CLINTON COLE v. BURNS INTERNATIONAL SECURITY
105 F.3d 1465 (D.C.1997)
Write a case report to answer the questions below:
(1) How did the Court apply Gilmer to determine the enforceability of this agreement?
(2) How did the Court resolve whether only the employer should pay all arbitrator expenses?
(3) How did the Court resolve the issue of the scope of judicial review of an arbitration award?
(4) What specific steps can be taken effectively to change this legal outcome in future cases?
(5) Is this a wise policy for organizations?
COMMENT: I have edited the court’s opinion. The full text is at the citation above.
JUDGES: Before: EDWARDS, Chief Judge, SILBERMAN and HENDERSON, Circuit Judges. Opinion for the Court filed by Chief Judge EDWARDS. Opinion concurring in part and dissenting in part filed by Circuit Judge HENDERSON.
OPINION BY: EDWARDS, Chief Judge:
I. SUMMARY OF OPINION
This case raises important issues regarding whether and to what extent a person can be required, as a condition of employment, to (1) waive all rights to a trial by jury in a court of competent jurisdiction with respect to any dispute relating to recruitment, employment, or termination, including claims involving laws against discrimination, and (2) sign an agreement providing that, at the employer's option, any such employment disputes must be arbitrated. At its core, this appeal challenges the enforceability of conditions of employment requiring individuals to arbitrate claims resting on statutory rights. The issues at hand bring into focus the seminal decision of Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 114 L. Ed. 2d 26, 111 S. Ct. 1647 (1991), and call into question the limits of the Supreme Court's holdings in that case.
In this case, the appellant, Clinton Cole, seeks to overturn an order of the District Court dismissing his complaint under Title VII of the Civil Rights Act of 1964, as amended, and compelling arbitration of his disputes with Burns International Security
Services ("Burns" or "Burns Security
"). Although Cole seemingly raised a viable action under Title VII, the District Court held that his statutory claims of employment discrimination should be dismissed pursuant to the Federal Arbitration Act ("FAA" or "Act"). The District Court held that Cole was bound by the agreement he had signed with Burns allowing the employer to opt for arbitration. In reaching this conclusion, the trial court found that the arbitration agreement was a valid and enforceable contract.
We find that the disputed arbitration agreement is valid. In doing so, we are cognizant of the numerous concerns that have been voiced by arbitrators, legal commentators, the Equal Employment Opportunity Commission ("EEOC"), and National Labor Relations Board ("NLRB") regarding the potential inequities and inadequacies of arbitration in individual employment cases, as well as their concerns about the competence of arbitrators and the arbitral forum to enforce effectively the myriad of public laws protecting workers and regulating the workplace. Nonetheless, in this case, we are constrained by Gilmer to find the arbitration agreement enforceable. We do not read Gilmer as mandating the enforcement of all mandatory agreements to arbitrate statutory claims; rather, we read Gilmer as requiring the enforcement of arbitration agreements that do not undermine the relevant statutory scheme. The agreement in this case meets that standard.
We note that this case raises an issue not directly presented in Gilmer or any other Supreme Court case to date: can an employer require an employee to arbitrate all disputes and also require the employee to pay all or part of the arbitrators' fees? We hold that it cannot. In Gilmer and other securities
industry cases, the employers routinely paid all arbitrators' fees, so the matter was not in dispute. However, there is no reason to think that the Court would have approved a program of mandatory arbitration of statutory claims in Gilmer in the absence of employer agreement to pay arbitrators' fees. Because public law confers both substantive rights and a reasonable right of access to a neutral forum in which those rights can be vindicated, we find that employees cannot be required to pay for the services of a "judge" in order to pursue their statutory rights. In this case, the parties' contract does not address explicitly the payment of the arbitrators' fees; however, because ambiguity in a contract should be resolved against the drafter--here, the employer--and ambiguity should be resolved in favor of a legal construction of the parties' agreement, we interpret the arbitration agreement at issue as requiring Burns to pay all arbitrators' fees associated with the resolution of Cole's claims. So construed, the contract is valid. The only way that an arbitration agreement of the sort at issue here can be lawful is if the employer assumes responsibility for the payment of the arbitrator's compensation.
Cole has also argued that the arbitration agreement should not be enforced because the arbitrator's rulings, even as to the meaning of public law under Title VII, will not be subject to judicial review. Cole is wrong on this point. In this context, the Supreme Court has assumed that arbitration awards are subject to judicial review sufficiently rigorous to ensure compliance with statutory law. Indeed, Burns has conceded such review in this case. Because the courts will always remain available to ensure that arbitrators properly interpret the dictates of public law, an agreement to arbitrate statutory claims of discrimination is not unconscionable or otherwise unenforceable.
