws Enforced Correctly, Since Arbitrators Are Not Obligated To Follow Or
Apply The Law, And Arbitrators’ Decisions Are Virtually Unreviewable
One of the most important substantive rights an employee has is the right to have the civil
rights laws applied and enforced as written. It would do little good for employees to have
numerous protective statutes enacted by Congress and the state legislatures if the courts were
then permitted to ignore or misapply those laws.
Yet, employees face precisely this situation in the arbitration context. Since courts are
essentially powerless to review or correct arbitrators’ decisions, arbitrators are empowered to
ignore or misapply statutory law, including the civil rights laws. Moncharsh v. Heily & Blase, 3
Cal.4th 1, 27-28, 832 P.2d 899 (1992) (courts are powerless to correct plain errors of law, even
where substantial injustice results). Arbitration, in the end, is merely a dispute resolution
mechanism, it is not a justice system.
a. Arbitrators Are Sometimes Expressly Instructed That They Are Not
Obligated To Follow Statutory Law
Arbitrators are sometimes told that they have no obligation to follow statutory law
in the first place. For example, in some arbitration settings, arbitrators are specifically instructed
that they “are not strictly bound by case precedent or statutory law.” Even if an arbitrator feels
obligated to follow the law, he or she may make an error of law. But it is virtually impossible to
overturn even the most egregious errors of law, for two reasons. First, the standard of review is
exceedingly narrow. Second, arbitrators are not required to set forth any written explanation of
their decision, so there is rarely a record or written opinion to review anyway.
b. The Applicable Standard of Review Makes It Virtually Impossible to
Overturn Arbitrators’ Errors of Law
With respect to arbitration awards under the FAA and the California Arbitration
Act, the decision may not be overturned unless the arbitrator “manifestly disregards the law.”
But this standard is virtually impossible to meet. First, vacating the award cannot be justified
merely because an arbitrator made a clear error in interpretation or application of the law. 9
U.S.C. § 10; Moncharsh v. Heily & Blase, 3 Cal.4th 1, 832 P.2d 899 (1992); Anaconda v. District
Lodge, 693 F.2d 35, 37-38 (6th Cir. 1982). Instead, the party must prove that the arbitrator
knew the law, understood it, found it applicable, and specifically chose to ignore it. See, Health
Services Management v. Hughes, 975 F.2d 1253, 1267 (7th Cir. 1992); Remmey v. Paine
Webber, 32 F.3d 143, 149 (4th Cir. 1994).
This leads to outlandish results such as DiRussa v. Dean Witter, 121 F.3d 818 (2d Cir.
1997), in which the arbitrator failed to award attorneys’ fees to a prevailing plaintiff in a
discrimination case, in plain violation of the statutory requirements. The arbitrator’s plainly
erroneous decision was affirmed by the courts, which stated that even though the arbitrator was
clearly wrong under the law, his decision would not be modified or reversed, since there was no
clear proof that the arbitrator had “known” the correct law and had then intentionally “disre-
garded” it. As long as the arbitrator was simply “ignorant” of the correct law, the arbitration
decision would be affirmed.
c. Since Arbitrators Often Give No Written Explanation or Opinion For
Their Award, Overturning The Award Is Virtually Impossible
For a party wishing to challenge an arbitration award, proving that an arbitrator
“knew” the law but then “purposely disregarded” it is a practical impossibility, since arbitrators
are rarely required to set forth any explanation for their decision. As one court noted, “When
arbitrators do not give their reasons, it is nearly impossible for the court to determine whether
they acted in disregard of the law.” O.R. Securities v. Prof. Planning Assoc., 857 F.2d 742, 747
(11th Cir. 1988); Carrington, Contract, pp. 397-98.
In sum, an arbitrator does not need to follow statutory law, and does not need to issue any
written explanation or rationale for his or her award. Thus, it is usually impossible for a party to
establish that an arbitrator has ever engaged in “manifest disregard.” This lack of effective judicial
review raises serious due process issues where arbitration has been unilaterally imposed on one
party.
The problems of limited judicial review become even more acute when arbitrators are not
only allowed to ignore statutory law, but when the arbitrators have no expertise in employment or
civil rights law. As pointed out in Alexander v. Gardner-Denver 415 U.S. 36, 57 (1974), arbitra-
tors typically know the “law of the shop,” not the civil rights laws.
In Gilmer, the Court “assumed” that there would be “sufficient” judicial review of the
arbitration decision “to ensure that arbitrators complied with the requirements of the statute.”
See, Gilmer, 500 U.S. at 32, n. 4. In the real world, this assumption has proven to be groundless,
as few arbitration decisions provide enough information to make such a review possible. This is
yet another reason why mandatory arbitration of statutory employment claims cannot be justified.
2. The Costs To An Employee To Vindicate His or Her Rights Are Exorbitant
An employee does not have to pay a federal or state court judge to hear his or her
discrimination claim; access to the public courts is free, once the initial nominal filing fee is paid.
By contrast, employees who are required to submit to arbitration face exorbitant “forum” costs
which act as significant deterrents to an employee’s ability to vindicate his or her legal rights.
Parties to arbitration are routinely charged an initial filing fee of several thousand dollars.
Schwartz, Enforcing, p. 44, n. 30. They are then often charged in excess of three thousand
dollars per day in arbitration “forum fees,” since arbitrators typically charge $300-400 per hour
for their services. Schwartz, Enforcing, p. 44, n. 30. Over the course of an arbitration, a plain-
tiff may ultimately be required to pay tens of thousands of dollars in arbitration “forum fees”--
even when he or she has prevailed.
A mandatory arbitration agreement which prohibits an employee from using a free judicial
forum, while forcing an employee to pay exorbitant arbitration fees, effectively prevents many
employees from vindicating their rights, and so undermines the remedial and deterrent function of
the employment laws. The California legislature, attempting to reduce the costs of litigation for
employees, has created several low cost administrative fora such as the California Labor
Commission and the Department of Fair Employment & Housing to assist employees in
vindicating their rights. Employers have effectively negated these legislative acts and policies by
compelling arbitration as a condition of employment. Thus, an employee making approximately
$40,000 a year who seeks to bring an overtime or discrimination claim must be prepared to pay
the equivalent of a full year’s salary, after taxes, to obtain the protection of statutes passed for his
or her protection.
Many courts have therefore found that the imposition of such costs on plaintiffs renders
such arbitration agreements unenforceable. See, Shankle v. B-G Maintenance, 163 F.3d 1230
(10th Cir. 1999) (mandatory arbitration agreement which required employee to pay for AAA
arbitration costs is unenforceable); Cole v. Burns, 105 F.3d 1465, 1483-85 (D.C.Cir. 1997)
(interpreting mandatory arbitration agreement as requiring employer to pay all costs of arbitration;
agreement would be unenforceable if employee were forced to pay AAA arbitration costs to
vindicate statutory rights); Paladino v. Avnet Computer, 134 F.3d 1054, 1062 (11th Cir. 1998)
(arbitration agreement did not require the employer to pay the arbitration costs; large forum fees
involved in AAA arbitration were thus another factor in finding the arbitration agreement unen-
forceable).
