Appeals Court Rules Against Circuit City on Arbitration

Circuit City Stores Inc., the second-largest U.S. electronics retailer, cannot require its employees in California to arbitrate disputes outside of court, a federal appeals court ruled Tuesday.

The U.S. 9th Circuit Court of Appeals upheld a lower court’s decision that employee Catherine Ingle can go to court with sexual harassment and discrimination claims, calling the company’s mandatory arbitration agreement, which she signed, “unconscionable” under state law.

It is the second case in as many years in which the 9th Circuit has rebuffed the retailer’s bid to enforce its arbitration agreement.

In February 2002, the court ruled that the electronics giant would have to face a lawsuit by one of its former salesmen because the arbitration agreement unfairly benefits Circuit City.

In June, the U.S. Supreme Court declined to hear Circuit City’s appeal in that case.

While acknowledging a 2001 U.S. Supreme Court ruling that said companies typically can enforce such agreements, the 9th Circuit in both of these cases cited a 2000 California Supreme Court decision, which held that a contract must be fair to both sides to be enforceable in the state.

In Tuesday’s decision, Judge Harry Pregerson wrote that provisions of the retailer’s arbitration agreement -- such as the company’s power to terminate or modify the agreement -- “stack the deck unconscionably in favor of Circuit City.”

Circuit City spokesman Bill Cimino said the company is “disappointed with the ruling and we are considering our options to appeal.”

Companies increasingly are asking workers, either as part of a job application or as a condition of continued employment, to agree to take future grievances to arbitrations led by private judges instead of court.

Employers say the arbitration process allows a faster, cheaper method of resolving disputes.

Shares of Richmond, Va.-based Circuit City rose 2 cents to $6.71 on the New York Stock Exchange.