REMBERT v RYAN‘S FAMILY STEAK HOUSES, INC
Docket No. 196542
Court of Appeals of Michigan
Submitted June 1, 1998. Decided April 9, 1999.
235 Mich. App. 118
After consideration by the conflict resolution panel, the Court of Appeals held:
1. The Michigan Legislature, by enacting the Michigan arbitration act,
2. Because of this state‘s strong public policy favoring arbitration, predispute agreements to arbitrate statutory employment discrimination claims are valid if there is a valid binding contract to arbitrate the statutory claims, the statute itself does not prohibit an agreement to arbitrate claims under the statute, the arbitration agreement does not waive the substantive rights and remedies set forth in the statute, and the arbitration procedures are fair so that an employee may effectively assert the statutory rights.
3. If an agreement to arbitrate a statutory employment discrimination claim does not waive any statutory rights and provides a procedurally fair method of resolving such claims, it is reasonable as a matter of law and is not an unenforceable contract of adhesion. Accordingly, on remand the trial court must make findings of fact concerning whether the agreement in this matter waives any statutory rights and provides a procedurally fair method of resolving the statutory claims.
4. Neither the Civil Rights Act nor the Persons With Disabilities Civil Rights Act contains a provision that precludes an employer and employee from entering into a predispute agreement to arbitrate employment discrimination claims that may arise under those acts. Further, because the Michigan arbitration act gives broad approval to arbitration agreements and expressly excludes collective labor contracts and certain real estate disputes from its provisions while containing no similar exclusion with respect to statutory employment discrimination claims, the act implicitly includes agreements to arbitrate employment discrimination claims within the scope of its provisions.
5. In order to ensure that an employee has a fair opportunity to vindicate effectively any statutorily protected rights, a predispute agreement to arbitrate employment discrimination claims must give clear notice to the employee that the right to adjudicate discrimination claims in a judicial forum is being waived and that such claims will be arbitrated, must inform the employee of the right to representation by counsel, must provide that the arbitration proceedings will be before a neutral arbitrator, must provide for reasonable discovery, and must provide for a fair arbitral hearing. Fairness does not require that the employer must pay the fees of an arbitrator or an arbitration service.
6. Judicial review of an arbitral award is pursuant to the provisions of
Remanded.
CAVANAGH, J., dissenting, stated that the decision of the trial court that direct judicial construction of the statutory claims was precluded by the predispute arbitration agreement should be reversed because Michigan‘s longstanding public policy entitling persons seeking to protect their civil rights to direct review of their claims by the courts cannot be abrogated by contract.
- ARBITRATION — EMPLOYMENT DISCRIMINATION — EMPLOYMENT CONTRACTS — AGREEMENT TO ARBITRATE.
Predispute agreements to arbitrate statutory employment discrimination claims are valid if there is a valid binding contract to arbitrate the statutory claims, the statute itself does not prohibit an agreement to arbitrate claims under the statute, the arbitration agreement does not waive the substantive rights and remedies set forth in the statute, and the arbitration procedures are fair so that an employee may effectively assert the statutory rights.
- ARBITRATION — CIVIL RIGHTS ACT — PERSONS WITH DISABILITIES CIVIL RIGHTS ACT — EMPLOYMENT CONTRACTS — AGREEMENT TO ARBITRATE — PUBLIC POLICY.
An agreement in an employment contract requiring any subsequent dispute involving a claim under the Civil Rights Act or the Persons With Disabilities Civil Rights Act to be submitted to binding arbitration is not contrary to any express provision of either act and is not contrary to the public policy of the state of Michigan (
MCL 37.1101 et seq. ,37.2101 et seq. ;MSA 3.550[101] et seq. ,3.548[101] et seq. ). - ARBITRATION — EMPLOYMENT DISCRIMINATION — EMPLOYMENT CONTRACTS — AGREEMENT TO ARBITRATE — CONTRACTS OF ADHESION.
An agreement to arbitrate a statutory employment discrimination claim that does not waive any statutory rights and provides a procedurally fair method of resolving such a claim is reasonable as a matter of law and is not an unenforceable contract of adhesion.
ARBITRATION — EMPLOYMENT CONTRACTS — EMPLOYMENT DISCRIMINATION — AGREEMENT TO ARBITRATE. An agreement in an employment contract to arbitrate any subsequent employment discrimination claims that may arise must give clear notice to the employee that the right to adjudicate discrimination claims in a judicial forum is being waived and that such claims will be arbitrated, must inform the employee of the right to representation by counsel, must provide that the arbitration proceedings will be before a neutral arbitrator, must provide for reasonable discovery, and must provide for a fair arbitral hearing; fairness does not require that the employer must pay the fees of an arbitrator or an arbitration service.
Stark and Gordon (by Sheldon J. Stark and Carol A. Laughbaum) and (Kenneth Ivan Brown, of Counsel), for the plaintiff.
Bodman, Longley & Dahling LLP (by Diane L. Akers, and Paul R. Bernard), for the defendants.
Amici Curiae:
Jeffrey S. Reuble and Miller, Canfield, Paddock and Stone, P.L.C. (by Charles S. Mishkind), for Meijer, Inc.
Jackson, Lewis, Schnitzler & Krupman (by Stephen X. Munger and by J. Steve Warren and Stephen F. Fisher), for Employment Dispute Services, Inc.
Clark Hill P.L.C. (by Duane L. Tarnacki and J. Walker Henry), for Michigan Manufacturers Association.
Dykema Gossett PLLC (by Laurence D. Connor and Rosemary G. Schikora) and Richard L. Hurford, for Masco Corporation, Masco Tech, and TriMas.
Patrick L. Rose, Thomas Donnellan, Sheldon J. Stark, and Michael J. Steinberg, for American Civil Liberties Union Fund of Michigan.
Amberg, McNenly, Zuschlag, Firestone and Lee, P.C. (by Joseph H. Firestone), for Michigan Education Association.
Sachs, Waldman, O‘Hare, Helveston, Bogas & McIntosh, P.C. (by John R. Runyan, Jr., Mary Katherine Norton, and Elizabeth A. Cabot), for Michigan State AFL-CIO, International Union UAW, and Wolverine Bar Association.
Kelman, Loria, Simpson, Will, Harvey & Thompson (by Janet M. Tooley), for Michigan Trial Lawyers Association.
Frank J. Kelley, Attorney General, Thomas L. Casey, Solicitor General, and Robert L. Willis, Jr., Assistant Attorney General, for Michigan Department of Civil Rights.
Before: GAGE, P.J., and KELLY, HOOD, MCDONALD, CAVANAGH, SAAD, and O‘CONNELL, JJ.
SAAD, J.
I. NATURE OF THE CASE
This conflicts panel was convened to decide if a predispute1 agreement to arbitrate statutory employment discrimination claims arising under the Michigan Civil Rights Act2 (CRA) and the Persons With Disabilities Civil Rights Act3 (PWDCRA) is valid and enforceable. In Rushton v Meijer, Inc (On Remand), 225 Mich App 156; 570 NW2d 271 (1997), this Court held
Our holding breaks no new ground, but rather is consistent with our state‘s public policy, and federal public policy, both of which increasingly and overwhelmingly favor arbitration as an inexpensive and expeditious alternative to litigation. Specifically, our holding furthers the objectives of the Michigan arbitration act (MAA),4 which is a strong and unequivocal legislative expression of Michigan‘s proarbitration public policy. In accordance with the MAA‘s endorsement of arbitration, and the CRA‘S and the PWDCRA‘S silence regarding the matter, we will not interfere with private parties’ contractual undertakings to arbitrate these claims.5
Our opinion is also consistent with the traditional principles of freedom of contract in the employment
While our decision upholds the principle of freedom of contract and advances the public policy that strongly favors arbitration, it does so subject to two conditions generally accepted in the common law: that the agreement waives no substantive rights, and that the agreement affords fair procedures. These conditions are rooted in two critically important bases: (1) our Supreme Court‘s decision in Renny v Port Huron Hosp, 427 Mich 415; 398 NW2d 327 (1986), which held that agreements to arbitrate employment claims must have fair procedures, and (2) Michigan and federal decisions (which generally have been held to be persuasive authority in Michigan employment discrimination cases) that uniformly hold that these arbitration agreements may not waive any substantive rights or remedies provided by the statute and must provide for fair procedures. With regard to procedural fairness, we will also detail below the specific procedural safeguards that we believe are mandated by Renny‘s requirement of fair procedures.
