Eeoc v. Waffle House, Inc.: Employers Beware - the Eeoc Is Now the "master of Its Own Case' - Brandon L. Peak

• Citation: Vol. 54 No. 3
• Publication year: 2003

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EEOC v. Waffle House, Inc.

Employers Beware—the EEOC is now the

"Master of its own Case"

In EEOC v. Waffle House, Inc.,¹ the United States Supreme Court held that an otherwise enforceable employment agreement between a private employer and employee to arbitrate employment-related disputes did not bar the Equal Employment Opportunity Commission ("EEOC") from pursuing victim-specific relief against the employer for an alleged violation of the Americans with Disabilities Act ("ADA"),² even though the employee was not a party to the suit.³ The Court rejected the Fourth Circuit Court of Appeals holding that the EEOC's remedies in an enforcement action against an employer party to such an agreement should be limited to injunctive relief.⁴ Instead, the Supreme Court held that valid forum and remedy-limiting private arrangements between employer and employee do not restrict the EEOC's authority to pursue enforcement in court and to seek the full range of remedies available under the ADA and, by extension, Title VII of the Civil Rights Act of 1964.⁵

I. Factual Background

As a condition of employment, Eric Baker was required to sign a mandatory arbitration agreement like all other prospective Waffle House employees.⁶ The agreement stated "that any dispute or claim concerning Applicant's employment with Waffle House, Inc., . . . or the terms, conditions or benefits of such employment, including whether such dispute or claim is arbitrable, will be settled by binding arbitration."⁷ Sixteen days after Baker began working as a grill operator at a Waffle House, Baker suffered a seizure and was subsequently discharged. Instead of initiating arbitration proceedings in the seven years ensuing his discharge, Baker filed a timely charge of discrimination with the EEOC, alleging that his discharge violated the ADA.⁸

The EEOC investigated Baker's discharge and attempted to conciliate with Waffle House, Inc. After the settlement attempt proved unsuccessful, the EEOC filed an enforcement action against the employer in the United States District Court for the District of South Carolina pursuant to 42 U.S.C. Sec. 12,117(a)⁹ and 42 U.S.C. Sec. 1981(a).¹⁰ The EEOC claimed that Waffle House engaged in employment practices that violated the ADA. Specifically, the EEOC contended that Waffle House discharged Baker because of his disability with malice or reckless indifference to Baker's federally protected rights.¹¹

Not only did the EEOC's complaint request injunctive relief to "'eradicate the effects of. . . Waffle House's past and present unlawful employment practices,'"¹² the EEOC also requested that the district court order "specific relief designed to make Baker whole, including backpay, reinstatement, and compensatory damages, and to award punitive damages for malicious and reckless conduct."¹³ Thus, the EEOC requested specific relief on Baker's behalf even though Baker was not a party to the case.¹⁴

Contesting the validity of the EEOC's claim, Waffle House filed a petition under the Federal Arbitration Act ("FAA")¹⁵ to stay the EEOC's action and compel arbitration or, in the alternative, to dismiss the suit. The district court denied the motion, ruling that Baker's employment contract did not include the arbitration provision, and Waffle House appealed.¹⁶ On appeal, the Fourth Circuit held that a "valid, enforceable arbitration agreement" between Waffle House and Baker did exist.¹⁷ Addressing the effect on the EEOC of the binding arbitration agreement between Baker and Waffle House, the court of appeals held that the agreement did not entirely foreclose the enforcement action to the extent it sought injunctive reliefbecause the EEOC was not a party to the employment contract.¹⁸ But, while confirming that the EEOC has independent statutory authority to bring suit in federal court, the Fourth Circuit also held "that the EEOC was precluded from seeking victim-specific relief in court because the policy goals expressed in the FAA required giving some effect to Baker's arbitration agreement."¹⁹ The Supreme Court granted the EEOC's petition for certiorari to resolve whether the EEOC should be precluded from seeking victim-specific reliefwhen an employee has signed a mandatory arbitration agreement and reversed that aspect of the court of appeals decision.²⁰

II. Legal Background

Arbitration was used as a means of dispute resolution long before Congress adopted the Federal Arbitration Act of 1925.²¹ Colonial merchants and trade associations favored arbitration because of its speed, privacy, informality, and expense.²² Although many associations and businesses favored arbitration, English and early American common law shunned and disfavored the use of arbitration as a means of dispute resolution.²³ Arbitration did not receive legitimacy in the eyes of the American Judicial System until Congress passed the FAA in 1925 and then reenacted and codified the FAA in 1947 as Title 9 of the United

