March 23, 2001

The Supreme Court has issued a major decision enforcing agreements that require non-union employees to arbitrate employment disputes instead of suing in court. Circuit City v. Adams, S. Ct. Case No. 99-1379 (March 20, 2001). The Court held that an employee can be required to arbitrate employment disputes under the Federal Arbitration Act, unless the employee is directly engaged in the interstate transportation of goods. Until now, the federal Courts of Appeals across the country were split on the issue. The Ninth Circuit, which includes Oregon and Washington, had held that such agreements were unenforceable.

In this particular case, an employee sued Circuit City in California state court, claiming discrimination on the basis of sexual orientation and various other state claims. The employee had signed an agreement that he would arbitrate all employment disputes. The Ninth Circuit Court of Appeals had held that the mandatory arbitration agreement was unenforceable, but the Supreme Court disagreed and upheld the agreement.

Over the past decade, some employers, especially in the securities industry, have required employees to sign mandatory arbitration agreements when hired, either in a separate agreement or on the application form. Now that the Supreme Court has taken a major step toward upholding such agreements in many situations, you might want to consider whether a mandatory arbitration requirement is right for your company. 

Our Comment:

Mandatory arbitration is a two-way street. Arbitration can eliminate "jury risk." On the other hand, an unsatisfactory arbitrator's decision is subject to very limited court review. Employees may also require your company to arbitrate disputes they might not have taken to court. If your company opts for mandatory employment arbitration, it should establish a clear, fair procedure governing both the selection of arbitrators and the arbitration proceeding itself.

Our upcoming Human Resources Roundtable (May 16, 2001 at 7:30 a.m.) will focus on Employment Dispute Resolution, including mandatory arbitration and alternatives. For more details or to reserve a spot now, send us an email. 

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