After discussing the facts, we will analyze the issues in the following sequence. We begin by discussing the prevailing public policy favoring arbitration that is evidenced in both Michigan and federal law. We then address how this proarbitration policy developed to include claims arising under public interest statutes and trace that development to judicial approval of predispute agreements to arbitrate statutory civil rights claims. Thereafter, we examine the necessary conditions for enforcement of these agreements: (1) a valid arbitration contract, (2) the absence of statutory prohibition against arbitrating particular statutory claims, and (3) the requirements of procedural fairness. Finally, we set forth the specific requirements for procedural fairness and define the standard of review.
II. FACTS AND PROCEEDINGS
Defendant Ryan‘s Family Steak Houses, Inc., hired plaintiff as a bread maker in October 1993. At the time he was hired, plaintiff signed an arbitration agreement with Employment Dispute Services, Inc.
Your potential Employer (“signatory company” or “Company“) has entered into an agreement with Employment Dispute Services, Inc. (EDS) to arbitrate and resolve any and all employment-related disputes between the Company‘s employees (and job applicants) and the Company. The following Agreement between You and EDS is a “selection of forum” agreement by which you agree that employment-related disputes between You and the Company shall be resolved through arbitration. Any arbitration matter shall be heard and decided under the provisions and the authority of the
Federal Arbitration Act, 9 USC sec. 1 , as applicable.The purpose of this agreement is to provide You and the Company a forum in which claims or disputes with the Company and any other signatories may be resolved by arbitration rather than litigation. This Agreement does not restrict you from filing a claim or charge with any state or federal agency, for example, Equal Employment Opportunity Commission, state unemployment agency, state workers’ compensation commission, where applicable. Rather, the Agreement applies only to State or Federal court proceedings.
While an employee with Ryan‘s Family Steak Houses, Inc., plaintiff sued defendants in the circuit court for race discrimination under the CRA and handicap discrimination under the PWDCRA (then known as the Michigan Handicappers’ Civil Rights Act). Plaintiff alleged that he suffers from epilepsy and cognitive defects resulting from a head injury. Plaintiff made a variety of allegations relating to discrimination in the terms of his employment. Plaintiff subsequently resigned his employment and amended his complaint to include a charge of constructive discharge. Plaintiff also raised a common-law claim of intentional infliction of emotional distress.
Defendants moved for summary disposition pursuant to
III. ANALYSIS
A. MICHIGAN AND FEDERAL LAW ENDORSE ARBITRATION
1. MICHIGAN COMMON LAW AND STATUTORY LAW STRONGLY FAVOR ARBITRATION
Our Legislature has expressed a strong public policy favoring private voluntary arbitration, and our
Judicial approval of arbitration has broadened and strengthened in recent decades. This Court stated in EE Tripp Excavating Contractor, Inc v Jackson Co, 60 Mich App 221, 246-247; 230 NW2d 556 (1975):
The heavily case-loaded courts are no longer jealous of their jurisdiction. Where the parties, by a fair agreement, have adopted a speedy and inexpensive means by which to have their disagreements adjusted, we see no public policy reasons for the courts to stand in their way. On the contrary we have a clear expression of public policy in the legislative enactments which provide for statutory arbitration. [Emphasis supplied.]
Judicial approbation of arbitration has grown and now applies to many fields. For example, in the important area of medical malpractice, our Court, in Cox v D‘Addario, 225 Mich App 113, 129-130; 570 NW2d 284 (1997), upheld an arbitration agreement as valid under Michigan‘s medical malpractice act because “the public policy of this state favors the enforcement of valid arbitration agreements.” Further,
Following federal precedent (discussed in detail infra), Michigan law has upheld predispute agreements to arbitrate statutory claims, Scanlon v P & J Enterprises, Inc, 182 Mich App 347; 451 NW2d 616
Further, and most importantly for our analysis, the appellate courts of this state have upheld arbitration agreements in the employment context. Moss, supra; Chippewa Valley Schools, supra. Our Supreme Court recently held that employers who establish individual just-cause employment contracts with their employees can require arbitration of employment claims arising out of the employment contract. Renny, supra. Since Renny, this Court has routinely held that just-cause employers can require employees to challenge breaches of just-cause employment through arbitration or other grievance procedures. Carlson v Hutzel Corp of Michigan, 183 Mich App 508, 513; 455 NW2d 335 (1990); Dahlman v Oakland Univ, 172 Mich App 502; 432 NW2d 304 (1988). Clearly then, Michigan jurisprudence favors arbitration, and the employment context is no exception. To be sure, the courts of this state, as well as other courts, have cautioned that certain safeguards are necessary, particularly in connection with arbitration of statutory (as opposed to private) claims, but we will address this aspect in due course.
Before analyzing our Legislature‘s strong endorsement of arbitration, we will answer plaintiff‘s contention that Heurtebise v Reliable Business Computers, Inc, 452 Mich 405; 550 NW2d 243 (1996), stands as a repudiation of our state‘s public policy favoring arbitration. A unanimous Supreme Court held in Heurtebise that the employee handbook, which purportedly established compulsory arbitration, was not,
Michigan statutory law further reinforces this conclusion. Unquestionably, public policy pronouncements of the Michigan Legislature, enacted as statutes, are binding on this Court. Int‘l Recovery Systems, Inc v Gabler, 208 Mich App 49, 53; 527 NW2d 20 (1994), citing Lieberthal v Glens Falls Indemnity Co, 316 Mich 37, 40; 24 NW2d 547 (1946). Our Legislature significantly advanced the public policy favoring arbitration in 1961 when it enacted the Michigan arbitration act, (MAA),
(1) All persons, except infants and persons of unsound mind, may, by an instrument in writing, submit to the decision of 1 or more arbitrators, any controversy existing between them, which might be the subject of a civil action, except as herein otherwise provided, and may, in such submission, agree that a judgment of any circuit court shall be rendered upon the award made pursuant to such submission.
(2) A provision in a written contract to settle by arbitration under this chapter, a controversy thereafter arising between the parties to the contract, with relation thereto, and in which it is agreed that a judgment of any circuit court may be rendered upon the award made pursuant to such agreement, shall be valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the rescission or revocation of any contract. Such an agreement shall stand as a submission to arbitration of any controversy arising under said contract not expressly exempt from arbitration by the terms of the contract. Any arbitration had in pursuance of such agreement shall proceed and the award reached thereby shall be enforced under this chapter.
(3) The provisions of this chapter shall not apply to collective contracts between employers and employees or associations of employees in respect to terms or conditions of employment. [
MCL 600.5001 ;MSA 27A.5001 (emphasis supplied).]
“The MAA evidences Michigan‘s strong public policy favoring arbitration.” Grazia v Sanchez, 199 Mich App 582, 584; 502 NW2d 751 (1993), citing Marciniak v Amid, 162 Mich App 71, 76; 412 NW2d 248 (1987). For example, Judge, now Justice, TAYLOR correctly observed in his dissent in Rushton:
This act allows predispute contracts to arbitrate and only excepts collective bargaining and certain real estate disputes from its purview. . . . Because the act allows predispute agreements to arbitrate civil rights claims, it establishes Michigan‘s public policy concerning this issue. Obviously, if the Legislature wanted to preclude predispute agreements to arbitrate civil rights claims, it would have excluded such claims by name, just as it excluded collective bargaining agreements and certain real estate claims. The express exclusion of some claims implies inclusion of those not mentioned. . . . Therefore, for this reason also, there is no justification for this Court to substitute its judgment for that of the contracting parties in declaring the parties’ predispute agreement to arbitrate invalid. [Rushton, supra at 174-175.]