Clinton Cole used to work as a security
guard at Union Station in Washington, D.C. for a company called LaSalle and Partners ("LaSalle"). In 1991, Burns Security
took over LaSalle's contract to provide security
at Union Station and required all LaSalle employees to sign a "Pre-Dispute Resolution Agreement" in order to obtain employment with Burns. The Pre-Dispute Resolution Agreement ("agreement" or "contract"), in relevant part, provides:
In consideration of the Company employing you, you and the Company each agrees that, in the event either party (or its representatives, successors or assigns) brings an action in a court of competent jurisdiction relating to your recruitment, employment with, or termination of employment from the Company, the plaintiff in such action agrees to waive his, her or its right to a trial by jury, and further agrees that no demand, request or motion will be made for trial by jury.
In consideration of the Company employing you, you further agree that, in the event that you seek relief in a court of competent jurisdiction for a dispute covered by this Agreement, the Company may, at any time within 60 days of the service of your complaint upon the Company, at its option, require all or part of the dispute to be arbitrated by one arbitrator in accordance with the rules of the American Arbitration Association. You agree that the option to arbitrate any dispute is governed by the Federal Arbitration Act, and fully enforceable. You understand and agree that, if the Company exercises its option, any dispute arbitrated will be heard solely by the arbitrator, and not by a court.
This pre-dispute resolution agreement will cover all matters directly or indirectly related to your recruitment, employment or termination of employment by the Company; including, but not limited to, claims involving laws against discrimination whether brought under federal and/or state law, and/or claims involving co-employees but excluding Worker's Compensation Claims.
The right to a trial, and to a trial by jury, is of value. YOU MAY WISH TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. IF SO, TAKE A COPY OF THIS FORM WITH YOU. HOWEVER, YOU WILL NOT BE OFFERED EMPLOYMENT UNTIL THIS FORM IS SIGNED AND RETURNED BY YOU.
On August 5, 1991, Cole signed the agreement and began working for Burns.
In October 1993, Burns Security
fired Cole. After filing charges with the Equal Employment Opportunity Commission, Cole filed the instant complaint in the United States District Court for the District of Columbia, alleging racial discrimination, harassment based on race, retaliation for his writing a letter of complaint regarding sexual harassment of a subordinate employee by another supervisor at Burns, and intentional infliction of emotional distress. Burns moved to compel arbitration of the dispute and to dismiss Cole's complaint pursuant to the terms of the contract.
The District Court found that the arbitration agreement clearly covered Cole's claims. The court also rejected Cole's suggestions (1) that the Pre-Dispute Resolution Agreement was excluded from coverage under the Federal Arbitration Act under 9 U.S.C. § 1, and (2) that the agreement was an unenforceable and unconscionable contract of adhesion. As a result, the trial court granted Burns Security
's motion to compel arbitration and dismissed Cole's complaint.
The Enforceability of Conditions of Employment Requiring Individual Employees to Arbitrate Claims Resting on Statutory Rights
We turn now to the heart of the problem in this case, i.e., the enforceability of conditions of employment requiring individual employees to use arbitration in place of judicial fora for the resolution of statutory claims. In considering this question, it is important to understand what this case is not about: (1) This is not a case in which an employee and an employer, in the face of a legal problem, have made an ad hoc, mutually voluntary decision to pursue arbitration or some other form of alternative dispute resolution in lieu of formal litigation. Rather this case involves a situation in which an employee has been required, as a condition of employment, to forego all access to jury trials and (at the employer's option) to use arbitration in place of judicial fora for the resolution of statutory as well as contractual claims. (2) This is not a case involving the enforcement of arbitration under a collective bargaining agreement. The employee here is acting alone, without ties to union representation and without any limitations imposed by a collective bargaining contract. This case does not present, and the court does not decide, any issue with regard to the validity of the waiver of a jury trial in a case that proceeds in court. The parties have not argued that the waiver of a jury trial, independent of the agreement to arbitrate, affects the validity of the contract at issue.
The Validity of the Agreement to Arbitrate in This Case
We start with the assumption that, under Gilmer, a person may agree to arbitrate statutory claims. We do not assume, however, that an employer has a free hand in requiring arbitration as a condition of employment.
