In 2002, the United States Supreme Court ended the argument that the arbitration of employment disputes was illegal, holding that the Federal Arbitration Act of 1925 (“FAA”) only exempts from its coverage those employees involved in the interstate transportation of goods. By holding that the FAA applies to all employment agreements involving other workers, the Supreme Court opened the door to mandated arbitration of employment-related claims. The attraction of these arbitration agreements to employers is the reduced cost to resolve the matter, primarily by reducing attorneys fees and discovery costs associated with the litigation of employment-related disputes. This was a big win for employers.
However, these mandatory arbitration agreements have not been utilized by employers in West Virginia to the extent first thought. While still an option for West Virginia employers, our courts have not favored these arbitration agreements and many legal obstacles to their effective use have discouraged employers from implementing these programs.
The law now generally provides that these arbitration agreements, to be enforceable, must allow the employee the same relief he/she could obtain in court. Thus, an employer cannot avoid exposure to punitive or other damages by creating an arbitration program that negates or caps damages that are otherwise permitted by law. The arbitration program cannot unduly pass on the costs of arbitration to the employee to a greater extent than the litigation process. Moreover, the employer cannot control the selection process by pre-screening a panel for the employee’s selection or even selecting the arbitrator unilaterally. Other provisions, such as a limited right to discovery and a right to counsel for the employee insure the fundamental fairness of the process and should not present a problem for most employers.
What is a problem is the restrictive and paternalistic approach our courts have taken with these arbitration programs. The West Virginia Supreme Court has held that an employee cannot contract away his/her right to litigate claims under the West Virginia Human Rights Act; any attempt by an employer to force arbitration of claims under this Act, which generally deal with illegal employment-related discrimination, is unenforceable. Additionally, the United States Supreme Court has held that the EEOC (Equal Employment Opportunity Commission) can seek relief in court for an employee in its own capacity, including back pay, reinstatement, attorneys fees and other forms of damages, even though the employee signed an arbitration provision that prevented him from personally going to court to litigate claims based upon employment discrimination of some sort. Thus, courts have carved out a major exception to any agreement to arbitrate employment-related disputes.
Applying a mandatory arbitration program across-the-board to all employees in an organization is also problematic in West Virginia. Our courts will look at each individual employee seeking to overturn his/her prior consent to an arbitration agreement and compare the relative bargaining power of the employer and employee as well as the education and experience of the employee in deciding whether to enforce an arbitration agreement against the employee. For the well educated and higher ranking members of the establishment, the same clause might be enforceable that is not enforceable against a poorly educated or lower paid employee.
As a practical matter, these arbitration agreements currently seem to be creating as much litigation as they were designed to prevent. Plaintiffs litigate any provision of the arbitration agreement they can prior to a hearing in order to defeat enforcement of the agreement; arguments abound over the fairness of the provisions, whether it was forced upon the employee, whether there is adequate consideration given by the employer to support the employee’s consent to the arbitration agreement, etc. Only later are the merits of the dispute considered. The net result of all this seems to be a move toward insurance for employment-related claims to offset, in some form or fashion, the cost of litigating these claims. Arbitration agreements for employment-related claims are still permissible in West Virginia, but employers creating such a program should know their limitations up front.