As the foregoing review of Michigan law makes clear, our Legislature and our courts have strongly endorsed arbitration as an inexpensive and expeditious alternative to litigation. Accordingly, the question that naturally calls for close examination is whether, under Michigan law, this overwhelming authority favoring arbitration should apply with equal force to statutory employment discrimination claims. In analyzing this question, we will review the historical development of statutory claims first under federal law and then under Michigan law.
2. FEDERAL LAW STRONGLY FAVORS ARBITRATION
The Federal Arbitration Act (FAA),
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle
by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. [ 9 USC 2 .]
Obviously, this statute expresses a strong federal policy in favor of arbitration.8 As the following discussion will reveal, cases interpreting the FAA have continued to strengthen this proarbitration policy, both for statutory claims in general and statutory employment discrimination claims in particular.9
a. FEDERAL RECOGNITION OF ARBITRABILITY OF STATUTORY CLAIMS
Opponents of arbitration in this case, as elsewhere, generally acknowledge the public policy favoring arbitration, but claim that it ought not apply to claims arising under public interest statutes such as civil rights statutes. They argue that the public policy advanced by the statutes would be undermined if these disputes were addressed in the relatively private forum of arbitration. These very arguments were thoroughly considered and rejected by the United States Supreme Court in a trio of cases known as the Mitsubishi trilogy10 and, later, in Gilmer v Interstate/Johnson Lane Corp, 500 US 20; 111 S Ct 1647; 114 L Ed 2d 26 (1991). Although initially reluctant to endorse predispute arbitration agreements of statutory claims, federal law has long since strongly endorsed arbitration of statutory claims.
Wilko v Swan, 346 US 427; 74 S Ct 182; 98 L Ed 168 (1953), is representative of the initial skepticism toward arbitration. There, the United States Supreme Court held that predispute agreements to arbitrate claims arising under the Securities Act of 193311 were void under § 14 of the Securities Act, which nullified stipulations to waive compliance with the Securities Act. Like the opponents of arbitration here, the Court
Wilko has since been overruled, and its entire rationale has been thoroughly discredited and unequivocally rendered obsolete by the Mitsubishi trilogy. In this trilogy, the Supreme Court repudiated its former characterization of arbitration as a second-rate forum in which statutory rights are necessarily diminished. Instead, the Court recognized arbitration as an efficacious means for parties to enforce their statutory rights and held that parties who had agreed to arbitrate would be bound by those agreements. Mitsubishi Motors Corp v Soler Chrysler-Plymouth, Inc, 473 US 614; 105 S Ct 3346; 87 L Ed 2d 444 (1985), Shearson/American Express, Inc v McMahon, 482 US 220; 107 S Ct 2332; 96 L Ed 2d 185 (1987), and Rodriguez de Quijas v Shearson/American Express, Inc, 490 US 477; 109 S Ct 1917; 104 L Ed 2d 526 (1989). In Mitsubishi, supra at 626-627, the Court stated that “we are well past the time when judicial suspicion of the desirability of arbitration and of the competence of arbitral tribunals inhibited the development of arbitration as an alternative means of dispute resolution.” Accordingly, the Court upheld the federal public policy favoring arbitration, applying it to statutory claims under statutes that prohibited any contractual waiver of the statutory rights. Id. The Court‘s holdings were largely based on the FAA, which, like the MAA, broadly sanctioned agreements to arbitrate without excepting statutory claims: “we find no warrant in the [Federal] Arbitration Act for implying in every contract within its ken a presumption against arbitration of statutory claims.” Id. at 625. Citing the “liberal federal policy
In addition to strongly endorsing arbitration of statutorily based claims, the Supreme Court also carefully considered and rejected the many arguments against arbitration raised by plaintiff and amici here. Most relevant for our purposes was the argument that the persons protected by these statutes would necessarily be harmed if required to pursue their rights in arbitration rather than in court. Just as plaintiff in the instant case argues that compulsory arbitration will inevitably compromise the objectives of the CRA and the PWDCRA, the plaintiffs in the Mitsubishi cases also argued that the objectives of the pertinent public interest statutes12 would be seriously jeopardized if those claimants were held bound by predispute arbitration agreements. In each instance, after careful analysis, the Court concluded that arbitration need not undermine the public policy behind these statutes. In Mitsubishi, supra at 628, the Court stated that “concern for statutorily protected classes provides no reason to color the lens through which the arbitration clause is read.” In McMahon, supra at 240-241, involving the Racketeer Influenced and Corrupt Organizations Act (RICO), the Court commented that the RICO‘s emphasis is on providing redress for victims
Most importantly for our purposes, the Court roundly dismissed the suggestion that a waiver of the judicial forum means a waiver of statutory rights: “By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial forum.” Mitsubishi, supra at 628 (emphasis supplied). In McMahon, supra, and Rodriguez, supra, the plaintiffs argued that the predispute arbitration agreements were void under the two securities statutes’ provisions prohibiting stipulations to waive compliance with the statutes.13 The Court rejected this argument because the arbitration agreement did not, in fact, waive compliance with either statute. McMahon, supra at 234; Rodriguez, supra at 480. As for public policy and the RICO, the Court in McMahon, supra at 238, stated that “there is nothing in the text of the RICO statute that even arguably evinces congressional intent to exclude civil RICO claims from the dictates of the [Federal] Arbitration Act.” The Court would infer neither an antiarbitration injunction from the securities statutes’ prohibition of stipulations to waive compliance nor an antiarbitration prohibition from the RICO.
Also, like plaintiff and amici here, plaintiffs in the Mitsubishi cases argued that while arbitration of statutory claims would serve the compensatory goals of
The Court also rejected the rather questionable argument that arbitrators are insufficiently equipped to handle legally complex antitrust claims. Mitsubishi, supra at 633-634. Also, the Court held (as we do) that judicial review of arbitration awards, albeit limited, was nonetheless sufficient to ensure compliance with the statutory requirements. Id. at 636-637.15
In each case in the Mitsubishi trilogy, the Supreme Court concluded that the broad provisions of the FAA, coupled with the public policy favoring arbitration, mandated enforcement of the arbitration agreements. Accordingly, the Court held that if the parties had agreed to arbitrate statutory claims, the agreement should be enforced unless the relevant statute prohibited arbitration or the agreement foreclosed effective vindication of statutory rights. Id. at 628.
This Court adopted the Mitsubishi rationale in Scanlon, supra, 182 Mich App 350. At issue in Scanlon was whether a franchisee, who had executed a predispute arbitration agreement with the franchisor, would be required to arbitrate a claim arising under the Michigan Franchise Investment Law.16 Citing the Mitsubishi trilogy, the Court held that “[a]ny claim the parties have agreed to arbitrate, including a statutory claim, is a proper subject of arbitration under substantive federal law unless Congress has specifically excepted the issue from arbitration.” Id. (emphasis supplied).
Three years before the Supreme Court decided Mitsubishi, this Court had already rejected the rationale of Wilko and enforced a predispute agreement to arbitrate a statutory claim arising under the Franchise Investment Law. In Mid East Transcontinental, supra, 114 Mich App 59, the Court held:
We do not find the rationale employed by the Court in Wilko to be applicable under the Franchise Investment Law. By agreeing to arbitrate, the franchise holder does not surrender any advantage derived exclusively from the Franchise Investment Law. Where an agreement to arbitrate does not diminish the impact of the law, we see no reason to limit the declared policy favoring the resolution of disputes by arbitration. [Emphasis supplied.]