Fortunately, in the instant case, the parties largely agree on the meaning of their arbitration agreement. Each side concurs in the following propositions:
(1) The agreement allows the employer the option of forcing statutory claims into arbitration for the resolution of public law issues; (2) The agreement's waiver of a jury trial is absolute, i.e., it operates even if the employer does not seek arbitration; (3) The agreement does not affect an employee's ability to seek relief from the Equal Employment Opportunity Commission; (4) The arbitrator is fully bound to apply Title VII and other applicable public law, both as to substance and remedy, in accordance with statutory requirements and prevailing judicial interpretation; and (5) The agreement provides for appointment of a neutral arbitrator through the American Arbitration Association ("AAA") and for the conduct of the arbitration proceeding in accordance with AAA rules.
The provisions of the AAA Rules immediately relevant to our analysis are as follows:
(1) Rule 7: The arbitrator has "the authority to order such discovery, by way of deposition, interrogatory, document production, or otherwise, as the arbitrator considers necessary to a full and fair exploration of the issues in dispute;"(2) Rule 32(b): "The award shall be in writing and shall be signed by a majority of the arbitrators and shall provide the written reasons for the award unless the parties agree otherwise;"(3) Rule 32(c): "The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable, including, but not limited to, any remedy or relief that would have been available to the parties had the matter been heard in court;"(4) Rule 35: A filing fee of $ 500 must be advanced by the initiating party, subject to final apportionment by the arbitrator in the award, and an administrative fee of $ 150 per hearing day must be paid by each party, but the AAA "may, in the event of extreme hardship on any party, defer or reduce the administrative fees;"(5) Rule 36: The expenses of the arbitration, including required travel and other expenses of the arbitrator, AAA representatives, and witnesses, will be shared equally by the parties, unless the parties agree otherwise or the arbitrator directs otherwise in the award; (6) Rule 37: The parties are to agree with the arbitrator on appropriate compensation for the arbitrator's work, but if the parties cannot agree with the arbitrator on a rate of compensation, the arbitrator's fee will be set by AAA. Payment of the arbitrator's fee is made through AAA, not directly between the parties and the arbitrator.
The parties stipulated that arbitrators' fees are commonly $ 500 to $ 1,000 or more per day. Significantly, however, the AAA Rules do not prescribe any particular allocation of responsibility for the payment of the arbitrators' fees.
The starting point of our analysis is the Supreme Court's decision in Gilmer. In that case, the Court held that an employee's agreement to arbitrate employment-related disputes may require him to arbitrate statutory claims under the ADEA because "by agreeing to arbitrate a statutory claim, [an employee] does not forgo the substantive rights afforded by the statute; [he] only submits to their resolution in an arbitral, rather than a judicial, forum." Gilmer, 500 U.S. at 26. As noted above, the Court emphasized that "so long as the prospective litigant effectively may vindicate [his or her] statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function."
In Gilmer, the employee raised four challenges to arbitration under the New York Stock Exchange Rules, claiming that arbitration impermissibly diminished his ability to effectively vindicate his statutory rights. First, Gilmer challenged the impartiality of the arbitrators. The Court rejected this challenge, finding that the NYSE Rules themselves provide protection against biased arbitrators and that judicial review under the FAA would allow the courts to set aside any decision in which there "was evident partiality or corruption in the arbitrators." Second, Gilmer objected that the limited discovery allowed in arbitration would unfairly hamper his ability to prove discrimination. Again, the Court rejected this claim, pointing out that the NYSE Rules provided for discovery and that agreements to arbitrate are desirable precisely because they trade the procedures of the federal courts for the simplicity, informality, and expedition of arbitration. Third, Gilmer objected that, because arbitrators do not always issue written awards, public knowledge of discrimination, appellate review, and the development of the law would be undermined by arbitration of his statutory claims. This claim too was rejected because, in fact, the NYSE Rules require that arbitration awards be in writing and allow public access to awards. Finally, Gilmer's objection that arbitration did not provide for equitable relief was rejected because the NYSE Rules did not restrict the types of relief available.
Obviously, Gilmer cannot be read as holding that an arbitration agreement is enforceable no matter what rights it waives or what burdens it imposes. At a minimum, statutory rights include both a substantive protection and access to a neutral forum in which to enforce those protections.
We believe that all of the factors addressed in Gilmer are satisfied here. In particular, we note that the arbitration arrangement (1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum. Thus, an employee who is made to use arbitration as a condition of employment "effectively may vindicate [his or her] statutory cause of action in the arbitral forum." Gilmer, 500 U.S. at 28.