States Code.²⁴

Congress intended the FAA to "reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements upon the same footing as other contracts."²⁵ The FAA was written to convey a "liberal federal policy favoring arbitration agree-ments."²⁶ Section 3 of the FAA does this by allowing parties to stay any judicial proceeding when the issue they are disputing is referable to arbitration under a written arbitration agreement between the parties.²⁷

Although American courts addressed a wide array ofarbitration issues after the FAA's inception,²⁸ the Supreme Court did not address the FAA's effect on government agencies like the EEOC until 1991.²⁹ In Gilmer v. Interstate/Johnson Lane Corp.,³⁰ a securities representative signed a registration application agreeing to arbitrate any dispute or claim against Interstate/Johnson Lane ("Interstate"). Six years later, at the age of sixty-two, the securities representative was terminated by Interstate.³¹ After filing a timely charge alleging violation of the Age

Discrimination Employment Act ("ADEA")³² with the EEOC, the securities representative instituted action in the United States District Court for the Western District of North Carolina. In response, Interstate filed a motion to compel arbitration based on the registration application. The district court denied Interstate's motion, and Interstate appealed.³³ The Fourth Circuit disagreed with the district court's decision, finding "'nothing in the text, legislative history, or underlying purposes of the ADEA indicating a congressional intent to preclude enforcement of arbitration agreements.'"³⁴

The Supreme Court granted certiorari to determine "whether a claim under the . . . [ADEA] . . . can be subjected to compulsory arbitration pursuant to an arbitration agreement in a securities registration application."³⁵ The securities representative argued that allowing compulsory arbitration would weaken the EEOC's ability to enforce the ADEA.³⁶ The Supreme Court dismissed the argument, writing:

An individual ADEA claimant subject to an arbitration agreement will still be free to file a charge with the EEOC, even though the claimant is not able to institute a private judicial action. Indeed, [the securities representative] filed a charge with the EEOC in this case. In any event, the EEOC's role in combating age discrimination is not dependent on the filing of a charge; the agency may receive information concerning alleged violations of the ADEA "from any source," and it has independent authority to investigate age discrimination.³⁷

Thus, the Court in Gilmer held the private arbitration agreement enforceable and preclusive of a judicial action by the employee against the employer in advance of the agreed arbitration, notwithstanding the possibility of a separate and independent proceeding that might be brought by the EEOC.³⁸

The first case to address specifically whether the EEOC could seek victim-specific relief in court for an employee who had entered into an arbitration agreement was EEOC v. Kidder, Peabody & Co.³⁹ In Kidder the EEOC appealed a decision ofthe United States District Court for the Southern District of New York barring the EEOC from seeking monetary damages on behalf of individuals who had previously signed an agreement to submit all employment related claims to binding arbitra- tion. The EEOC sought backpay, liquidated damages, and reinstatement on behalf of seventeen former Kidder employees who had filed claims with the EEOC alleging they had been terminated on the basis of their age. Two years after filing suit, the EEOC stipulated with Kidder ("employer") that it would no longer seek injunctive relief. The employer then moved to dismiss the suit on the basis that the arbitration agreements signed by the former employees precluded the EEOC from seeking victim-specific relief.⁴⁰ The district court granted the employer's motion to dismiss and found that "'the clear implication of the Gilmer decision is that the EEOC may not seek monetary relief on behalf of claimants who have entered into valid arbitration agree-ments.'"⁴¹ The district court further concluded that allowing the EEOC to seek victim-specific relief would undermine the purpose of the FAA by allowing employees to circumvent their arbitration agreements through EEOC intervention in federal court.⁴²

The Second Circuit affirmed the district court's decision and dismissed the action.⁴³ The Second Circuit likened the question of whether the EEOC could seek victim-specific relief on behalf of an employee who had previously signed a valid arbitration agreement to the question of whether the EEOC could sue on behalf of an individual who had previously waived or unsuccessfully litigated a claim.⁴⁴ The Second Circuit cited several decisions holding that the EEOC was precluded from seeking monetary relief for an individual who had unsuccessfully litigated the...