Our Court thus anticipated the holding in Mitsubishi by upholding an agreement to arbitrate statutory claims provided that the arbitration caused no detri-
In sum, the basic rationale expressed by the Court in Mitsubishi for favoring arbitration, like the rationale expressed in our opinions, is twofold. First the Court endorsed the principle that an agreement to arbitrate a statutory claim does not constitute waiver of substantive rights.17 Mitsubishi, supra at 628. Second, the Court recognized that a statute will serve both its remedial and deterrent functions as long as the prospective litigant can vindicate his statutory cause of action in the arbitral forum. Id. at 637.
With these general principles established regarding arbitration of statutory claims, we proceed to the question of how the United States Supreme Court applied its rulings in the Mitsubishi trilogy to predispute agreements to arbitrate the type of claim we deal with here—statutory employment discrimination claims.
4. PUBLIC POLICY FAVORING ARBITRATION OF STATUTORY CIVIL RIGHTS CLAIMS
a. GILMER V INTERSTATE/JOHNSON LANE CORP
Relying on Alexander v Gardner-Denver Co, 415 US 36; 94 S Ct 1011; 39 L Ed 2d 147 (1974), plaintiff and amici argue that the strong national and state
The critical distinction between the instant case and Gardner-Denver is that the arbitration agreement in Gardner-Denver arose out of a collective bargaining agreement, rather than an individual employment contract. This distinction became salient in Gilmer v Interstate/Johnson Lane Corp, supra, where the Supreme Court significantly narrowed the scope of
In Gilmer, the Court approved a compulsory arbitration agreement as applied to the plaintiff‘s federal Age Discrimination in Employment Act (ADEA)19 claim. At issue was whether the plaintiff would be held bound by the agreement to arbitrate his ADEA claim. The Court held that the factors in Gardner-Denver that militated against collective bargaining arbitration of civil rights claims were not applicable in the individual employment contract context:
There are several important distinctions between the Gardner-Denver line of cases and the case before us. First, those cases did not involve the issue of the enforceability of an agreement to arbitrate statutory claims. Rather, they involved the quite different issue of whether arbitration of contract-based claims precluded subsequent judicial resolution of statutory claims. Since the employees there had not agreed to arbitrate their statutory claims, and the labor arbitrators were not authorized to resolve such claims, the arbitration in those cases understandably was held not to preclude subsequent statutory actions. [Gilmer, supra at 35 (emphasis supplied).]
The Gilmer Court also noted that the Gardner-Denver Court was concerned that collective bargaining arbitration of civil rights claims might be hampered by competing interests:
Second, because the arbitration in those cases occurred in the context of a collective-bargaining agreement, the claimants there were represented by their unions in the arbitration proceedings. An important concern therefore was the tension between collective representation and individual statutory rights, a concern not applicable in the present case. [Id. (emphasis supplied).]
Lastly, the Gilmer Court noted that Gardner-Denver and other collective bargaining cases “were not decided under the FAA, which . . . reflects a ‘liberal federal policy favoring arbitration agreements.’ ” Id., quoting Mitsubishi, supra at 625.
As it did in the Mitsubishi trilogy, the Gilmer Court squarely addressed the objections that the plaintiff raised to the validity of predispute agreements to arbitrate statutory employment discrimination claims. Like plaintiff here, the plaintiff in Gilmer questioned whether an employment discrimination plaintiff could obtain a full and fair adjudication of his claim in arbitration. The Gilmer Court‘s answer is highly pertinent here, where plaintiff and amici raise many of the same concerns.
First, like plaintiff here, the Gilmer plaintiff argued that the social policies advanced by the civil rights statute would inevitably be thwarted if wronged employees were required to arbitrate their claims. The Court found no “inherent inconsistency” between the ADEA policies and arbitration. Gilmer, supra at 27. The Court agreed with the plaintiff‘s contention that arbitration focuses on “specific disputes between the parties” rather than on broad social issues, but also noted that this is true in litigation. Id. at 27-28. The Court concluded that this limitation does not prevent either arbitration or litigation from furthering
Second, the Gilmer Court found no inconsistency between arbitration and the administrative role of the Equal Employment Opportunity Commission (EEOC), because the employee bound by an arbitration agreement is still free, as plaintiff is here, to file administrative charges—there with the EEOC, here with the Michigan Department of Civil Rights (MDCR).20 Gilmer, supra at 28.
Third, the Gilmer Court also rejected the argument that compulsory arbitration wrongly deprived claimants of the judicial forum Congress provided by enacting the ADEA. The Court concluded that Congress could have precluded compulsory arbitration when it passed the ADEA, but did not. Id. at 29. Similarly, neither the language of the CRA and the PWDCRA nor their legislative history exhibits any bar to agreements to arbitrate CRA and PWDCRA claims. We discuss this further in § III.B.2., infra at 158-159.
The plaintiff in Gilmer also raised a “host of challenges” regarding “the adequacy of arbitration procedures” to adjudicate statutory claims. Importantly, the Court responded:
Such generalized attacks on arbitration “res[t] on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complain-
ants,” and as such, they are “far out of step with our current strong endorsement of the federal statutes favoring this method of resolving disputes.” [Gilmer, supra at 30, quoting Rodriguez, supra at 481.]
The Gilmer Court proceeded to address the specific objections the parties raised to arbitration procedures. We will recount these issues in detail, because we believe they are instructive with respect to formulating arbitration agreements and procedures that are fair.
The plaintiff complained of potential arbitral bias against employees. Gilmer, supra at 30. The Court ” ‘decline[d] to indulge the presumption that the parties and arbitral body conducting a proceeding will be unable or unwilling to retain competent, conscientious and impartial arbitrators.’ ” Id., quoting Mitsubishi, supra at 634. The Court analyzed this issue further, however, and was satisfied that the arbitration rules of the New York Stock Exchange (NYSE) and the FAA provided sufficient safeguards against potential bias. The rules of the NYSE included access to information concerning the arbitrators’ backgrounds, one peremptory challenge per party, and unlimited challenges for cause. Gilmer, supra at 30. Also, as an ultimate safeguard, the FAA, like
The plaintiff in Gilmer complained that he would be hindered by arbitration discovery, which was more
The Gilmer plaintiff further argued that arbitration was inadequate because arbitrators are not required to issue written opinions. The Court dismissed this argument because the NYSE rules required “that all arbitration awards be in writing, and that the awards contain the names of the parties, a summary of the issues in controversy, and a description of the award issued.” Id. at 31-32. The Court stated that the written opinions would serve to alert the public of discrimination disputes and their outcomes, allow for effective appellate review of arbitral decisions, and advance development of the law. Id.
Finally, the plaintiff in Gilmer argued that arbitration procedures were inadequate to enforce the ADEA because they did not permit equitable relief. The Court dismissed this argument because the NYSE rules did not, in fact, restrict the arbitrator‘s power to fashion equitable relief.
In summary, the Gilmer Court extended the Mitsubishi line of authority to predispute agreements to arbitrate statutory employment discrimination claims. Consistent with Mitsubishi, the Gilmer Court further
b. GILMER PROGENY
Since the Court‘s landmark decision in Gilmer, the vast majority of federal and state courts that have addressed this issue have followed Gilmer and held that statutory employment discrimination claims are subject to predispute compulsory arbitration by way of employment contracts.22 Collectively, these deci-
sions have held that Gilmer applies not only to the ADEA, but also to title VII, state employment discrimination statutes, and other federal employment statutes. We note that at least nine federal Circuit Courts of Appeal have so ruled: McWilliams v Logicon, Inc, 143 F3d 573, 576 (CA 10, 1998) (plaintiffs claims under Americans with Disabilities Act23 are arbitrable because ADA does not prohibit arbitration, but actually encourages it); Cole v Burns Int‘l Security Services, 323 US App DC 133; 105 F3d 1465 (1997) (discussed, infra at 153-156); O‘Neil v Hilton Head Hosp, 115 F3d 272 (CA 4, 1997) (claim under Family and Medical Leave Act,
Federal district courts in Michigan have also complied with this precedent and adopted Gilmer‘s reasoning. Prudential Ins Co of America v Shammas, 865 F Supp 429 (WD Mich, 1993) (arbitration agreement in securities registration required the plaintiff to arbitrate his CRA claims), and Beauchamp v Great West Life Assurance Co, 918 F Supp 1091 (ED Mich, 1996) (court enforced arbitration clause in securities registration form and compelled arbitration of age and sex discrimination claims).