Recently, the Department of Labor Commission on the Future of Worker-Management Relations ("Dunlop Commission"), chaired by John T. Dunlop, a former Secretary of Labor and current Professor Emeritus at Harvard University, endorsed a consensus view among employers and employees that:
If private arbitration is to serve as a legitimate form of private enforcement of public employment law, these systems must provide: a neutral arbitrator who knows the laws in question and understands the concerns of the parties; a fair and simple method by which the employee can secure the necessary information to present his or her claim; a fair method of cost-sharing between the employer and employee to ensure affordable access to the system for all employees; the right to independent representation if the employee wants it; a range of remedies equal to those available through litigation; a written opinion by the arbitrator explaining the rationale for the result; and
sufficient judicial review to ensure that the result is consistent with the governing laws. COMMISSION ON THE FUTURE OF WORKER-MANAGEMENT RELATIONS, REPORT AND RECOMMENDATIONS 30-31 (1994).
The Obligation to Pay Arbitrators' Fees
Although we find that the disputed arbitration agreement is legally valid, there is one point that requires amplification. The arbitration agreement in this case presents an issue not raised by the agreement in Gilmer: can an employer condition employment on acceptance of an arbitration agreement that requires the employee to submit his or her statutory claims to arbitration and then requires the employee to pay all or part of the arbitrators' fees? This was not an issue in Gilmer (and other like cases), because, under NYSE Rules and NASD Rules, it is standard practice in the securities
industry for employers to pay all of the arbitrators' fees. Employees may be required to pay a filing fee, expenses, or an administrative fee, but these expenses are routinely waived in the event of financial hardship.
Thus, in Gilmer, the Supreme Court endorsed a system of arbitration in which employees are not required to pay for the arbitrator assigned to hear their statutory claims. There is no reason to think that the Court would have approved arbitration in the absence of this arrangement. Indeed, we are unaware of any situation in American jurisprudence in which a beneficiary of a federal statute has been required to pay for the services of the judge assigned to hear her or his case. Under Gilmer, arbitration is supposed to be a reasonable substitute for a judicial forum. Therefore, it would undermine Congress's intent to prevent employees who are seeking to vindicate statutory rights from gaining access to a judicial forum and then require them to pay for the services of an arbitrator when they would never be required to pay for a judge in court.
There is no doubt that parties appearing in federal court may be required to assume the cost of filing fees and other administrative expenses, so any reasonable costs of this sort that accompany arbitration are not problematic. However, if an employee like Cole is required to pay arbitrators' fees ranging from $ 500 to $ 1,000 per day or more, in addition to administrative and attorney's fees, is it likely that he will be able to pursue his statutory claims? We think not. There is no indication in AAA's rules that an arbitrator's fees may be reduced or waived in cases of financial hardship. These fees would be prohibitively expensive for an employee like Cole, especially after being fired from his job, and it is unacceptable to require Cole to pay arbitrators' fees, because such fees are unlike anything that he would have to pay to pursue his statutory claims in court.
Arbitration will occur in this case only because it has been mandated by the employer as a condition of employment. Absent this requirement, the employee would be free to pursue his claims in court without having to pay for the services of a judge. In such a circumstance--where arbitration has been imposed by the employer and occurs only at the option of the employer--arbitrators' fees should be borne solely by the employer.
In sum, we hold that Cole could not be required to agree to arbitrate his public law claims as a condition of employment if the arbitration agreement required him to pay all or part of the arbitrator's fees and expenses. In light of this holding, we find that the arbitration agreement in this case is valid and enforceable. We do so because we interpret the agreement as requiring Burns Security
to pay all of the arbitrator's fees necessary for a full and fair resolution of Cole's statutory claims.
As we noted earlier, the disputed agreement does not explicitly address this issue; it merely incorporates the provisions of the AAA Rules. However, the AAA Rules are also silent on this point, so there is no clear allocation of responsibility for payment of arbitrator's fees. It is well understood that, where a contract is unclear on a point, an interpretation that makes the contract lawful is preferred to one that renders it unlawful. Therefore, in order to uphold the validity of the parties' contract, we interpret the arbitration agreement between Cole and Burns as requiring Burns to pay all arbitrators' fees in connection with the resolution of Cole's claims.
The final issue in this case concerns the scope of judicial review of arbitral awards in cases of this sort, where an employee is compelled as a condition of employment to arbitrate statutory claims. Cole has argued that the arbitration agreement is unconscionable, because any arbitrator's rulings, even as to the meaning of public law under Title VII, will not be subject to judicial review. Cole is wrong on this point.