The Court in Cole v. Burns, 105 F.3d 1465, 1468 (D.C.Cir. 1997), stated that, “In our
view, an employee can never be required, as a condition of employment, to pay an arbitrator’s
compensation in order to secure resolution of statutory claims...(any more than an employee can
be made to pay a judge’s salary). If there is any risk that an arbitration agreement can be
construed to require this result, this would surely deter the brining of arbitration and constitute a
de facto forfeiture of the employee’s statutory rights.”
More significantly, this Court recently expressed its strong approval of Cole and raised
serious doubts about the enforceability of agreements which deprive a party of access to the
courts while simultaneously requiring that party to pay thousands of dollars in “forum fees.” In
California Teachers Association v. State of California, 99 C.D.O.S. 3376 (filed May 10, 1999),
this Court struck down as unconstitutional a provision which required teachers to pay for the cost
of an administrative law judge if they were not successful in their hearings. The Court quoted at
length from Cole, strongly endorsing that portion of the opinion which stated that courts should
not enforce private arbitration agreements if the employees would be required to pay excessive
costs in order to vindicate their rights.
In California State Teachers, this Court stated that,
“The invalidity of a provision requiring dismissed public teachers to pay for the
public cost of an administrative law judge is apparent when we consider decisions
holding that even private employees who have agreed to private arbitration of
statutory wrongful termination claims cannot be compelled to pay half the cost of
the arbitrator. The United States Supreme Court has upheld agreements requiring
employees to arbitrate federal statutory claims, as long as the employee may
effectively vindicate the statutory cause of action in the arbitral forum....in Cole,
the Court considered an issue not raised in Gilmer: whether an employer could
condition employment upon acceptance of an arbitration agreement requiring the
employee to submit statutory claims to arbitration and requiring the employee to
pay all or part of the arbitrator’s fees...If employees in the private sector cannot be
compelled to pay the costs of private arbitrators when seeking to vindicate
statutory rights in the arbitral forum, then certainly public employees seeking to
vindicate constitutionally based interests in an official quasi-judicial forum cannot
be required to compensate the state for the cost of the administrative law judge.”
99 C.D.O.S. at 3383.
This Court’s holding in the California State Teachers case and the Cole line of decisions
was recently relied upon by the Fourth Appellate District when it refused to compel arbitration of
an employment claim because of the excessive costs involved. Maciejewski v. Alpha Systems
Lab, 1999 Daily Journal D.A.R. 8045 (Aug. 5, 1999).
Prevailing plaintiffs who are required to pay these exorbitant “forum fees” frequently
suffer the additional economic burden that arbitrators may misapply or ignore statutory law, and
may fail to award prevailing plaintiffs their costs or attorneys fees. See, DiRussa v. Dean
Witter, supra (arbitrator failed to award prevailing plaintiff in discrimination case costs and
attorneys fees, even though such an award was required under the civil rights laws; court
powerless to correct this error).
3. In Arbitration, Significantly Limited Discovery Unfairly Burdens Employees
Attempting to Vindicate Statutory Rights
Arbitration works best when it involves parties of equal bargaining power who have equal
access to the evidence. However, a plaintiff in a discrimination case is at a severe disadvantage in
an arbitration setting. An employee generally needs extensive discovery if she is going to establish
her claims. The plaintiff not only has the burden of proof, but the plaintiff in many employment
cases (including discrimination cases) must prove “state of mind,” show “pretext” by the
employer, or show a “pattern” of discrimination. Without full and complete discovery, an
employee/plaintiff is greatly handicapped in attempting to prove her claims.
In litigation, such discovery is easily obtainable. Arbitration, however, permits very little,
if any, discovery. Whatever limited discovery may be allowed is left to the discretion of the
arbitrator. Schwartz, Enforcing, pp. 46-47. Significantly, the severe limitations on discovery in
arbitration heavily favor the employer in most employee/employer disputes, since the employer
usually controls almost all of the critical evidence in a case.
An employee typically needs to obtain documents from the employer, gather statistical
evidence from the employer and, perhaps most importantly, take depositions of the employer’s
employees. The employer not only possesses most of the written evidence relevant to the case,
but the employer has full access to the various employees and managers who may be witnesses.
This poses a major problem for employee/plaintiffs, because the plaintiff’s attorney is ethically
precluded from even contacting these employees. See, Schwartz, Enforcing, pp. 46-47, 61;
Model Code of Professional Responsibility DR 7-104(A) (1989); Model Rules of Professional
Conduct Rule 4.2 (1995). Thus, the only method of obtaining information from these employee
witnesses is by taking depositions. Yet depositions are often either prohibited or extremely
limited in arbitration.
4. Employees Lose the Benefit of Evidentiary Protections
A further obstacle to employees in arbitration is the fact that arbitrators are not required
to follow the rules of evidence. This means that employees may lose the benefit of significant
evidentiary protections. Schwartz, Enforcing, pp. 49-50. For example, in sexual harassment
cases, consensual sexual activity of the plaintiff with persons other than the harasser are generally
deemed irrelevant and invade the plaintiff’s right to privacy. Such evidence is thus specifically
excluded in many jurisdictions, including California. See, Schwartz, Enforcing, p. 49, n. 44;
California Evidence Code §783. Yet arbitrators are not obligated to comply with such evidentiary
restrictions, and so procedural protections may be lost.
C. Developments Since Gilmer Have Demonstrated That Mandatory Arbitration of
Statutory Employment Claims Is Inappropriate
In Gilmer, the Court stated that it would not accept “generalized attacks” and “specu-
lat[ion]” about the suspected shortcomings of arbitration, especially since the plaintiff in Gilmer
had made no specific showing of actual problems with the process. 500 U.S. at 30. However,
since Gilmer was decided, there have been numerous studies, surveys, and articles dealing with
how mandatory arbitration of statutory employment claims has worked in the “real world.” In
sum, it has now been empirically demonstrated that mandatory arbitration places the employee at
a severe disadvantage, and that outcomes in arbitration are far more favorable to employers than
employees when compared to similar cases brought in a public court.
1. Repeat User Bias
The Supreme Court has repeatedly held that constitutional due process entitles parties to
unbiased decision-makers. Since arbitrators rely on repeat business for income, many
commentators have expressed a serious concern about the potential for an arbitrator’s bias in
favor of “repeat users,” i.e., a natural tendency to favor the party which has the potential of using
the arbitrator’s services again.
In the employment setting, the “repeat users” are the employers. Thus, there was always
the perception that arbitrators might favor the employer’s side. Significantly, there are now
empirical studies showing that this “repeat user” bias exists in fact in employment arbitration.
