Jan 16, 2002 General Employment Issues

Supreme Court Permits EEOC to Sue Even When Employee Agreed to Arbitrate

In its latest pronouncement relating to the subject of the arbitration of employment discrimination claims, the U.S. Supreme Court has ruled that the Equal Employment Opportunity Commission (“EEOC”) may file a federal court action on behalf of an employee even if that employee has entered into an agreement to resolve all disputes with his employer solely in arbitration. The Court’s decision in EEOC v. Waffle House, 99-1823 (January 15, 2002) essentially permits the EEOC to trump lawful and otherwise enforceable arbitration agreements entered into by employers and employees. This is a significant development because, as discussed elsewhere on this website, arbitration is considered by many employers to be a quicker, less expensive, and more predictable venue for the resolution of employment disputes. See Supreme Court Determines That The Federal Arbitration Act Applies To Employment Disputes (March 2001).

In Waffle House, the employee, Eric Baker, signed an application for employment which included an arbitration provision. That provision required, as a condition of employment, that any employment-related dispute be submitted to final and binding arbitration. Baker was hired and subsequently terminated after suffering a seizure while on the job.

Rather than submitting a claim to arbitration, Baker filed a charge with the EEOC, complaining that he was fired because of a disability, in violation of the Americans With Disabilities Act (“ADA”). After conducting an investigation and failing in its attempt to conciliate the matter, the EEOC filed a federal lawsuit against Waffle House under the ADA. As relief, the EEOC sought, among other things, back pay and reinstatement for Baker. Waffle House sought dismissal of the action, arguing that Baker’s agreement to arbitrate precluded the EEOC from bringing suit on his behalf.

The U.S. Court of Appeals for the Fourth Circuit ruled that because the EEOC was not a party to the arbitration agreement, the agreement could not wholly foreclose a suit by the EEOC. However, the court also ruled that because Baker had waived the right to seek relief in court for alleged discrimination, the EEOC was not permitted to seek “victim-specific” relief — such as back pay and reinstatement — on his behalf; according to the Court of Appeals, the EEOC could only pursue injunctive relief, such as an order that Waffle House cease and desist from further acts of discrimination.

The Supreme Court rejected Waffle House’s position and reversed the decision of the Court of Appeals. The Court observed that the EEOC is specifically empowered by various statutes (including the ADA) to bring suit in federal court, and to seek injunctive relief, reinstatement, back pay, compensatory damages, and punitive damages. The Court concluded that the existence of an arbitration agreement between private parties cannot diminish the EEOC’s authority. In particular, the EEOC, in the exercise of its statutory authority, may prosecute a lawsuit even if the employee disavows the claim. The EEOC, the Court observed, is “the master of its own case,” and is free to determine whether a lawsuit is in the public’s interest.

In the dissenting opinion, Justice Clarence Thomas, a former chair of the EEOC, noted that he “cannot agree that the EEOC may do on behalf of an employee that which an employee has agreed not to do for himself.” His dissent was joined by Chief Justice William Rehnquist and Justice Antonin Scalia.

Waffle House puts employers on notice that although they may have an enforceable agreement with their employees requiring that all employment disputes be resolved in arbitration, the EEOC nevertheless may step in and litigate claims of employment discrimination in court. Nonetheless, the effect of the Waffle House decision should not be overstated, because the number of federal lawsuits filed by the EEOC is relatively small: in 2000, for example, while nearly 80,000 charges were filed with the EEOC, the EEOC filed suit in only 327 cases. Notwithstanding the Waffle House decision, therefore, the advantages of adopting an arbitration policy remain largely intact.