Additionally, at least six states have followed Gilmer. See Freeman v Minolta Business Systems, Inc, 699 So 2d 1182 (La App, 1997) (under the FAA, court compelled the plaintiff to submit federal and state sexual harassment claims to arbitration); Alamo Rent A Car, Inc v Galarza, 306 NJ Super 384, 389; 703 A2d 961 (1997) (employer and employee can prospectively agree to arbitrate statutory claims under state civil rights statute); Brown v KFC Nat‘l Management Co, 82 Hawaii 226; 921 P2d 146 (1996) (arbitration provision enforceable with regard to state civil rights claim); Hill v Hilliard, 945 SW2d 948 (Ky App, 1996) (sexual harassment and retaliation claims arose from employment and were subject to compulsory arbitration in employment contract, but related common-law tort claims did not arise from employment and could therefore be litigated); Johnson v Piper Jaffray, Inc, 530 NW2d 790 (Minn, 1995) (FAA preempts state civil rights statute to the extent that state law voids arbitration agreement); and Fletcher v Kidder, Peabody & Co, 81 NY2d 623; 619 NE2d 998 (1993), (Gilmer required the plaintiffs to arbitrate race and sex discrimination claims under state law in accordance with arbitration agreement in securities registration).24 Only a minority of courts have resisted this
Of all these post-Gilmer decisions, we believe Cole to be the most instructive and the most significant because of its comprehensive analysis of the condi-
After carefully reviewing the important objections to arbitration, Cole, supra at 144-146, Chief Judge Edwards concluded that “the Supreme Court now has made clear that, as a general rule, statutory claims are fully subject to binding arbitration. . . .” Id. at 146. The court then reviewed the arbitration agreement in question and reiterated the rationale of Mitsubishi and Gilmer in support of arbitration. Like Gilmer, Judge Edwards’ opinion carefully and thoroughly rejects the charge that arbitration is inferior to litigation for the resolution of statutory employment discrimination claims.
Further, Cole squarely answered the plaintiff‘s contention that an agreement may be so procedurally unfair that it eviscerates the very rights guaranteed by the statute. The Cole court emphasized—correctly in our view—that Gilmer “cannot be read as holding
We believe that all of the factors addressed in Gilmer are satisfied here. In particular, we note that the arbitration arrangement (1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum. Thus, an employee who is made to use arbitration as a condition of employment, “effectively may vindicate [his or her] statutory cause of action in the arbitral forum.” [Id. at 150, quoting Gilmer, supra, 500 US 28.]
The Cole court not only answered effectively the objections to arbitration, it also emphasized the positive aspects of arbitration. In concluding that arbitration can effectively vindicate employees’ statutory rights, the court in Cole, supra at 156, quoted from the report of the Dunlop Commission,27 Commission on the Future of Worker-Management Relations,
“[L]itigation has become a less-than-ideal method of resolving employees’ public law claims. As spelled out in the Fact Finding Report, employees bringing public law claims in court must endure long waiting periods as governing agencies and the overburdened court system struggle to find time to properly investigate and hear the complaint. Moreover, the average profile of employee litigants . . . indicates that lower-wage workers may not fare as well as higher-wage professionals in the litigation system; lower-wage workers are less able to afford the time required to pursue a court complaint, and are less likely to receive large monetary relief from juries. Finally, the litigation model of dispute resolution seems to be dominated by “ex-employee” complainants, indicating that the litigation system is less useful to employees who need redress for legitimate complaints, but also wish to remain in their current jobs.” [Emphasis supplied.]
The court also commented that arbitration “offers employees a guarantee that there will be a hearing on the merits of their claims,” a guarantee not found in litigation, “where relatively few employees survive the procedural hurdles necessary to take a case to trial in the federal courts.” Cole, supra at 156. The court concluded that “it is perhaps misguided to mourn the Supreme Court‘s endorsement of the arbitration of complex and important public law claims.” Id.
Having found these advantages to arbitration, the Cole court called on arbitrators, as we do, to “step up to the challenges presented by the resolution of statutory issues” and “be vigilant to protect the important rights embodied in the laws entrusted to their care.”
[A]ppointing agencies like AAA [American Arbitration Association] must be certain that only persons who are able to satisfy these criteria are added to arbitrator-panel lists. For if arbitrators and agencies do not meet these obligations, the courts will have no choice but to intercede. [Id. (emphasis supplied).]
In light of this history of Michigan and federal statutes and case law that strongly favors arbitration, we return to the three prerequisites to a valid agreement to arbitrate civil rights claims under Michigan law.
B. CONDITIONS FOR ENFORCEABLE ARBITRATION AGREEMENT
We conclude, from the state and federal authorities reviewed thus far, that predispute agreements to arbitrate statutory employment discrimination claims are valid if: (1) the parties have agreed to arbitrate the claims (there must be a valid, binding, contract covering the civil rights claims), (2) the statute itself does not prohibit such agreements, and (3) the arbitration agreement does not waive the substantive rights and remedies of the statute and the arbitration procedures are fair so that the employee may effectively vindicate his statutory rights.
Plaintiff and amici argue incorrectly that the contract in question is an unenforceable adhesion contract as a matter of law. Courts will not invalidate contracts as adhesion contracts where the challenged provision is reasonable. Rehmann, Robson & Co v McMahan, 187 Mich App 36, 43-44; 466 NW2d 325 (1991); Ryoti v Paine, Webber, Jackson & Curtis, Inc, 142 Mich App 805; 371 NW2d 454 (1985). Our decision requires arbitration agreements to be reasonable by holding that the agreement must not waive statutory rights and must be procedurally fair. Therefore, if the arbitration agreement here satisfies these conditions, it is reasonable as a matter of law and, therefore, not an unenforceable adhesion contract. Accordingly, we remand to the circuit court for findings concerning the validity of the contract consistent with our opinion.28
As we have seen in our discussion of the Mitsubishi trilogy, Gilmer, and Scanlon, courts will not preclude arbitration absent an express statutory prohibition.
Neither the CRA nor the PWDCRA contains such a provision. Section 803 of the CRA,
We therefore turn to the issue of fair arbitration procedures.
3. PROCEDURAL FAIRNESS
As we have said, to be valid, predispute agreements to arbitrate must not waive rights under the statute and the procedures must be fair. Accordingly, because the validity and enforceability of predispute arbitration agreements in the employment discrimination context depends on the employee‘s opportunity for “fair adjudication,” prudent employers should give careful thought to the terms and procedures of their arbitration agreements. Given the wide range of employment situations, and the narrow scope of the question before this conflicts panel, it would not be prudent for us to attempt to catalog exhaustively all the circumstances in which arbitration agreements will or will not satisfy our ruling.30 However, a review
Generally, we note that the Renny and Cole courts, as well as the Dunlop Commission, the AAA, and other leading alternate dispute resolution (ADR) organizations, suggest certain baseline fundamentals to ensure fairness in an arbitral process for discrimination claims.32 Furthermore, MCR 3.602 imposes several fairness-related requirements on arbitrators.33 Accord-ingly, we hold that to satisfy Renny‘s requirement of
In this connection, we think it appropriate to paraphrase Judge Irving R. Kaufman:
When dealing with... principles [of fairness], it is apparent that we cannot paint with broad strokes. The lines are fine and must be so marked. Guide-posts can be established when virgin ground is being explored, and the conclusion in a particular case can be reached only after painstaking analysis of the facts and precise application of precedent. [United States v Standard Oil Co, 136 F Supp 345, 367 (SD NY, 1955).]
