March 21, 2001 Advisory

On Wednesday, March 21, 2001, the United States Supreme Court issued a significant ruling in Circuit City Stores, Inc. v. Adams that greatly expands the ability of employers to keep employment-related disputes out of court and direct them to arbitration.

The Case

Mr. Adams brought suit against Circuit City alleging that he had been harassed and discriminated against because of his sexual orientation. However, Mr. Adams had previously signed an agreement in his employment application to settle all claims arising out of his employment through arbitration, including discrimination claims. When he brought suit in California state court, Circuit City filed a separate action in federal district court seeking to enjoin Mr. Adams from proceeding with his lawsuit. Circuit City successfully argued to the district court that the arbitration agreement was enforceable under the Federal Arbitration Act ("FAA") and, therefore, Mr. Adams was required to submit his claim to arbitration and could not proceed directly to court. Although a higher federal court overturned that decision, the Supreme Court reinstated it, finding that Mr. Adams was contractually bound to submit his claim to arbitration and could not opt to bring a lawsuit.

The Advantages of Arbitration

As the Supreme Court recognized, there are certain advantages to the enforcement of arbitration provisions in employment contracts. For example, it is generally less expensive for a dispute to go through the arbitration process than to go through the court system. In addition, arbitration cases tend to be resolved more quickly and are often decided by experts in the field, as opposed to lawsuits decided by jurors who are unfamiliar with the law and, frankly, are often influenced by their emotions or their view of fairness.

The Disadvantages of Arbitration

From the employer's perspective, there are certain disadvantages to arbitration. The very speed and relatively low cost of arbitrating a dispute may actually encourage complaints and encourage plaintiffs to roll the dice instead of settling. Arbitrators are also less likely to dismiss a meritless claim short of a hearing, and often award reinstatement in discharge cases. In addition, some arbitrators have a tendency to award some measure of damages even in weak or marginal cases, a practice known as "splitting the baby."

The Net Result

On balance, the decision is very good news for employers. Many issues, however, remain unresolved. For example, the fact that some arbitration clauses may be enforceable does not mean that all of them are. Courts must still, on a case-by-case basis, decide whether an arbitration clause is of the type that should be enforced. Among other considerations, the courts will look at the protections the agreement affords to the rights of the employee. Before an agreement is enforced, the court must be convinced that the agreement is fair and protects the employee's legal rights. Any proposed arbitration clause should be carefully examined by counsel before being offered to an employee or prospective employee.

Wiggin & Dana will be offering breakfast programs on April 24, 2001 in Hartford at Wiggin & Dana, and on May 16, 2001 at Wiggin & Dana in New Haven, discussing Circuit City Stores, Inc. v. Adams and arbitration generally. To register for the breakfast programs, please contact Robin Bangham at (860) 297-3719.

There is also a seminar offered on April 18, 2001: After "The Circuit City Case" Employee Dispute Resolution Programs located at 970 Summer Street, Stamford, CT (Speaker: Lawrence Peikes of Wiggin & Dana) .

If you have any questions about this Advisory, please contact any one of the following partners:

Stephen B. Harris (860) 297-3732
Peter J. Lefeber (203) 498-4329
Lawrence Peikes (203) 363-7609
Peter M. Wendzel (860) 297-3705
John G. Zandy (203) 498-4330