Lisa Bingham, Employment Arbitration: The Repeat Player Effect, 1 Emply.Rts.& Empl.Policy
Journal 1 (1997) (employees recover a lower proportion of their claims in repeat player cases than
in non-repeat player cases). The significance of this survey is enormous, since it confirms the
reality of the “repeat user” bias in employment arbitration.
2. Surveys Show That Employers Are Far More Successful In Arbitration
Several studies and surveys since Gilmer have shown that employers fare much better
under mandatory arbitration programs than they do in court before a jury. Employers not only
win more often in arbitration, but employees who do prevail are awarded far less in damages.
This is consistent with studies indicating that, when a petition to compel arbitration is
filed, it is always the employer which is seeking to compel arbitration, while the employee is
inevitably attempting to bring his or her claims in federal or state court. Schwartz, Enforcing, p.
62, n. 88. As an intuitive matter, employers would not be uniformly seeking an arbitration forum
unless they felt it gave them an advantage over employees.
3. Counsel For Employers Repeatedly Recommend That Employers Use
Mandatory Arbitration Because They Will Win More and Pay Less
Attorneys who counsel employers repeatedly and publicly urge employers to impose
mandatory arbitration. These attorneys boldly and correctly proclaim that employers who require
arbitration are more likely to prevail; are likely to pay less in damage awards; are far more likely
to avoid an assessment of punitive damages; and may succeed in discouraging the employee from
instituting or pursuing his or her claims, due to the costs and other obstacles imposed by
arbitration.
///
///
4. Government Agencies, Professional Organizations and Legal Scholars Have
Strongly Opposed and Condemned Mandatory Arbitration of Statutory Employment
Claims
In recent years, virtually every government agency charged with enforcing labor law,
neutral commissions, commentators and professional organizations of arbitrators have strongly
opposed mandatory arbitration of statutory employment claims. The pleas of these organizations,
especially of the arbitrators themselves, cannot be ignored.
a. The Equal Employment Opportunity Commission
The Equal Employment Opportunity Commission, the federal agency charged with
enforcing the civil rights laws, has issued an extensive policy statement dealing with mandatory
arbitration. The EEOC stated that, “agreements that mandate binding arbitration of
discrimination claims as a condition of employment are contrary to the fundamental principles
evinced in the federal anti-discrimination statutes,” and are thus illegal and unenforceable.
EEOC, Policy Statement on Mandatory Binding Arbitration of Employment Discrimination
Disputes as a Condition of Employment, 133 Daily Lab.Rep (BNA) E-4 (July 11, 1997) (hereaf-
ter, “EEOC, Policy Statement”). The courts traditionally give “great deference” to the EEOC’s
views of the proper procedure for vindicating Title VII rights. EEOC v. Commercial Office
Products Co., 486 U.S. 107, 115 (1988); Albermarle Paper v. Moody, 422 U.S. 405, 431 (1975).
Among the EEOC’s objections are that arbitration is not governed by the statutory
requirements and standards of Title VII; it is conducted by arbitrators given no training and pos-
sessing no expertise in employment law; it routinely does not permit plaintiffs to receive punitive
damages and attorneys fees to which they would otherwise be entitled under the statute; and it
forces employees to pay exorbitant “forum fees” in the tens of thousands of dollars, greatly
discouraging aggrieved employees from seeking relief.
b. The National Academy of Arbitrators
The National Academy of Arbitrators, the nation’s leading organization of
professional labor-management arbitrators and the body which gave labor arbitration its
credibility, has also condemned mandatory arbitration of employment disputes. In 1997, the
Academy stated that it, “opposes mandatory employment arbitration as a condition of employ-
ment when it requires waiver of direct access to either a judicial or administrative forum for the
pursuit of statutory rights.” National Academy of Arbitrators Statement and Guidelines, 103
Daily Lab.Rep. (BNA) E-1 (May 29, 1997).
The Academy has expressed strong concern that mandatory arbitration often results in
arbitral forums which do not provide elements of fundamental fairness to employees, and in which
arbitrators are often not able or willing to enforce the claimed statutory rights. See, Amicus
Curiae Brief of the National Academy of Arbitrators, filed in Duffield v. Robertson Stephens,
Appeal No. 97-15698 (9th Cir., filed August 6, 1997) (hereafter “Academy Amicus Brief in
Duffield”).
The Academy was particularly disturbed by the fact that mandatory arbitration, imposed
by employers as a condition of employment, was simply not “voluntary.”
c. The Dunlop Commission
The requirement of voluntariness is also supported by the recommendations of the
“Commission on the Future of Worker-Management Relations” (the “Dunlop Commission”), a
blue ribbon Presidential commission. In its December 1994 “Report and Recommendations,” the
Dunlop Commission stated that, “binding arbitration agreements should not be enforceable as a
condition of employment.” Commission on the Future of Worker-Management Relations: Report
and Recommendations (December 1994), pp. 34--35.
The Dunlop Commission expressed a concern about,
the potential for abuse of ADR created by the imbalance of power between
employer and employee, and the resulting unfairness to employees who, voluntarily
or otherwise, submit their disputes to ADR. These concerns are obvious if the
process is controlled unilaterally by employers, such as when employees are re-
quired to sign mandatory arbitration clauses as a condition of employment.
Commission on the Future of Worker-Management Relations: Report and Recommenda-
tions (December 1994), pp. 28-29. Given this concern, the Commission formally recommended
that arbitration agreements not be required as a condition of employment.
d. The National Labor Relations Board
The National Labor Relations Board has also challenged mandatory employment
arbitration agreements as being illegal. In a 1996 report, the General Counsel of the NLRB
concluded that mandatory binding arbitration clauses, imposed as a condition of employment,
violated the National Labor Relations Act. NLRB General Counsel Report, 1996 Daily Lab.Rep.
36 E-4, E-6-7 (Feb. 23, 1996).
e. The Department of Labor
The United States Department of Labor has taken the position that employees
cannot be required, as a condition of employment, to arbitrate claims arising under the Fair Labor
Standards Act (29 U.S.C. § 204 et seq.). The Department of Labor has stated that requiring
employees to waive their statutory right to pursue such claims in court, as a condition of
employment, is contrary to Congressional intent and seriously affects the ability of employees to
vindicate their statutory wage and hour rights. Therefore, such arbitration agreements are invalid
and unenforceable with respect to FSLA claims. See, Amicus Curiae Brief of Department of
Labor, filed in Gerke v. Waterhouse Securities, N.D. Cal. Case No. C-98-4081-CAL.
f. The Society of Professionals in Dispute Resolution
The Society of Professionals in Dispute Resolution (“SPIDR”), the country’s
largest organization of neutrals, has announced that it, too, opposes mandatory employment arbi-
tration. In a January 1998 policy statement issued by the SPIDR Board of Directors, the
organization stated that it “is in substantial agreement with the position taken by the National
Academy of Arbitrators in opposition to agreements imposing arbitration of statutory rights as a
condition of employment.” Statement on Arbitration of Statutory Rights Imposed as a Condition
of Employment, Approved by SPIDR Board of Directors, January 24, 1998.
g. Academics and Legal Scholars
Since Gilmer, some of the country’s most prominent employment law professors
and legal scholars have written law review articles in which they conclude that mandatory
arbitration of statutory employment claims--imposed by employers as a condition of employment-
-is unlawful. The reasons include the absence of a “voluntary” waiver of rights, a lack of
constitutional due process in the arbitration system, the basic conflict with the purposes and
language of the civil rights laws, and the fact that the FAA simply does not apply to employment
contracts.
