A recent decision by the U.S. Supreme Court raises concerns for employers who require their employees to arbitrate employment-related disputes. In EEOC v. Waffle House, Inc., the Supreme Court held that a private arbitration agreement between an employee and his employer does not prevent the Equal Employment Opportunity Commission (EEOC) from initiating a federal lawsuit against the employer to recover damages for discrimination on behalf of the employee.
Eric Baker, a grill cook at Waffle House who had agreed in his employment application to arbitrate all disputes concerning his employment, was fired after suffering a seizure on the job. Baker filed a discrimination complaint with the EEOC, claiming that his discharge violated the Americans with Disabilities Act (ADA), which prohibits discrimination on the basis of disability. After an investigation and attempts to conciliate, the EEOC brought its own action in federal district court against Waffle House, alleging that Waffle House’s practices, including Baker’s discharge, violated the ADA. Baker was not named as a party to the lawsuit, but the EEOC sought his reinstatement and to have him made whole for his financial losses. In addition, the EEOC sought punitive damages for malicious and reckless indifference to Baker’s federally protected rights, as well as injunctive relief to prevent future violations.
Waffle House immediately attempted to stay or dismiss the EEOC’s lawsuit and to require Baker to arbitrate his claims pursuant to the arbitration agreement. Waffle House’s petition was rejected, and the case eventually made its way to the U.S. Supreme Court. The Supreme Court agreed to hear the case because lower federal courts around the United States had reached conflicting results concerning the effect of a private arbitration agreement on the EEOC’s ability to pursue discrimination claims in court. Some courts had ruled that such an arbitration agreement has no impact on the EEOC, whereas others held that it would constrain the type of relief the EEOC could seek in any court action. These latter cases allowed the EEOC to pursue injunctive but not monetary relief.
The Supreme Court ruled in favor of the EEOC and held that private arbitration agreements between employers and employees do not bar the EEOC from instituting a court action, nor do such agreements limit the remedies available to the EEOC. Thus, in Waffle House, the EEOC was able to pursue its court action and attempt to recover, among other things, monetary damages for Mr. Baker.
The Supreme Court’s decision, however, left open two important issues. In Waffle House, no arbitration had taken place, nor had the parties entered into a voluntary settlement. Thus, the Supreme Court did not address the question of whether an arbitration award or a private settlement agreement would have any effect on the ability of the EEOC to pursue a claim or on the type of relief it may seek.
Many employers have adopted mandatory arbitration policies to achieve a speedy, relatively inexpensive resolution and finality. The Court's decision deals a blow to both of these goals. Civil litigation with the EEOC will often be a lengthy, expensive and time-consuming exercise. In addition, having left unanswered the question of the effect, if any, of an arbitration proceeding or award, the Supreme Court did not preclude the possibility that employees may be afforded two bites at the apple¾ the ability to pursue arbitration and litigation through an EEOC action.
In perhaps the only bright light in the decision for employers, the Court opined that it would not sanction an individual’s recovery of double damages. Accordingly, in a case where an arbitrator awards an individual $20,000 in damages and a federal court in a subsequent lawsuit filed by the EEOC awards $80,000 in damages, the individual could only recover a total of $80,000 from the employer, not $100,000.
As a practical matter, the Court's decision may only have a limited effect on most employers with mandatory arbitration agreements. Each year, the EEOC decides to pursue civil litigation in less than one percent of the claims filed. Accordingly, the likelihood of the EEOC pursuing a particular action is somewhat remote. On the other hand, many state anti-discrimination agencies (where more cases are actually handled) have taken the same position as the Supreme Court, namely that a private arbitration agreement is no bar to their proceedings, and the Court's ruling in Waffle House has implicitly sanctioned this position.
Employers are encouraged to review their current policies on mandatory arbitration of employment disputes to assess whether the goals and objectives that led to the creation of the policies (be they cost, speed, finality, employee relations or the like) remain attainable in light of this legal development. Similarly, employers who are considering whether to adopt a mandatory arbitration policy need to do so with the Waffle House decision in mind. Before taking any action with respect to arbitration policies, employers should consult with legal counsel to review not only the Waffle House decision, but any relevant state law considerations as well.