- Clear notice to the employee that he is waiving the right to adjudicate discrimination claims in a judicial forum and opting instead to arbitrate these claims. Renny, supra at 437.34
- The right to representation by counsel, MCR 3.602(G).
- A neutral arbitrator. MCR 3.602(J)(1)(b) provides that arbitration awards shall be vacated if there was “evident partiality by an arbitrator, appointed as a neutral.” Additionally, MCR 3.602(E)(1) requires that the arbitrator “be sworn to hear and fairly consider the matters submitted and to make a just award according to his or her best understanding.”
- Reasonable discovery. MCR 3.602(F)(2) contemplates discovery by providing that the arbitrator may permit the taking of depositions for use of evidence. Arbitrators also have subpoena power pursuant to MCR 2.506. MCR 3.602(F)(1).
- A fair arbitral hearing. As stated above, MCR 3.602(E)(1) requires arbitrators to swear to hear and decide the matter fairly. MCR 3.602(F) affords the
arbitrator subpoena powers, so that parties will be able to summon witnesses.
Unlike the court in Cole, supra at 151-154, we will not include, among the fairness requirements, a rule that the employer must pay the fees of the arbitrator and arbitration service. However, as a practical matter, claimants will have the opportunity to shift these fees to the employer. MCR 3.602(M) provides:
The costs of the [arbitration] proceedings may be taxed as in civil actions, and, if provision for the fees and expenses of the arbitrator has not been made in the award, the court may allow compensation for the arbitrator‘s services as it deems just. The arbitrator‘s compensation is a taxable cost in the action.
Furthermore, both the CRA and the PWDCRA provide that the court may award complainants reasonable attorney fees.
Just as employers should model their arbitration procedures to survive challenges based on fairness, employers must also anticipate that judicial review of arbitral awards will ensure that statutory rights are not waived and procedures are fair. To do this, it follows that judicial review here will be less deferential to the arbitrator‘s judgment than in the collective bargaining context.35 Rather, we must look to the court
With respect to judicial review of arbitral awards in general, our Supreme Court has promulgated court rules for approving or vacating awards. MCR 3.602(J)(1) provides that the reviewing court is required to vacate an arbitration award if:
(a) the award was procured by corruption, fraud, or other undue means;
(b) there was evident partiality by an arbitrator, appointed as a neutral, corruption of an arbitrator, or misconduct prejudicing a party‘s rights;
(c) the arbitrator exceeded his or her powers; or
(d) the arbitrator refused to postpone the hearing on a showing of sufficient cause, refused to hear evidence material to the controversy, or otherwise conducted the hearing to prejudice substantially a party‘s rights. [Emphasis supplied.]
Furthermore, this court rule has been interpreted to mean that certain errors of law by the arbitrator will invalidate the arbitral award. For example, in DAIIE v Gavin, 416 Mich 407, 433-434; 331 NW2d 418 (1982), our Supreme Court held that an arbitrator‘s authority is exceeded if the arbitrator makes a clear error of law:
If the appellate judiciary has any proper function at all, it is to correct material error. In determining whether to reduce to judgment the awards of statutory arbitrators, one of the court‘s functions, perhaps its most important, is to determine whether the award rests upon an error of law of such materiality that it can be said that the arbitrators “exceeded their powers.” Thus, in statutory arbitration, the arbitrators are not free to ignore controlling principles of
law, either intentionally or unintentionally, even with the consent of the parties, and expect an ultimate judicial imprimatur as well. Thus, in discharging their duty, arbitrators can fairly be said to exceed their power whenever they act beyond the material terms of the contract from which they primarily draw their authority, or in contravention of controlling principles of law.
After articulating its rationale, the Court set forth the standard of review, which we adopt here:
The character or seriousness of an error of law which will invite judicial action to vacate an arbitration award under the formula we announce today must be error so material or so substantial as to have governed the award, and but for which the award would have been substantially otherwise. [Id. at 443 (emphasis supplied).]
This Court recently held that the Gavin standard of judicial review applies to review of an arbitral award in a statutory discrimination suit. In Collins v Blue Cross Blue Shield of Michigan, 228 Mich App 560, 567; 579 NW2d 435 (1998), the arbitrator determined that an employee who expressed homicidal ideation regarding her supervisor was entitled to the protection of disability discrimination statutes. This Court held that the arbitration award should be vacated because the arbitrator ”committed an error of law” when he ruled that plaintiff was disabled within the meaning of the statute instead of recognizing that her homicidal ideation made her unqualified for the position.36 Id. at 568 (emphasis supplied).
Accordingly, we hold that a predispute agreement to arbitrate a statutory employment discrimination claim will be reviewed under the standard enunciated by our Supreme Court in Gavin.37 Specifically, courts must vacate arbitration awards in statutory employment discrimination disputes when the arbitrator‘s legal error is “so material or so substantial as to have governed the award, and but for which the award would have been substantially otherwise.” Gavin, supra at 443.
Finally, as a necessary corollary to our holding regarding the standard of judicial review, we also hold that arbitral awards must be in writing and contain findings of fact and conclusions of law. Without such a written opinion, courts would be unable to meaningfully apply the appropriate standard of review.38
IV. CONCLUSION
We summarize our holding.
(1) Predispute agreements to arbitrate statutory employment discrimination claims are valid as long as
(2) to ensure that employees have a fair opportunity to vindicate effectively statutory rights, the arbitration procedures must include: (1) clear notice, (2) right to counsel, (3) reasonable discovery, (4) a fair hearing, and (5) a neutral arbitrator;
(3) if arbitral awards are challenged, the standard of judicial review will be the standard articulated in Gavin, supra; and
(4) to allow for sufficient review, arbitral awards must be in writing and contain findings of fact and conclusions of law.
We therefore remand to the trial court to determine whether plaintiff‘s agreement is enforceable in light of our opinion.
Remanded. We do not retain jurisdiction.
GAGE, P.J., and KELLY and O‘CONNELL, JJ., concurred.
CAVANAGH, J. (dissenting). I respectfully dissent. I agree with Justice CAVANAGH‘S opinion in Heurtebise v Reliable Business Computers, Inc, 452 Mich 405; 550 NW2d 243 (1996), and the majority in Rushton v Meijer, Inc (On Remand), 225 Mich App 156; 570 NW2d 271 (1997), that Michigan‘s longstanding public policy entitling civil rights plaintiffs to direct review of their claims in the courts cannot be abrogated by
I. MICHIGAN‘S CONSTITUTION AND PUBLIC POLICY ENSURES CIVIL RIGHTS PLAINTIFFS ACCESS TO THE COURTS
In his opinion in Heurtebise, Justice CAVANAGH set forth in detail Michigan‘s “long history of stalwartly defending individuals from invidious discrimination in their pursuit of basic civil liberties... [and] faithfully defending an aggrieved individual‘s right to a judicial forum to remedy unlawful discrimination.” Heurtebise, supra at 414. In this section, I do not attempt to duplicate Justice CAVANAGH‘S excellent chronicle of Michigan‘s vigorous and sustained protection of its citizens’ civil liberties. Rather, I merely emphasize some of the significant events in Michigan‘s civil rights jurisprudence in order to demonstrate that requiring employees to waive prospectively their right to pursue civil rights claims in a judicial forum is inconsistent with Michigan‘s declared public policy.