D. Unilaterally Imposed Arbitration is Inconsistent with the Consensual Underpinnings of
Arbitration, and Forces the Courts to Constantly Review the Validity and Fairness of Agreements
1. From Both a Legal And a Policy Perspective, “Voluntariness” Is the Key to The
Enforceability of Arbitration Agreements
Arbitration is only viable, from either a legal or policy perspective, if it is the result of a
truly voluntary agreement by the parties, who are aware of arbitration’s strengths and limitations,
and who have freely decided to use that process to settle a particular dispute. Without this
element of a knowing, voluntary agreement, there is no legal or moral justification for enforcing
an arbitration agreement.
The National Academy of Arbitrators has stressed that,
...the strength and justification for the enforcement of agreements to arbitrate, and
for the limited judicial review of arbitration awards, rests on the foundation that
agreements to arbitrate be voluntary...unless a party has agreed to arbitrate, it will
not be compelled to do so. Likewise, the immunity from judicial review of an
arbitrator’s alleged error of law or fact is premised on the voluntary choice of the
parties to submit to an arbitrator’s judgment. Without the voluntariness of the
arbitration agreement, the public policy favorable to arbitration lacks a foundation.
Academy Amicus Brief in Duffield, p. 16.
This emphasis on “voluntariness” is consistent with the Supreme Court’s own pronounce-
ment that arbitration under the FAA is, “a matter of consent, not coercion.” Mastrobuono v.
Shearson-Lehman, supra, 115 S.Ct. at 1216. And, it is consistent with the strict standard
traditionally required by the courts before finding a valid waiver of constitutional and statutory
rights, i.e., a knowing and voluntary waiver. An agreement to arbitrate in the employment
setting is a waiver of both constitutional rights (jury trial, Article III court, due process) and
statutory rights under the civil rights laws.
2. Arbitration Agreements Drafted and Imposed by Employers Are Subject to Abuse
Our system of justice is an adversarial one. The ability of employers to draft arbitration
agreements and then impose them on prospective (or existing) employees as a non-negotiable
condition of employment invites abuses by those who control the process. Inevitably, employers
have taken advantage of this power, by drafting arbitration agreements which slant the process
distinctly in their favor. This overreaching will only continue until the courts deal with the
underlying problem and prevent employers from unilaterally designing and imposing arbitration
agreements upon their employees as a condition of employment.
3. Courts Are Constantly Being Required to Determine The Validity of Involuntary
Employment Arbitration Agreements
In the wake of Gilmer, employers have been quick to impose adhesion arbitration clauses
on prospective (and existing) employees. As discussed above, the legality and enforceability of
such agreements is highly questionable, both from a legal and a policy standpoint.
The courts’ dockets are now filled with cases in which employees challenge these coercive
arbitration agreements as invalid and unenforceable. The courts are then forced to evaluate both
the substance of an arbitration agreement (fundamental fairness of the procedures, due process,
unconscionability, etc.), and the circumstances surrounding the creation of the agreement (to
determine whether the agreement was “knowing,” “voluntary,” the product of undue duress or
coercion, etc.). Unfortunately, as long as employers continue to require arbitration as a pre-
dispute condition of employment, these challenges will continue, and the courts will remain busy
evaluating the validity of every such agreement.
The solution to this problem is simple, and follows logically from the concept of
“voluntariness.” If an arbitration agreement has been required by an employer as a condition of
employment, then it is not “voluntary,” and any such agreement should be unenforceable. The
parties are always free, after a dispute has arisen, to voluntarily decide that arbitration is the best
method of resolving their particular dispute. The parties themselves will then be empowered to
ensure fairness, by identifying neutral arbitrators and selecting fair and affordable procedures. If
they have knowingly and voluntarily agreed to use arbitration under these circumstances, then
neither party will be going to court to “challenge” the agreement and the courts will be relieved of
a substantial burden.
IV. CONCLUSION
Parties certainly have the right to waive constitutional rights. But those rights cannot be
taken away by corporations with excessive market leverage. The courts need to respect their very
reason for being: to protect the constitutional rights of the citizenry and to properly interpret and
enforce the laws. If the courts ensure that fundamental rights may only be waived knowingly and
voluntarily, and if they place responsibility for ensuring fairness on the parties, then–and only
then–will alternative dispute resolution fulfill its promise.
As the Court of Appeal properly concluded in Maciejewski v. Alpha Systems Lab, supra:
“[i]n the final analysis, no dispute resolution method, whether in court or out, will be accepted by
litigants unless it is (and is perceived to be) fair, prompt and economical.” 1999 Daily Journal
D.A.R. at 8047. Mandatory arbitration simply does not and will not ever enjoy that essential
perception of fairness.
Amicus asks the Court to reverse the decision of the Court of Appeal, and so uphold the
right of an employee to have access to a judge and jury in order to vindicate his or her statutory
employment rights.
Respectfully submitted,
CLIFF PALEFSKY
KEITH EHRMAN
McGUINN, HILLSMAN & PALEFSKY
535 Pacific Avenue
San Francisco, CA 94133
(415) 421-9292
Attorneys for Amicus Curiae
CALIFORNIA EMPLOYMENT
LAWYERS ASSOCIATION
PROOF OF SERVICE
CASE NAME: Armendariz & Olague-Rodgers v. Foundation Health Psychcare Services, Inc.
CASE NO.: S075942
COURT: Supreme Court of the State of California
I am employed in the City and County of San Francisco, California; I am over the age of eighteen years and
not a party to the within action; my business address is 535 Pacific Avenue, San Francisco, California
94133. On the date last written below, I served the following documents:
BRIEF AMICUS CURIAE OF THE
CALIFORNIA EMPLOYMENT LAWYERS ASSOCIATION
IN SUPPORT OF PLAINTIFF/RESPONDENT
on the parties, through their attorneys of record, by placing true copies thereof in sealed envelopes
addressed as shown below for service as designated below:
(A) By First Class Mail - I caused each such envelope, with first-class postage thereon fully prepaid,
to be deposited in a recognized place of deposit of the U. S. mail in San Francisco, California, for collection
and mailing to the office of the addressee on the date shown herein following ordinary business practices.
