Decision Frees Workers From Mandatory Arbitration Rule

A federal appeals court decision last week declares that workers can sue their companies for discrimination under U.S. civil rights law and not be forced to use mandatory arbitration. The ruling is likely to fuel growing opposition to mandatory arbitration clauses and could affect millions of people, according to legal scholars.

Attorneys say there are clear advantages for plaintiffs in going to court. In court, the plaintiffs are entitled to extensive discovery, witnesses of their own choosing and punitive damages if they prevail. In an arbitration, there generally is limited discovery, no punitive damages and the arbitrator can restrict the witness list.

In a 3-0 decision issued Friday, the U.S. 9th Circuit Court of Appeals in San Francisco ruled that a mandatory arbitration clause could not be used to prevent Tonyja Duffield from suing Robertson Stephens & Co., a Bank of America affiliate, for sexual discrimination and harassment.

The ruling, reversing a San Francisco federal trial judge’s decision to dismiss the case, will immediately affect 200,000 to 300,000 people working in the securities industry. They, like Duffield, have had to sign a contract agreeing to mandatory arbitration of any “employment-related” dispute as a condition of getting a job.

However, the ruling appears likely to affect workers in virtually every industry, according to Katherine Stone, a Cornell University law professor and expert on mandatory arbitration.

“This is a very big deal--a decision that could affect millions of workers” in the nine Western states in the 9th Circuit’s jurisdiction because the ruling contains no language limiting its force to the securities industry, Stone said.

According to her suit, Duffield, who worked as a sales trader at Robertson Stephens from 1988 until 1994, alleged that one of the firm’s senior partners licked her neck and made sexual remarks about her body. She claimed the firm denied her a partnership that had been promised. The 9th Circuit decision means that the case can move forward to trial.

Although other federal appellate courts have rendered rulings on related issues, the 9th Circuit decision was the first to squarely address the question of whether an employee’s rights to sue for alleged violations of the Civil Rights Act of 1991 could be restricted by a mandatory arbitration clause.

Several business organizations filed friend-of-the court briefs in support of Robertson Stephens. A number of civil rights groups lodged such briefs on behalf of Duffield’s right to sue, as did the Equal Employment Opportunities Commission, and the National Academy of Arbitrators, which said the integrity of the arbitration process requires fair procedures and free choice by all parties.

In his majority opinion, Judge Stephen Reinhardt relied extensively on the legislative history leading to the expansion of Title VII of the 1991 Civil Rights Act.

“The use of compulsory arbitration provisions would, in the House committee’s resounding and unequivocal words, ‘force American workers to choose between their jobs and their civil rights,’ ” Reinhardt wrote. “To force such a choice was certainly not the purpose or intent of Congress.”

Robertson Stephens’ attorneys asserted that a provision of the statute encouraging voluntary arbitration supported their contention that Congress did not object to mandatory arbitration clauses. But Reinhardt wrote that such an interpretation “would entail a gross perversion of the legislative process.”

To buttress his position, the judge quoted statements from then-Rep. Don Edwards (D-San Jose), who played a key role in the bill’s passage: “This section contemplates the use of voluntary arbitration to resolve specific disputes after they have arisen, not coercive attempts to force employees in advance to forgo statutory rights.”

Robertson Stephens attorney F. Curt Kirschner said he thought the decision was wrongly decided and contended that the 9th Circuit judges had presented “a one-sided review” of the legislative process. He said his client had not yet decided whether to appeal and stressed that the company denies the claims in Duffield’s suit.

There are a number of other cases around the country challenging mandatory arbitration.

Just last week, in a settlement announced in Chicago, Merrill Lynch agreed to abolish mandatory arbitration for all future claims lodged by its employees. The company also agreed to institute “a fair and equitable process” for about 2,500 female employees with gender discrimination claims pending.

San Francisco attorney Michael Rubin, who represented the plaintiffs in both the Duffield decision and the Merrill Lynch settlement, said the two cases are complementary. He said both will help to erode mandatory arbitration, which he described as “the principal impediment to a discrimination-free workplace in the securities industry and other workplaces where arbitration is compelled.”

Rubin also predicted that the Duffield decision would give employers in the securities industry considerable incentive to make their arbitration system “fairer” to give workers more of an incentive to participate in it voluntarily rather than go to court.