Our Supreme Court has stated that civil rights claims should be given the “highest priority.” Holmes v Haughton Elevator Co, 404 Mich 36, 46; 272 NW2d 550 (1978). The importance attached by the Court to the protection of civil rights is not a recent phenomenon. Over a century ago, the Supreme Court held in Ferguson v Gies, 82 Mich 358, 364-365; 46 NW 718 (1890), that the rule by which a restaurant owner required black persons to sit in a separate area of the restaurant violated the common law of Michigan, as well as the civil rights act of 1885, 1885 PA 130. Moreover, the Court held that the plaintiff in Ferguson had the right to pursue a private civil suit for damages
In subsequent cases, the Court reiterated that where illegal discrimination has occurred, the victim has a civil right of action for damages, even where the civil rights statute does not specifically provide a right to damages for the injury. See St John v General Motors Corp, 308 Mich 333, 336; 13 NW2d 840 (1944) (gender discrimination); Bolden v Grand Rapids Operating Corp, 239 Mich 318, 328; 214 NW 241 (1927) (racial discrimination). In Pompey v General Motors Corp, 385 Mich 537, 560; 189 NW2d 243 (1971), the Court held that the plaintiff could maintain a civil damage action for redress of his statutorily created right to be free from discrimination in private employment, in addition to the remedial process provided by the statute. These cases represent an exception to the general policy against implying private damage remedies when rights are created by statute, Lamphere Schools v Lamphere Federation of Teachers, 400 Mich 104, 126-127; 252 NW2d 818 (1977), thus highlighting the special role of the judiciary in vindicating the civil rights of Michigan citizens.
By the adoption of the 1963 Constitution, the people of Michigan further strengthened Michigan‘s policy of protecting its citizens from discrimination. The constitution provides:
No person shall be denied the equal protection of the laws; nor shall any person be denied the enjoyment of his civil or political rights or be discriminated against in the exercise thereof because of religion, race, color or national origin. The legislature shall implement this section by appropriate legislation. [
Const 1963, art 1, § 2 .]
The 1963 Constitution recognized the importance of access to the courts in the protection of civil rights. The constitutional provision creating the Michigan Civil Rights Commission, which is charged with the enforcement of art 1, § 2, provides: “Nothing in this section shall be construed to diminish the right of any party to direct and immediate legal or equitable remedies in the courts of this state.”
In sum, Michigan long ago adopted a policy of ensuring its citizens access to the courts for the redress of unlawful discrimination. Indeed, as Justice CAVANAGH stated, “the constitutionally guaranteed
II. FEDERAL POLICY IS NOT UNIFORMLY IN FAVOR OF THE MANDATORY ARBITRATION OF CIVIL RIGHTS CLAIMS
The majority states that federal law strongly favors arbitration. However, while most federal courts have enforced mandatory arbitration agreements in statutory civil rights claims, this result is contrary to the intent of Congress. The legislative history of the 1991 Civil Rights Act, Pub L 102-166,
Moreover, there is direct evidence that Congress did not favor mandatory, predispute arbitration of civil rights claims. In addressing substitute language proposed by the Republican minority, the House Committee on Education and Labor stated that the majority version
includes a provision encouraging the use of alternative means of dispute resolution to supplement, rather than supplant, the rights and remedies provided by Title VII. The Republican substitute, however, encourages the use of such mechanisms “in place of judicial resolution.” Thus, under the latter proposal employers could refuse to hire workers unless they signed a binding statement waiving all rights to file Title VII complaints. Such a rule would fly in the face of Supreme Court decisions holding that workers have the right to go to court, rather than being forced into compulsory arbitration, to resolve important statutory and consti-
tutional rights, including equal opportunity rights. American workers should not be forced to choose between their jobs and their civil rights. [HR Rep No. 40(I), 102d Cong, 1st Sess, p 104 (1991), reprinted in 1991 US Code Cong & Ad News 549 (emphasis added; citations omitted).]
Thus, Congress explicitly rejected a proposed amendment that would have permitted mandatory predispute arbitration agreements and instead chose only to encourage voluntary agreements.6
As the majority opinion notes, the United States Supreme Court‘s position has relatively recently undergone a metamorphosis from a presumption against arbitration to one in favor of arbitration. The Court‘s previous opinion of arbitration as a second-rate means of resolving disputes is exemplified in Alexander v Gardner-Denver Co, 415 US 36; 94 S Ct 1011; 39 L Ed 2d 147 (1974), and Wilko v Swan, 346 US 427; 74 S Ct 182; 98 L Ed 168 (1953). However, as one commentator has observed, “[s]ince 1985, [the Court] consistently has treated resistance to arbitration as a peculiarly unworthy species of bigotry.”7 I do not deny that arbitration has its virtues as a dispute-resolution mechanism, particularly when both parties voluntarily agree to its use. Nevertheless, the Court‘s change of heart regarding the issue was undoubtedly influenced more by the need to control crowded federal dockets than by concern for the rights of victims of unlawful discrimination.8
The majority relies on Gilmer v Interstate/Johnson Lane Corp, 500 US 20; 111 S Ct 1647; 114 L Ed 2d 26 (1991). However, because the arbitration agreement in Gilmer was contained in the plaintiff‘s registration
In fact, in Gilmer the Supreme Court acknowledged that “all statutory claims may not be appropriate for arbitration.” Id. at 26. The Court did not specify any statutory claims that are inappropriate for arbitration. However, it did state that arbitration agreements should not be enforced where Congress intended to preclude the waiver of a judicial forum for a particular claim. Evidence of this intention can be found in the text of the statute, its legislative history, or an “inherent conflict” between arbitration and the statute‘s underlying purposes. See id.
IV. MANDATORY PREDISPUTE ARBITRATION AGREEMENTS ARE BAD POLICY
Arbitration is essentially a streamlined method of adjudication. Parties opt for arbitration in hopes of obtaining a faster and less costly resolution of their dispute. By choosing arbitration, it is expected that
In addition, as the Equal Employment Opportunity Commission (EEOC) and others have argued, the use of mandatory arbitration in such circumstances may result in structural biases in favor of employers. For example, the employer is much more likely to be a “repeat player,” while the employee is a “one-shot player.” Thus, the employer will have the advantage of familiarity with the arbitration process. When a dispute arises, the employer will have information readily available about various arbitrators and their rulings in previous cases.12 Furthermore, the arbitrator is likely to feel subtle pressure to find in favor of employers, who represent the source of future busi-
Moreover, arbitration is essentially a private process and therefore does not allow development of the law. The courts play an essential role in the enforcement of civil rights laws by establishing precedents that give guidance to other companies and employees and by allowing public scrutiny of corporate policies, thus giving companies a strong incentive to eliminate discriminatory practices.15 However, as the EEOC has observed, “The courts cannot fulfill their enforcement role if individuals do not have access to the judicial forum.”16
Finally, the vaunted advantages of arbitration are not guaranteed. Although “arbitration can often be superior, as an empirical matter it is not clear that binding arbitration is necessarily faster, cheaper, and otherwise better than litigation.”17 Even where arbitration does result in increased speed and lower costs, the source of these benefits is often limits on discovery that may leave a plaintiff with a meritorious claim unable to prove it.18
The public rights embodied in state and federal employment law—such as freedom from discrimination in the workplace and minimum wage and overtime standards—are an important part of the social and economic protections of the nation. Employees required to accept binding arbitration of such disputes would face what for many would be an inappropriate choice: give up your right to go to court, or give up your job....
