EEOC v. Waffle House: employers win, again: the U.S. Supreme Court handed employees who sign mandatory arbitration agreements a hollow victory because the EEOC brings so few cases in court.

• Author: Burton, Chad Egan

SIXTEEN days after Eric Baker began working as a Waffle House grill operator, he suffered from a seizure at work. Shortly after that, he was fired. Like all prospective Waffle House employees, he had signed a mandatory arbitration agreement as a condition of employment. It mandated that any dispute arising from his employment would be resolved through binding arbitration. Mandatory arbitration agreements have become popular tools employers use to keep disputes with employees, including Title VII claims under the Civil Rights Act of 1964, out of the courts.

In 2001 in Circuit City Stores Inc. v. Adams, (1) the U.S. Supreme Court held that the Federal Arbitration Act (FAA) precludes employees under mandatory arbitration agreements, like Baker, from bringing an individual private lawsuit against their employer. In 2002 in Equal Employment Opportunity Commission v. Waffle House, (2) the Court seemed to loosen the collar on its continued enforcement of arbitration agreements, and it held that the EEOC could file a lawsuit to recover monetary damages on behalf of these employees.

Unfortunately, the Waffle House decision may not provide the relief employees need. (3) The Court left open the question of whether a claim brought by the EEOC would be precluded if an employee previously arbitrated the claim. Whether or not the employee does so, employers are still ahead. If an employee's arbitration precludes an EEOC claim, the employer has the advantage because arbitrating employment discrimination claims favors the employer. Even if the EEOC may pursue a claim against the employer, statistics show that the likelihood of a lawsuit is very low.

ROAD TO WAFFLE HOUSE

1. In the Beginning

   Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on an "individual's race, color, religion, sex, or national origin." 42 U.S.C. [section] 2000e et seq. It also created the Equal Employment Opportunity Commission. The commission originally did not have the power to file suit against employers, but in 1972 Congress amended the act to give the EEOC to bring its own enforcement actions in federal court--declaratory relief, injunctions, and back pay for victims. The Civil Rights Act of 1991 again amended Title VII to allow the "complaining party," a term that includes private plaintiffs and the EEOC, to recover reinstatement of employees, as well as compensatory and punitive damages for unlawful discriminatory acts. 42 U.S.C. [section] 1981. The 1991 amendments also applied to claims under the American with Disabilities Act, which was involved in Waffle House.

   When it enacted the 1991 amendments, Congress supported the use of arbitration, stating that "[w]here appropriate and to the extent authorized by law, the use of alternative means of dispute resolution, including ... arbitration, is encouraged to resolve disputes arising under the acts." This provision has lead courts to determine whether mandatory binding arbitration clauses, which can force employees to waive their statutory rights to bring federal discrimination claims, are legal and enforceable. (4)

   The Federal Arbitration Act (FAA), 9 U.S.C. [section] 1 et seq., enacted in 1925, mandates judicial enforcement of all written arbitration agreements, including any "maritime transaction or a contract evidencing a transaction involving commerce." Section 1 of the act expressly states that it does not apply to "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." The drafting history of the FAA indicates that it was intended to enforce commercial arbitrations and that it was not meant to apply to employment contracts. Despite these historical indications, the U.S. Supreme Court has ultimately construed the act to include almost all employment arbitration agreements?

2. Along the Way

   Three cases explain how the Supreme Court has enforced mandatory arbitration agreements and expanded the FAA beyond its original purpose.

   In 1974 in Alexander v. Gardner-Denver Co., (6) the plaintiff was under a collective bargaining agreement that required his Title VII claim to be submitted to an arbitration hearing. He lost there and then filed a Title VII racial discrimination lawsuit against his employer. The 10th Circuit held that the collective bargaining agreement's arbitration clause precluded a Title VII lawsuit, but the Supreme Court reversed, holding that the federal court system was the proper forum to enforce Title VII claims. In the years following Alexander, the Court extended its decision to other statutory claims. (7)