(B) By Personal Service - I caused each such envelope to be personally delivered to the office of the
addressee by a member of the staff of this law firm on the date last written below.
(C) By Personal Service - I caused each such envelope to be delivered to a courier employed by Special
T Delivery, with whom we have a direct billing account, who personally delivered each such envelope to
the office of the addressee.
(D) By Federal Express - I caused each such envelope to be delivered to the Federal Express
Corporation at San Francisco, California, with whom we have a direct billing account, to be delivered to
the office of the addressee on the next business day.
(E) By Facsimile - I caused a copy of this document to be faxed to the parties noted at the fax numbers
stated below. Attached hereto is a verification of reception.
Type of
Service Addressee
C Clerk (Original & 14 Copies)
Supreme Court of the State of California
350 McAllister Street
San Francisco, CA 94102
A Glenn M. Clark, Esq. (1 copy)
Allan C. Miller, Esq.
Miller, Clark, Calvert & Raimondi
2222 Martin Luther King Jr. Way
Berkeley, CA 94704
A William Gaus, Esq. (1 copy)
Pillsbury, Madison & Sutro
235 Montgomery Street
P.O. Box 7880
San Francisco, CA
A Clerk (5 copies)
California Court of Appeal
303 Second Street, South Tower
San Francisco, CA 94107
A The Hon. Lynn Duryee (1 copy)
Marin County Superior Court
Department 7L
3501 Civic Center Drive
P.O. Box 4988
San Rafael, CA 94913-4988
I declare under penalty of perjury that the foregoing is true and correct. Executed this 17th day of
August, 1999, at San Francisco, California.
_____________________
L. Holben
See, Graham Oil v. ARCO, 43 F.3d 1244, 1247-48 (9th Cir. 1995).
Pub.L.No.102-166.
9 U.S.C. § 1 et seq.
Members of this Court have previously recognized that the “assumption” that contractual
arbitration proceedings are “efficient” and “low cost” and benefit employees is largely a myth. In
Moore v. Conliffe (1994) 7 C.4th 634, 659-60, 29 C.R.2d 152, Justice Baxter’s dissent noted this
problem: “In their eagerness to shift dispute resolution from the courts to arbitration, the majority
ignore the differences between contractual arbitration and judicial proceedings, and engage in
assumptions unsupported by the record or by fact as to the practical impact of contractual arbitration
on participants. Among those unsupported and insupportable assumptions is the assumption that
contractual arbitration is relatively low cost and efficient when compared to a judicial proceeding.
That assumption overlooks the thousands of individuals who, but for arbitration provisions inserted
into employment agreements, consumer contracts, bank customer agreements...and other contracts
would resolve their disputes at much less cost in small claims court, and, in many cases in municipal
and superior court. For this and other well-founded reasons, the paternalistic assumption of the
majority that arbitration is a preferable means of dispute resolution is not universally shared. [Cites
omitted].” Id., J. Baxter (dissenting).
U.S. CONST. art. III. That section vests the “judicial power of the United States,” which
extends “to all Cases, in Law and Equity, arising under this Constitution,” in the “supreme Court, and
in such inferior Courts as the Congress may from time to time ordain and establish,” whose
judges hold lifetime appointments and whose compensation cannot be diminished during their terms
of office. Id., §§ 1-2.
Thomas v. Union Carbide, 473 U.S. 568, 582-83, 105 S.Ct. 3325 (1985); see also, R. Fallon,
Of Legislative Courts, Administrative Agencies and Article III, 101 Harv.L.Rev. 916, 943 (1988)
(Article III promotes the “constitutional interest in maintaining a judicial check against arbitrariness
[or] infidelity to the requirements of law”).
42 U.S.C. § 2000e et seq.
42 U.S.C. 2000e-5(f)(3). As this Court said in Alexander v. Gardner-Denver, 415 U.S. 36
(1974), “The purposes and procedures of Title VII indicate that Congress intended federal courts to
exercise final responsibility for enforcement of Title VII; deferral to arbitral decisions would be
inconsistent with that goal.” 415 U.S. at 56.
In Gilmer, the Court merely held that under some circumstances, an employee could be bound
to arbitrate his or her statutory claims. The Court did not delineate what those circumstances were.
10 Pub.L.No. 102-166; § 102, § 1977A(c), 105 Stat. 1071, 1073 (1991); 42 U.S.C. §
1981a(c).
42 U.S.C. § 1981a(b).
Congress encouraged the use, “where appropriate and to the extent authorized by law...of
alternative means of dispute resolution, including settlement negotiations, conciliation, facilitation,
mediation, fact-finding, mini-trials, and arbitration.” 42 U.S.C. § 1981 notes (West 1994). See,
Prudential v. Lai, supra, 42 F.3d at 1304-05 (in light of legislative history of Title VII and the strong
public policy of protecting victims of discrimination, court will only permit arbitration of Title VII
disputes where it is established that there was a knowing agreement to submit such disputes to
arbitration).
137 Cong. Rec. H9526 (daily ed. Nov. 7, 1991) (statement of Rep. Edwards) (emphasis
added). No one in Congress advanced the contrary view, i.e., that the 1991 Act would allow
prospective waivers obtained as a condition of employment. In fact, Congress rejected a provision
that would have allowed the use of mandatory agreements to arbitrate. See, H.Rep. No. 102-40(I),
102d Cong., 1st Sess.d (1991), reprinted in 1991 U.S.C.C.A.N. 549, 635.
§ 12920 provides, in part, “It is hereby declared as the public policy of this state that it is
necessary to protect and safeguard the right and opportunity of all persons to seek, obtain and hold
employment without discrimination...”.
“It is the purpose of this part to provide effective remedies which will eliminate such
discriminatory practices.” Government Code § 12920.
Commodore Home Systems v. Superior Court (1982) 32 C.3d 211, 185 C.R. 270.
Government Code § 12965(b).
The Supreme Court did not decide the scope of the F.A.A.’s employment contract exclusion
in Gilmer, supra, although the only two justices to address the subject agreed with the Ninth Circuit’s
analysis in Craft. In addition to the Craft decision, numerous law review articles have detailed the
significant legislative history supporting Justice Steven’s interpretation of the exclusion as set forth
in his dissent in Gilmer, and adopted in Craft. See, Matthew Finkin, Employment Contracts Under
the FAA--Reconsidered, 1997 Lab.L.J. 329 (June 1997) (hereafter “Finkin, Employment Contracts”);
Matthew Finkin, Workers’ Contracts Under the United States Arbitration Act: An Essay In
Historical Clarification, 17 Berkeley J.Emp. & Lab.L. 282 (1996) (hereafter “Finkin, Workers’
Contracts”); Jeffrey Stempel, Reconsidering the Employment Contract Exclusion in Section 1 of the
Federal Arbitration Act: Correcting the Judiciary’s Failure of Statutory Vision, 1991 J.Disp.Resol.
