Arbitration Analysis

Arbitration is the process of resolving an argument outside the formal court system.  An arbitrator listens to both parties and determines an agreement that is fairest to both parties.  As a part of the hiring process, many employers are mandating voluntary arbitration agreements between the employee and the company as part of the application process for hiring.

These types of arbitration agreements have caused concern from the Equal Employment Opportunity Commission for employee protection.  One famous case arose between the Equal Employment Opportunity Commission and Waffle House.  The rulings from the case by both the Circuit Courts and the Supreme Courts have changed the structure and proceedings for the mandatory arbitration agreements between employees and employers.

When an employee of Waffle House was fired after having a seizure during work hours, the Equal Employment Opportunity Commission filed legal action against Waffle House.

Because the Equal Employment Opportunity Commission was not part of the mandatory arbitration agreement between Waffle House and the employee the case was taken to the courts “In EEOC v. Waffle House, Inc., the Supreme Court held that an agreement between an employer and an employee to arbitrate employment disputes does not bar the EEOC from pursuing an independent lawsuit on the employee’s behalf and seeking employee—specific judicial relief.” (Labor and Employee Relations, 2002)  The Equal Employment Opportunity Commission filed a complaint that Waffle House was in violation of the Americans with Disabilities Act and sought punitive damages and back pay for the employee.

At first glance, one might come to the conclusion that the Equal Employment Opportunity Commission has essentially replaced the arbitration process between employers and employees.  If the Equal Employment Opportunity Commission can file complaints because a representative of the commission had not signed an agreement with the company, it is natural to assume that companies would find such agreements to be futile and worthless.  Now employees can file an arbitration claim and an Equal Employment Opportunity Commission claim against employers.

The main purpose of the mandatory arbitration agreements was to keep employee suits out of the court system to save both the employee and the company legal fees.  Under the Supreme Court rulings it would appear that employers are no longer protected and the use of arbitration agreements with employees would potentially increase the possibility of having a suit filed against the company.

However, employers know that the number of cases that the Equal Employment Opportunity Commission actually takes to the courts is extremely low in comparison to the number of cases the commission receives annually.  The chances of a case going to litigation is significantly low as long as the employer has examined the wording of the mandatory arbitration agreements and has maintained safe and fair working practices.

Even though the Supreme Court left open the statue of limitations on cases filed by the Equal Employment Opportunity Commission and the type of damages that could be sought, mandatory arbitration is still viewed as a cost effective method to settle employee disputes with companies.  “If the employee failed to mitigate his or her damages, any recovery by the EEOC would be limited accordingly.” (Labor and Employee Relations, 2002)

Employers who practice sound business procedures are still protected by the mandatory arbitration agreements because an employee is limited on the types of compensation that can be claimed either by the employee or by the commission on the employee’s behalf.  In addition, many employees that sign the mandatory arbitration agreements are completely unaware of the existence of the Equal Employment Opportunity Commission or that they can file outside of the company’s chosen arbitrator for law suits against the company.  Even though technically employees have two methods to file against an employer, the reality is that most employees are ignorant of the resources at their disposal.

The Supreme Court’s decision to allow the Equal Employment Opportunity Commission to represent employees outside of mandatory arbitration has not deterred companies from continuing the practice of these requiring these agreements.  Arbitration remains the most cost effective method to settle employee disputes by avoiding high legal fees for both the company and the employee.  The Supreme Court’s decision resulted in companies practicing more equitable work procedures.

In addition, the decision forced companies to examine existing agreements and modify them to be more equitable to the employer.  With the changes in the arbitration agreements, the low percentage of cases taken to court by the Equal Employment Opportunity Commission and the lack of knowledge by employees of the commission’s existence the use of mandatory arbitration agreements to settle employee disputes is still cost effective and on the rise for companies.