Oct 27, 2014 General Employment Issues

Ninth Circuit Formally Disavows Duffield Decision, Joins Rest of Country in Permitting Pre-Dispute Arbitration of Title VII Claims

On September 30, 2003, the U.S. Court of Appeals for the Ninth Circuit joined the rest of the federal circuits and the California Supreme Court in holding that employers may require pre-dispute agreements to arbitrate Title VII claims as a condition of employment. The Court’s decision in Equal Employment Opportunity Commission v. Luce, Forward, Hamilton & Scripps (“Luce Forward III”) formally overruled the Ninth Circuit’s earlier decision in Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998), holding that Duffield was “wrongly decided.”

The decision of the full Court in Luce Forward III was widely anticipated as a resolution to the unsettled state of affairs within the Ninth Circuit with respect to compulsory arbitration of employment disputes. (See The Evolution of Arbitration in Employment Agreements (Dec. 31, 2002) and Ninth Circuit Court of Appeals Remains Resistant to Arbitrating Employment Disputes (May 15, 2003)) . Duffield held in 1998 that compulsory agreements to arbitrate employment claims arising under Title VII were not enforceable. On the other hand, California courts, applying state law, have held that compulsory agreements to arbitrate are enforceable, provided they meet the “conscionability” standards set forth by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services, Inc., 6 P.3d 669 (Cal. 2000). Thus, employers in the Ninth Circuit and particularly in California were faced with the prospect that agreements to arbitrate could be enforceable in state courts but wholly ineffective in federal courts.

The U.S. Supreme Court’s decision in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) seemed to put Duffield to rest by holding that the Federal Arbitration Act, 9 U.S.C. § 1, permits employers to require pre-dispute arbitration agreements as a condition of employment. The Ninth Circuit panel that initially decided the appeal in Luce Forward II, 303 F.3d 994 (9th Cir. 2002), acknowledged that Circuit City “implicitly overruled Duffield” and held that compulsory arbitration agreements in the employment context would be enforced, subject to traditional principles of contract law, including the doctrine of unconscionability.

However, on February 7, 2003, a majority of the Ninth Circuit judges agreed to grant a rehearing by the full court of the decision by a three-judge panel in Luce Forward, throwing matters into doubt once more. Meanwhile, in May 2003, the Ninth Circuit ruled in Ingle v. Circuit City Stores that, because arbitration is a more favorable forum for employers than for employees to resolve disputes, a rebuttable presumption exists that compulsory arbitration of employment disputes is substantively unconscionable. (See Ninth Circuit Court of Appeals Remains Resistant to Arbitrating Employment Disputes (May 15, 2003)) Another Circuit City decision followed shortly afterward, Circuit City Stores v. Mantor, where the Court found procedural unconscionability as well and invalidated the entire agreement.

The majority opinion in Luce Forward III went beyond the grudging admission of the panel in Luce Forward II that Duffield had been implicitly overruled, holding: “[O]ur decision in Duffield stands alone. All of the other circuits have concluded that Title VII does not bar compulsory arbitration agreements.” This holding sparked angry dissents from some members of the panel, accusing the majority of allowing employers to force employees to choose between their jobs and their right to bring future Title VII claims in court. Despite these dissents, in the event the plaintiff seeks Supreme Court review, the Supreme Court is unlikely to hear the case, because the Ninth Circuit has resolved the split of authority among the Circuits as to the enforceability of compulsory arbitration agreements.

The battle is not yet over, though. This term, the California Legislature passed Assembly Bill 1715, which would prohibit employers from requiring the arbitration of civil rights claims under the state Fair Employment and Housing Act as a condition of employment. The bill has just been vetoed by lame duck Governor Gray Davis, who vetoed a similar bill last year.

Congress has also taken up the issue of mandatory pre-dispute arbitration agreements. A number of members of the U.S. House of Representatives filed a brief with the Ninth Circuit supporting Duffield’s prohibition on such agreements. More recently, Congressman Dennis Kucinich of Ohio and other Democratic members of the House and Senate announced plans to introduce the “Preservation of Civil Rights Protections Act of 2003” which would bar pre-dispute agreements to arbitrate claims arising under federal statutes and would require that any agreement to arbitrate such claims be entered into only after a dispute has arisen, to ensure that the waiver of an employee’s right to a jury trial is truly knowing and voluntary.

For now, it is clear that employers in California and elsewhere across the U.S. may require employees to sign agreements to arbitrate as a condition of employment. It is equally clear that further developments in this contentious area of the law are just over the horizon.