259, 265--6 (1991) (hereafter “Stempel, Reconsidering”); J. Sternlight, Panacea or Corporate Tool?:
Debunking the Supreme Court’s Preference for Binding Arbitration, 74 Wash. U. L.Q. 647-52
(1996) (hereafter, “Sternlight, Panacea”); D. Schwartz, Enforcing Small Print to Protect Big
Business: Employee and Consumer Rights Claims in an Age of Compelled Arbitration, 1997 Wisc.
L.R. 33, 73-81, 73-81, 122-23 (1997) (hereafter, “Schwartz, Enforcing”). As indicated in Craft,
other Circuits lacking the benefit of the legislative history relied upon by the 9th Circuit which
identified the exact source of the language used in the “employment contract” exception to the FAA,
reached a contrary conclusion.
Sternlight, Panacea, pp. 637, 647-52; Schwartz, Enforcing, pp. 122-23.
See, e.g. Title VII, 42 U.S.C. § 2000 et seq., which limits employers’ freedom to make
employment decisions for discriminatory reasons, and the Fair Labor Standards Act, 29 U.S.C. § 201
et seq, enacted in 1938, which limits employers’ ability to pay substandard wages or require excessive
hours.
In setting forth the policy reasons underlying the National Labor Relations Act, which gave
employees the right to organize and bargain collectively, Congress noted that its passage was
necessary because of, “The inequality of bargaining power between employees...and employers....”
29 U.S.C. § 151. The NLRA was designed to “restor[e] equality of bargaining power between
employers and employees.” Id.
Congress alone has enacted statutes in the following areas: preventing the abuse of child
labor; regulating minimum wages and maximum work hours; conferring on employees the right to
organize, and to form and join unions; and prohibiting discrimination of all kinds, whether based on
race, gender, age, religion or disability.
The United States Supreme Court has approved of arbitration of contract claims in the
organized labor (union-management) context for several key reasons. First, and most importantly,
labor arbitration was agreed to by parties of roughly equal bargaining power. Second, the Court
recognized the unique trade-off inherent in collective bargaining, the finality of arbitration in exchange
for labor peace (no strikes). Third, the labor arbitrator is expected to simply interpret and decide
contract issues, arising out of the collective bargaining agreement itself. United Steelworkers v.
Enterprise Car and Wheel, 363 U.S. 593 (1960); United Steelworkers v. Warrior & Gulf Navigation
Co., 363 U.S. 574 (1960); United Steelworkers v. American Mfg. Co., 363 U.S. 564 (1960);
Sternlight, Panacea, pp. 642--43, 653--54; Schwartz, Enforcing, pp. 72--73, n. 130.
But even in the organized labor context, the courts have recognized that limitations must be
placed on arbitration agreements, to the extent they implicate statutory claims. Alexander v. Gardner-
Denver, supra. The Supreme Court has repeatedly held that unionized employees are not required
to arbitrate statutory and other public policy claims that do not involve the collective bargaining
agreement. Lingle v. Norse, 486 U.S. 399, 108 S.Ct. 1877 (1988), Wright v. Universal Maritime
Services, 119 S.Ct. 391 (1998).
Furthermore, courts and commentators alike have recognized the vast difference between
arbitration in the organized labor context and in the individual employee context. Cole v. Burns
Intern’l Security, 105 F.3d 1465, 1476-1477 (D.C. Cir. 1997) (questioning validity of imposing the
model of collective bargaining agreement arbitration onto individual employment situations where
employees are attempting to enforce public statutory rights, and noting the structural protections for
employees inherent in the union/collective bargaining arena); Sternlight, Panacea, pp. 642-43 (using
labor arbitration in lieu of a union labor strike is entirely different from using individual arbitration
in lieu of a public court proceeding); J. Sternlight, Rethinking the Constitutionality of the Supreme
Court’s Preference for Binding Arbitration: A Fresh Assessment of Jury Trial, Separation of Powers
and Due Process Concerns, 72 Tulane L.R. 1, 7 (1977) (hereafter “Sternlight, Rethinking”).
California public policy protects the rights of wage earners to be promptly paid all wages due.
Gould v. Maryland (1995) 31 C.A.4th 1137, 1147, 37 C.R.2d 718; Labor Code §§ 206, 216. The
Legislature therefore adopted Labor Code §229, which provides, “Actions to enforce the provisions
of this article for the collection of due and unpaid wages...may be maintained without regard to the
existence of any private agreement to arbitrate....” In Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520
(1987), the Supreme Court found that the FAA pre-empted §229. The Perry case, like Gilmer,
involved a U-4 registration statement and not an employment contract. In light of the Craft decision,
preemption would not be an issue in the context of an arbitration clause contained in an employment
contract.
In 1997, the Academy passed a resolution stating, “The National Academy of Arbitrators
opposes mandatory employment arbitration as a condition of employment when it requires waiver of
direct access to either a judicial or administrative forum for pursuit of statutory rights.” National
Academy of Arbitrators Statement and Guidelines (May 21, 1997) 103 Daily Lab. Rep. (BNA) E-1
(May 29, 1997). The Academy position is based largely on the notion that the justification for the
enforcement of agreements to arbitrate rests on the premise that such agreements are completely
voluntary, and that voluntariness is obviously lacking when employers condition employment on
submission to arbitration. See, Amicus Curiae Brief of the National Academy of Arbitrators, p. 16,
filed in Duffield v. Robertson Stephens, Appeal No. 97-15698 (9th Cir., filed August 6, 1997)
(hereafter “Academy Amicus Brief in Duffield”).
The court in Gilmer merely held that parties could arbitrate an ADEA case. It made it clear
that Mr. Gilmer was not contending that he was “coerced” into signing the arbitration clause
contained in his U-4 registration document. Thus, the Gilmer decision does not support the concept
that employers may condition employment upon an arbitration agreement for statutory claims. In
fact, the Gilmer court made it clear that the clause in question in that case was not contained in an
employment contract. And, in its recent decision in Wright v. Universal Maritime Services, 119 S.Ct.
391 (1998), the Supreme Court made it clear that Gilmer does not resolve the question of the validity
of a mandatory arbitration agreement of civil rights claims in light of the subsequent passage of the
1991 amendments. 119 S.Ct. at 397 fn. 2.
The Supreme Court has long recognized that the choice of forum may materially affect the
substantive rights to be vindicated in Title VII cases. Alexander v. Gardner-Denver, supra, 415 U.S.
at 56. As the Court explained in Alexander, “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. at 57.