Judicial review of arbitration awards covering statutory claims is necessarily focused, but that does not mean that meaningful review is unavailable. The FAA itself recognizes a number of grounds on which arbitration awards may be vacated, including:
Where the award was procured by corruption, fraud, or undue means. (2) Where there was evident partiality or corruption in the arbitrators, or either of them. (3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced. (4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10(a).
The grounds listed in the FAA, however, are not exclusive. Indeed, even in the context of arbitration in collective bargaining--where judicial review of arbitral awards is extremely limited--awards may be set aside if they are contrary to "some explicit public policy" that is "well defined and dominant" and ascertained "by reference to the laws and legal precedents." There is no doubt that the scope of review of arbitration in cases involving mandatory arbitration of statutory claims is at least as great as the judicial review available in the context of collective bargaining.
The Supreme Court has also indicated that arbitration awards can be vacated if they are in "manifest disregard of the law." Although this term has not been defined by the Court, and the circuits have adopted various formulations, we believe that this type of review must be defined by reference to the assumptions underlying the Court's endorsement of arbitration.
Two assumptions have been central to the Court's decisions in this area. First, the Court has insisted 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." Second, the Court has stated repeatedly that, "although judicial scrutiny of arbitration awards necessarily is limited, such review is sufficient to ensure that arbitrators comply with the requirements of the statute' at issue." These twin assumptions regarding the arbitration of statutory claims are valid only if judicial review under the "manifest disregard of the law" standard is sufficiently rigorous to ensure that arbitrators have properly interpreted and applied statutory law.
The value and finality of an employer's arbitration system will not be undermined by focused review of arbitral legal determinations. Most employment discrimination claims are entirely factual in nature and involve well-settled legal principles. In fact, one study done in the 1980s found that discrimination cases involve factual claims approximately 84 % of the time. As a result, in the vast majority of cases, judicial review of legal determinations to ensure compliance with public law should have no adverse impact on the arbitration process. Nonetheless, there will be some cases in which novel or difficult legal issues are presented demanding judicial judgment. In such cases, the courts are empowered to review an arbitrator's award to ensure that its resolution of public law issues is correct. Indeed, at oral argument, Burns conceded the courts' authority to engage in such review. Because meaningful judicial review of public law issues is available, Cole's agreement to arbitrate is not unconscionable or otherwise unenforceable.
We acknowledge the concerns that have been raised regarding arbitration's ability to vindicate employees' statutory rights. However, for all of arbitration's shortcomings, the process, if fairly conducted, is not necessarily inferior to litigation as a mechanism for the resolution of employment disputes. As the Dunlop Commission recognized:
Litigation has become a less-than-ideal method of resolving employees' public law claims. As spelled out in the Fact Finding Report, employees bringing public law claims in court must endure long waiting periods as governing agencies and the overburdened court system struggle to find time to properly investigate and hear the complaint. Moreover, the average profile of employee litigants ... indicates that lower-wage workers may not fare as well as higher-wage professionals in the litigation system; lower-wage workers are less able to afford the time required to pursue a court complaint, and are less likely to receive large monetary relief from juries. Finally, the litigation model of dispute resolution seems to be dominated by "ex-employee" complainants, indicating that the litigation system is less useful to employees who need redress for legitimate complaints, but also wish to remain in their current jobs. COMMISSION ON THE FUTURE OF WORKER-MANAGEMENT RELATIONS, REPORT AND RECOMMENDATIONS at 30.
Arbitration also offers employees a guarantee that there will be a hearing on the merits of their claims; no such guarantee exists in litigation where relatively few employees survive the procedural hurdles necessary to take a case to trial in the federal courts.
As a result, it is perhaps misguided to mourn the Supreme Court's endorsement of the arbitration of complex and important public law claims. Arbitrators, however, must be mindful that the Court's endorsement has been based on the assumption that "competent, conscientious, and impartial arbitrators" will be available to decide these cases. Therefore, arbitrators must step up to the challenges presented by the resolution of statutory issues and must be vigilant to protect the important rights embodied in the laws entrusted to their care.
"Greater reliance on private process to protect public rights imposes a professional obligation on arbitrators to handle statutory issues only if they are prepared to fully protect the rights of statutory grievants." And appointing agencies like AAA must be certain that only persons who are able to satisfy these criteria are added to arbitrator-panel lists. For if arbitrators and agencies do not meet these obligations, the courts will have no choice but to intercede.
For the foregoing reasons, we affirm the District Court's order dismissing the complaint and compelling arbitration.
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