The Mandatory Arbitration of Employees' Statutory Claims

• Publication year: 2001
• Pages: 71

30 Colo.Law. 71 Colorado Lawyer 2001.

2001, November, Pg. 71. The Mandatory Arbitration of Employees' Statutory Claims

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71

Vol. 30, No. 10, Pg.71

The Colorado Lawyer
November 2001
Vol. 30, No. 11 [Page 71]

Specialty Law Columns
Labor and Employment Review
The "Mandatory" Arbitration of Employees' Statutory Claims
by John A. Criswell

The past two decades have witnessed an increasing number of claims asserted by employees against their employers Simultaneously, parties to all types of civil actions have made increasing use of alternate methods of dispute resolution. Use of most of these alternate methods results from the parties' voluntary agreement made after the dispute arises. However, as a result of the U.S. Supreme Court's interpretation of a long-standing federal statute, the obligation to use at least one method of dispute resolution—arbitration—can be imposed on an employee by an employer before any dispute arises and without the employee's true voluntary agreement. This article summarily examines the circumstances under which an employer can compel use of the arbitration process to resolve claims under federal or state statutes and some practical considerations attendant to its use

The Federal Arbitration Act

The Federal Arbitration Act ("FAA"),1 requires that an arbitration provision in any "contract evidencing a transaction involving commerce" be treated as "valid, irrevocable, and enforceable," except to the extent that the law would authorize the revocation of any contract.2 This statutory mandate has been interpreted broadly, so that the contracts to which it applies are all those to which the congressional power under the Interstate Commerce Clause might be extended.3

Further, if the FAA applies to a particular contract, this statute will govern the parties' arbitration obligation and the application of any inconsistent state laws will be pre-empted because:

In enacting [the FAA], Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims that the contracting parties agreed to resolve by arbitration.4

Therefore, while Colorado's public policy would prohibit the arbitration of an employee's statutory wage claim under the Colorado Wage Act,5 if the contract of employment is one to which the FAA applies, it will "trump" that public policy and require arbitration of such a claim.6 Likewise, an agreement to arbitrate state law securities claims must be enforced, even if the state securities statute contains an express prohibition against such arbitration.7 Further, if the FAA applies, the Colorado courts may not use the "intertwining" doctrine to deny arbitration of an otherwise arbitrable claim.8 This doctrine prohibits arbitration of an arbitrable claim that is factually intertwined with one that is not and was adopted by the Colorado Supreme Court in Sandefer v. District Court.9

FAA § 110 makes the statute inapplicable to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." However, the U.S. Supreme Court has recently held that this exemption applies only to employees who are directly involved in the transportation of interstate freight. Hence, the employment contract of an employee whose employer's business has an effect on interstate commerce, but whose job duties do not directly involve the movement of interstate freight, will be subject to the requirements of the FAA.11

It is possible, at least under some circumstances, for the parties to an agreement containing an arbitration clause to elect to have their agreement governed by state law, rather than by the FAA.12 However, a mere general choice of laws clause, designating a particular state's laws as those to govern the entire agreement, will not be treated as such an election.13

The Gilmer v. Interstate/ Johnson Lane Corporation Decision

The broad inclusiveness of the FAA and its pre-emptive reach have become significant with respect to the arbitration of employee statutory claims because of the U.S. Supreme Court's decision in Gilmer v. Interstate/Johnson Lane Corporation.14 Gilmer involved an action by a discharged employee of a stock broker who sought to pursue an Age Discrimination in Employment Act15 ("ADEA") claim in federal court. However, the employee had been required to register with the New York Stock Exchange ("NYSE") as a condition of his employment, and the registration application required arbitration under that exchange's rules of "[a]ny controversy between a registered representative and any member or member organization arising out of the employment or termination of employment of such registered representative."16 The Court held that the FAA required the employee to arbitrate his ADEA claim pursuant to the NYSE registration application. In doing so, the Court discussed two subjects that will affect a claim by an employee under any federal statute.

First, the Court noted that it had previously required the arbitration of various federal statutory claims.17 Therefore, a party who has agreed to do so must submit a statutory claim to the arbitration process, unless that party can demonstrate that Congress intended not to allow the arbitration of such a claim. Moreover, such intent must be discoverable from the text of the statute, from its legislative history, or from some "inherent conflict" between the purpose of the statute and the arbitration process. In addition, determination of this question of intent must recognize the general federal policy that favors arbitration.

Second, the Court concluded that nothing within the ADEA or its legislative history disclosed any intent to prohibit the arbitration of employee ADEA claims. In reaching this conclusion, the Court noted that the purpose of arbitration is not to require a party to forego any substantive rights, but it is merely to require that the claim be resolved in an arbitral forum.18 Also, the Court ultimately concluded that there was no inconsistency between the purposes of the ADEA and the arbitration process agreed on by the parties.

In reaching this latter conclusion, the Court rejected four specific objections to that process raised by the employee:

The arbitrators might be biased (rejected because the NYSE's rules contained various protections against arbitrator bias and the FAA allows a biased award to be set aside);

The limited discovery available was inadequate (rejected because...