This is hardly surprising. The main goal of arbitration is finality. The goal of arbitration is
not, and never has been, to reach the “legally correct result.” See, Moncharsh v. Heily & Blase, 3
Cal.4th 1, 8-12, 832 P.2d 899 (1992) (“by voluntarily submitting to arbitration, the parties have
agreed to bear the risk [that the arbitrator will make a mistake] in return for a quick...and
conclusive resolution to their dispute”); P. Carrington & P. Haagen, Contract and Jurisdiction, 1996
Sup.Ct.Rev. 331, 344-45 (1997) (hereafter, “Carrington, Contract”).
A related problem of arbitration proceedings is that they are a “closed,” non-public forum.
When employers engage in discriminatory conduct which violates the public policy of this state, it
does not serve the public interest to have such conduct shielded from view. The courts have
repeatedly stressed the importance of “open trials” which allow public access to the administration
of justice. Most recently, in NBC Subsidiary v. Superior Court, 1999 D.A.R. 7575 (July 28, 1999),
this Court stated that, “open trials serve to demonstrate that justice is meted out fairly, thereby
promoting public confidence in such governmental proceedings; ‘more importantly,’ open trials
provide a means, ‘akin in purpose to the other checks and balances that infuse our system of
government’, by which citizens scrutinize and ‘check’ the use and possible abuse of judicial power;
and finally, ‘with some limitations’, open trials serve to enhance the truth-finding function of the
proceeding...In that sense, public access is an indispensable element of the trial process itself. Trial
access, therefore, assumes structural importance in our ‘government of laws’.” Id. at 7583.
Rosenberg v. Merrill, Lynch, Pierce, Fenner & Smith, 76 FEP 681 (D.Mass. 1998) (quoting
the Securities Industry Conference on Arbitration Arbitrator’s Manual [hereinafter “SICA
Arbitrator’s Manual], p. 19). Thus, in a discrimination case, NASD arbitrators are essentially being
told that they need not follow the civil rights laws as written. See also, Carrington, Contract, pp.
344-45.
First Options v. Kaplan, supra, 115 S.Ct. at 1923.
For example, the FAA does not require arbitrators to explain their decisions or even to record
the evidence on which they are based, so it is impossible to detect whether a particular award is or
is not a faithful application of the controlling law. Carrington, Contract, p. 347. Indeed, in the
securities industry, arbitrator training manuals discourage arbitrators from giving any written analysis,
in order to avoid judicial review. Rosenberg v. Merrill, Lynch, Pierce, Fenner & Smith, 76 FEP 681
(D.Mass. 1998) (citing materials used in National Association of Securities Dealers arbitrator training
sessions).
This concern was addressed by the New Mexico Supreme Court in a slightly different
arbitration context. In Carlsbad Municipal Schools v. Harrell, 118 N.M. 470, 882 P.2d 511 (1994),
the court held that when a party is forced into compulsory arbitration, the scope of judicial review
may not be narrowly limited. To compel a party to arbitrate, but then to deny effective judicial
oversight would be a violation of due process. At a minimum, if a party is forced into arbitration, the
law requires that the courts have the opportunity to see whether the law was correctly applied.
Other commentators have suggested that where employees have been compelled to submit
to arbitration, and have not “voluntarily” waived the right to adequate judicial review of the
arbitration decision, the employee’s due process rights may have been violated. Sternlight,
Rethinking, pp. 95-97.
Following a lengthy survey, the federal government’s General Accounting Office expressed
serious reservations about the competence of securities industry arbitrators to hear employment cases.
See, GAO Report HEHS-94-17, Employment Discrimination: How Registered Representatives Fare
in Discrimination Disputes (March 30, 1994) (finding that securities industry arbitrators are
inadequately trained to handle discrimination cases); see also, Cole v. Burns, supra, 105 F.3d at 1477
(questioning competence of arbitrators to analyze and decide purely legal issues in connection with
statutory claims).
The American Arbitration Association charges an initial filing fee of between $500 and
$7,000, depending on the size of the employee’s claim.
This assumes that there is only one arbitrator. Often, there is a panel of arbitrators, and the
forum fees will naturally rise. In Cole v. Burns, supra, the Court noted that JAMS/Endispute
arbitrators charge an average of $400 per hour, although fees of $500 or $600 per hour are not
uncommon. 105 F.3d at 1480, n. 8. Furthermore, when calculating the arbitrator fees, AAA now
assesses the parties a 50% “supplemental” charge on top of the arbitrator’s actual hearing time, to
account for the arbitrator’s “study time”, i.e., reviewing briefs, reviewing evidence, legal research,
etc. Thus, even if the parties only had six hours of “hearing time” in a day, they would be charged
in advance for nine hours of arbitrator time! And, AAA charges an “administrative fee” to each party
of $150 per day for each day of hearing, on top of the arbitrator’s fees.
For example, in a ten day arbitration before the American Arbitration Association with just
one arbitrator who charges $350 per hour, the cost to the parties (based on an eight hour day, plus
“study time”) would be a minimum of $42,000 in arbitration fees, plus the initial filing fee of up to
$7,000, plus daily AAA “administrative fees.” This means that a plaintiff employee would initially
have to pay approximately $25,000 in “forum fees” just to vindicate his or her statutory rights! And,
if there is a panel of three arbitrators, or there are discovery disputes, the costs would rise
dramatically higher.
The California courts had previously noted the serious problem caused when plaintiffs are
required to pay large arbitration forum fees in order to vindicate their rights. See, Patterson v. ITT
(1993) 14 C.A.4th 1659, 1665, (arbitration agreement unconscionable and unenforceable on several
grounds, one of which was the requirement of a $250 per hour arbitration forum fee (plus a $100
filing fee), when most disputes would involve relatively small consumer claims; clear effect of these
procedures was to discourage consumers from bringing claims).
Congress and the California Legislature encouraged victims of discrimination to vindicate their
statutory rights under Title VII and the California Fair Employment and Housing Act by shifting a
prevailing plaintiff’s reasonable attorneys fees and costs to the losing party. 42 U.S.C. § 2000e-5(k);
California Government Code § 12965(b). The failure of arbitrators to award fees and costs to a
prevailing plaintiff undermines one of the critical features of the civil rights laws.
Other employees are usually the most critical witnesses in an employment case.
In arbitration, there is a presumption against taking depositions, and permission to take
depositions is usually only granted in order to preserve testimony of key witnesses who will be unable
to testify in person at the arbitration hearing. Schwartz, Enforcing, p. 46, n. 34. In addition,
employers who draft a mandatory arbitration agreement will sometimes place specific, severe
restrictions on the amount of discovery permitted in any arbitration proceeding, by barring
depositions altogether or by severely limiting their number. See, e.g., Hooters of America v. Phillips,
Case No. 4:96-3360-22 (D.S.C., March 12, 1998).
See, Prudential v. Lai, 42 F.3d 1299, 1305 (9th Cir. 1994) (in a sex harassment case, the
remedies and procedural protections available in arbitral forum may differ significantly from those
contemplated by the legislature, to the detriment of the employee).