   In 1991 in Gilmer v. Interstate/Johnson Lane Corp., (8) the Court did not officially overrule Alexander, but it held that arbitration could be the proper forum to resolve statutory claims. The plaintiff sued his former employer, claiming his discharge violated the Age Discrimination in Employment Act (ADEA). 29 U.S.C. [section] 621 et seq. The employer moved to compel arbitration based on the arbitration agreement in the plaintiff's New York Stock Exchange securities representative application. Relying on Alexander, the district court denied the motion to compel and held that Congress intended to shield ADEA claimants from a waiver of the judicial forum. The Fourth Circuit reversed this decision, and the Supreme Court upheld the reversal. It ruled that arbitration agreements may direct statutory claims to be arbitrated, and these claims are enforceable under the FAA. The Gilmer Court mainly focused on whether the ADEA allowed the plaintiff's claims to be arbitrated, but it did not address the general scope of the FAA pertaining to employment contracts.

   To resolve a circuit split regarding the scope of the FAA for employment contracts, the Supreme Court granted certiorari in Circuit City. (9) The Ninth Circuit had held that all employment contracts are exempted from the FAA. The Supreme Court reversed and reached its decision through statutory construction of the FAA, concluding that the FAA is an enforcement mechanism for all employment arbitration agreements except those in the transportation industry. (10)

   The plaintiff Adams, who was hired as sales consultant at a Circuit City store California, argued that his employment contract was not enforceable, because the FAA applies only to commercial agreements and not employment contracts. The Court rejected this contention, holding that if all employment contracts were exempt from the FAA, then the Section 1 exemption for "contracts of employment of seamen, railroad employees, or any other class of workers engaged in ... interstate commerce" would be superfluous. The Court, applying the maxim ejusdem generis, also held that only transportation employment contracts were exempt because the statute specifically names contracts of "seamen and "railroad employees" before stating "or any other class of workers." The phrase "engaged in commerce" in Section 1, the Court stated, is understood to limit the reach of the exemption so as not to exclude all employment contracts from the FAA.

3. Post-Circuit City

   The Circuit City holding has been criticized. One commentator has raised three points. The first is that the Supreme Court disregarded the intent of Congress. The Court had stated that the congressional record was scant and the intent too difficult determine. Another is that the language of the FAA clearly exempts employment contracts, so the Court did not need to resort to the canons of statutory construction to render its decision. Section l's exclusion of "any other class of workers" is unambiguous and stands alone from "seamen" and "railroad workers." A final criticism is that the Court's inclusion of almost all employment contracts "leads to a bizarre result, one that is hard to imagine Congress could have intended when it originally passed the FAA." The Court's choice to exclude only transportation workers, over which it already had federal jurisdiction through its commerce power, gave the states jurisdiction over these contracts. On the other hand, the Court's decision brings into federal jurisdiction employment contracts of workers in which there is likely no other federal jurisdiction, and in doing so, deprives the states of jurisdiction over non-transportation employment contracts. (11)

   Despite these criticisms, Circuit City reaffirms the Supreme Court's desire to enforce mandatory arbitration agreements in the employment setting. (12) As long as the Court expands the reach of the FAA, employers will have the upper hand in resolving employment disputes through the arbitration process.

   Now Waffle House seems to give employees some hope in being able to resolve employment discrimination claims in the courts.

   ARRIVING AT WAFFLE HOUSE

1. Circuit Split

   Prior to the Supreme Court's decision in Waffle House, a circuit split developed on whether the EEOC may seek monetary relief in federal court on behalf of employees who signed mandatory arbitration agreements. Two views emerged: (1) that the EEOC may only seek injunctive relief or (2) that the EEOC may seek both monetary and injunctive relief.

   1. Only Injunctive Relief

      In EEOC v. Kidder, Peabody & Co., (13) the Second Circuit held that the EEOC could pursue only injunctive relief in federal court on behalf of employees subject to mandatory arbitration agreements, the same conclusion of the Fourth Circuit in Waffle House. In Kidder, Peabody, the EEOC sought back pay, liquidated damages and reinstatement under the ADEA on behalf of 17 investment bankers. The Court held that the EEOC was precluded from seeking purely monetary damages because the bankers signed an arbitration agreement under which they could obtain such relief. Allowing the EEOC to pursue purely monetary relief, the Court stated, would undermine the FAA's policy favoring the enforcement of arbitration agreements.

      The Kidder, Peabody Court also held that an injunction is the proper remedy since the EEOC...