Aetna Life Ins. v. Lavoie, 475 U.S. 813, 824 (1986); Morrissey v. Brewer, 408 U.S. 471,
485-86 (1972); Gibson v. Berryhill, 411 U.S. 564, 579 (1973).
See, e.g., Sternlight, Panacea, pp. 684-85; Schwartz, Enforcing, pp. 60-61 (individual
arbitrators have an economic stake in being selected again, and their judgment may well be shaded
by a desire to build a “track record” of decisions that corporate repeat users will view approvingly).
See, Bompey & Pappas, Is There A Better Way? Compulsory Arbitration of Employment
Discrimination Claims After Gilmer, 19 Emp.Rel.L.J. 197 (1994); R. Alleyne, Statutory
Discrimination Claims: Rights “Waived” and Lost in the Arbitration Forum, 13 Hofstra Labor L.J.
381 (1996); Schwartz, Enforcing, pp. 64-66.
See, Schwartz, Enforcing, p. 63; Bompey & Pappas, Is There A Better Way? Compulsory
Arbitration of Employment Discrimination Claims After Gilmer, 19 Emp.Rel.L.J. 197 (1994); see
also, BNA Employment Discrimination Report, 1996, Vol. 6, p. 875 (summarizing comments of Paul
Cane, a management employment law attorney, made at a conference sponsored by the Labor and
Employment Law Section of the State Bar of California, recommending that employers use
arbitration agreements because the employer has a better chance of winning in arbitration, damage
awards tend to be lower, an arbitrator is less likely to award punitive damages or significant emotional
distress damages, the employer can avoid discovery and depositions, and employees may be
discouraged from bringing cases forward in the first place if they are faced with arbitration.)
Recognizing the questionable nature of its compulsory arbitration process, the National
Association of Securities Dealers voted in August 1997 to abolish mandatory arbitration of statutory
employment discrimination claims. And, effective January 1, 1999, the New York Stock Exchange
announced that it would not even allow its forum to be used in discrimination cases involving pre-
dispute arbitration agreements.
See, EEOC, Policy Statement (Appendix hereto); Amicus Curiae Brief filed by EEOC in
Duffield v. Robertson Stephens, No. C-95-0109-EFL (N.D.Cal. filed August 4, 1995); Cole v. Burns,
supra, 105 F.3d at 1479 (discussing EEOC’s position in numerous amicus curiae briefs filed around
the country); Rosenberg v. Merrill Lynch, 76 FEP 681 (D.Mass. 1998) (noting EEOC’s position as
stated in the EEOC’s own official policy statements and in brief submitted to the court).
See, discussion in Section III.D.1, infra.
See, e.g., J. Grodin, Arbitration of Employment Discrimination Claims: Doctrine and Policy
In Wake of Gilmer, 14 Hofstra Lab.L.J. 1 (1996); P. Carrington & P. Haagen, Contract and
Jurisdiction, 1996 Sup.Cit.Rev. 331(1997); R. Reuben, Public Justice: Toward a State Action Theory
of Alternative Dispute Resolution, 85 Calif.L.Rev. 3 (1997)(“Public Justice”); R. Alleyne, Statutory
Discrimination Claims: Rights “Waived” and Lost in the Arbitration Forum, 13 Hofstra.Lab.L.J. 381
(1996); J. Sternlight, Panacea or Corporate Tool?: Debunking the Supreme Court’s Preference for
Binding Arbitration, 74 Wash.U.L.Q. 637 (1996); S. Hoffman, Mandatory Arbitration: Alternative
Dispute Resolution or Coercive Dispute Suppression?, 17 Berk.J.Empl.&Lab.L. 131 (1996); D.
Schwartz, Enforcing Small Print to Protect Big Business: Employee and Consumer Rights Claims in
an Age of Compelled Arbitration, 1997 Wisconsin L.R. 33 (1997).
Leasing Service v. Crane, 804 F.2d 828, 832--33 (4th Cir. 1986) (constitutional right to jury
trial is fundamental; any purported waiver of that right must be both knowing and voluntary; party
claiming waiver has burden of showing that consent to the waiver was voluntary and knowing); KMC
v. Irving Trust, 757 F.2d 752, 756 (6th Cir. 1985) (constitutional right to jury trial may be
contractually waived only if done knowingly, intentionally and voluntarily); Prudential v. Lai, supra
(requiring knowing waiver of statutory rights, remedies and procedural protections under Title VII);
Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756 (9th Cir. 1997) (requiring “knowing and
voluntary” waiver of statutory rights under the civil rights laws); cf. Fuentes v. Shevin, 407 U.S. 67,
92 S.Ct. 1983 (1972) (consumer did not waive constitutional due process rights to notice and a
hearing when she signed an adhesion contract permitting seller to seize property she had purchased
upon non-payment of monthly installment obligations; court noted absence of true “voluntariness”
and lack of economic power of consumer).
Thus, mandatory arbitration agreements in recent years have contained the following elements
which put the weaker party at a severe disadvantage: (1) a limitation on the remedies an employee
may recover, i.e., no tort damages, or no punitive damages (Paladino v. Avnet Computer, supra;
Stirlen v. Supercuts (1997) 51 Cal.App.4th 1519; Great Western Mortgage Co. v. Peacock, 110 F.3d
222 (3rd Cir. 1997); Hooters of America v. Phillips, Case No. 4:96-3360-22 (D.S.C., March 12,
1998)); (2) limitations on the discovery available prior to the arbitration, which inevitably works to
the disadvantage of the plaintiff (Hooters of America v. Phillips, supra); (3) controlling the panel of
arbitrators (Rosenberg v. Merrill Lynch, supra; Cheng-Canindin v. Renaissance Hotel (1996) 50
Cal.App.4th 676; Hooters of America v. Phillips, supra; Graham v. Scissor-Tail (1981) 28 Cal.3d
807, 623 P.2d 165); (4) requiring arbitration in some distant location (Patterson v. ITT Consumer
Financial (1993) 14 Cal.App.4th 1659, 18 C.R.2d 563); (5) unilateral agreements, which require the
employee to arbitrate, but which permit the employer to go to court (Stirlen v. Supercuts, supra);
(6) shortening the statute of limitations (Graham Oil v. ARCO, supra; Stirlen v. Supercuts, supra);
(7) ensuring that the employer dominates and controls the arbitration process, such as having the
power to control what discovery is permitted or who can testify (Cheng-Canindin v. Renaissance
Hotel, supra; Rosenberg v. Merrill Lynch, supra); and (8) forbidding the arbitrator from awarding
attorneys fees or costs, regardless of whether statutes provide such remedies to prevailing plaintiffs
(Stirlen v. Supercuts, supra; Paladino v. Avnet Computer, supra; Hooters of America v. Phillips,
supra; Graham Oil v. ARCO, supra).
10