Binding arbitration agreements should not be enforceable as a condition of employment.22
V. THE FEDERAL ARBITRATION ACT DOES NOT PREEMPT MICHIGAN LAW IN THIS CASE
The majority concludes that Michigan law permits the parties’ arbitration agreement and therefore does not address whether the Federal Arbitration Act (FAA),
Section 2 of the FAA provides: “A written provision in any... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
An examination of the circumstances surrounding the passage of the FAA24 reveals that it resulted from the desire of the business community to overturn the common-law rule that denied enforcement of agreements to arbitrate.25 The American Bar Association (ABA) drafted a proposed federal arbitration act, which was introduced in Congress in late 1922. The proposed act was intended to apply to consensual transactions between two merchants of roughly equal bargaining power.26 However, the bill drew the attention of the president of the International Seamen‘s Union, who opposed it on the basis that it would compel arbitration between seamen, as well as other transportation workers, and their employers.27 In response, the chairman of the ABA committee responsible for drafting the act testified before a Senate subcommittee that the bill was “not intended... [to] be an act referring to labor disputes, at all. It is purely an act to give the merchants the right or the privilege of sitting down and agreeing with each other as to what their damages are, if they want to do it. Now that is
This bill simply provides for one thing, and that is to give an opportunity to enforce an agreement in commercial contracts and admiralty contracts—an agreement to arbitrate, when voluntarily placed in the document by the parties to it.... It creates no new legislation; grants no new rights, except a remedy to enforce an agreement in commercial contracts and in admiralty contracts.”29
Secretary of Commerce Herbert Hoover, an active supporter of the bill, wrote to the Senate subcommittee: “If objection appears to the inclusion of workers’ contracts in the law‘s scheme, it might well be amended by stating ‘but nothing herein contained shall apply to contracts or employment of seamen, railroad employees, or any other class of workers engaged in interstate or foreign commerce.’ ”30
Hoover‘s proposed language was adopted, and the FAA became law on February 12, 1925. Decades later, courts were required to determine whether the exemption in § 1 excludes all contracts of employment, or only those employees who are engaged in transporting goods across state or international lines. The United States Supreme Court has yet to rule on this issue,31 while the federal courts of appeal are
However, the currently prevailing view that the exemption applies only to those employed in commerce is flawed because it ignores the historical setting in which the FAA was passed. The reach of the commerce power in 1925 was very limited;34 in the
In sum, because plaintiff‘s duties did not involve interstate or foreign commerce, and because the FAA was never intended to apply to employment contracts, I would find that the Michigan law is not preempted by federal law in this case.
HOOD and MCDONALD, JJ., concurred.
Notes
The purpose of the Act was uniformly to expand employees’ rights and “to increase the possible remedies available to civil rights plaintiffs.” [Prudential Ins Co of America v] Lai [42 F3d 1299, 1304 (CA 9, 1994)] (emphasis added). It thus would be “at least a mild paradox,” Pryner [v Tractor Supply Co, 109 F3d 354, 363 (CA 7, 1997)], to conclude that in the very Act of which the “primary purpose” was “to strengthen existing protections and remedies available [to employees under Title VII],” H.R. Rep. No. 40(II) at 1, Congress “encouraged” the use of a process whereby employers condition employment on their prospective employees’ surrendering their rights to a judicial forum for the resolution of all future claims of race or sex discrimination and force those employees to submit all such claims to compulsory arbitration. It seems far more plausible that Congress meant to encourage voluntary agreements to arbitrate—agreements such as those that employers and employees enter into after a dispute has arisen because both parties consider arbitration to be a more satisfactory or expeditious method of resolving the disagreement. [Duffield v Robertson Stephens & Co, 144 F3d 1182, 1192-1193 (CA 9, 1998).]
In addition to the concerns discussed in this opinion, the Mitsubishi cases involved concerns that are not relevant to the instant case. In Mitsubishi, the Sherman Act claim was to be submitted to an international arbitration panel, hence, the Court had to consider whether the integrity of American law could be upheld in an international forum. In McMahon and Rodriguez, the Court considered whether arbitration would undermine the criminal enforcement provisions of the RICO and the securities statutes. The Court‘s decision to uphold arbitration even over these considerations underscores the favored position of arbitration.
Haagen, supra at 1053.Judicial review of civil rights arbitration will be discussed in greater detail, infra at 163-166.
EEOC Policy Statement, § IV, pp 6-8; Garrison, The employee‘s perspective: Mandatory arbitration constitutes little more than a waiver of a worker‘s rights, 52 Disp Resolution J 15, 18 (Fall 1997).The Gilmer Court‘s position that arbitration need not curtail a claimant‘s substantive rights represents a complete reversal of the Court‘s statement in Alexander v Gardner-Denver Co, 415 US 36, 56; 94 S Ct 1011; 39 L Ed 2d 147 (1974), that “we have long recognized that ‘the choice of forums inevitably affects the scope of the substantive right to be vindicated,’ ” quoting United States Bulk Carriers, Inc v Arguelles, 400 US 351, 359-360; 91 S Ct 409; 27 L Ed 2d 456 (1971). For those who believe juries are the key to huge awards, for better or worse, the statement quoting from Arguelles remains at the heart of the debate!
Sternlight, Panacea or corporate tool?: Debunking the Supreme Court‘s preference for binding arbitration, 74 Wash ULQ 637, 678 (1996).Similarly, in Betts v Brooks & Perkins, 446 Mich 270; 521 NW2d 518 (1994), our Supreme Court held that statutory civil rights, even when incorporated into a collective bargaining agreement, are not subject to preemption under
The restriction on compulsory arbitration of statutory claims in the collective bargaining context is not absolute. In Moss v Dep‘t of Mental Health, 159 Mich App 257; 406 NW2d 203 (1987), this Court held that an arbitrator‘s resolution of a grievant‘s claim under the assault pay provision of the Mental Health Code,
The arbitration agreement in this case does not restrict the employee‘s right to seek administrative relief through the MDCR or the EEOC. We agree with Gilmer, however, that arbitration agreements are not valid if they restrict MDCR enforcement of the CRA. We disagree with the decision in Equal Employment Opportunity Comm v Frank‘s Nursery & Crafts, Inc, 966 F Supp 500 (ED Mich, 1997), to the extent that it upholds provisions of an arbitration agreement that prevented a plaintiff from seeking relief through the EEOC or the MDCR.
Commission on the Future of Worker-Management Relations, Report and Recommendations, § 4, pp 32-33, see http://www.ilr.Cornell.edu/library/e_archive/Dunlop/section4.html.This is true not only for the securities registration agreements addressed in Gilmer, but also for other categories of employment-related contracts. We comment on this distinction only because the Court of Appeals for the Fifth Circuit opined, in Alford v Dean Witter Reynolds, Inc, 939 F2d 229, 230, n * (CA 5, 1991), that the FAA‘s exclusion for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” (
Several members of the Supreme Court have pointed out that the Court has ignored congressional intent in interpreting § 2 of the FAA. Justice O‘Connor has stated: “[T]he Court has abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act, building instead, case by case, an edifice of its own creation.” Allied-Bruce Terminix Cos, Inc v Dobson, 513 US 265, 283; 115 S Ct 834; 130 L Ed 2d 753 (1995) (O‘Connor, J., concurring). Justice Stevens has concluded that the “Court has effectively rewritten the statute to give it a preemptive scope that Congress certainly did not intend.” Perry, supra at 493 (Stevens, J., dissenting). Both Justice Thomas and Justice Scalia believe that the Court has ignored the language and intent underlying the FAA. See Allied-Bruce Terminix Cos, supra at 285-289 (Thomas, J., dissenting).
As discussed above, Gilmer distinguished Gardner-Denver on the ground that the latter case involved a collective bargaining agreement rather than an individual contract. Since Gilmer, parties have raised the issue whether and to what extent Gardner-Denver remains viable authority. See Pryner v Tractor Supply Co, 109 F3d 354 (CA 7, 1997) for a thorough discussion of Gilmer‘s potential effect on the viability of Gardner-Denver.
Some federal courts, including the United States District Court for the Eastern District of Michigan, have maintained that Gardner-Denver remains an effective bar to compulsory arbitration of civil rights claims in the collective bargaining context. Jackson v Quanex Corp, 889 F Supp 1007 (ED Mich, 1995); see also Patton v Toshiba America Consumer Products, Inc, 967 F Supp 283 (MD Tenn, 1997); Krahel v Owens-Brockway Glass Container, Inc, 971 F Supp 440 (D Or, 1997). On the
For a comprehensive review of the circumstances surrounding the exemption‘s submission and passage, see Finkin, “Workers’ contracts” under the United States Arbitration Act: An essay in historical clarification, 17 Berkeley J Emp & Lab L 282 (1996).other hand, the Court of Appeals for the Fourth Circuit held in Austin v Owens-Brockway Glass Container, Inc, 78 F3d 875 (CA 4, 1996) that the FAA requires enforcement of these agreements. The United States Supreme Court declined to resolve this controversy in Wright v Universal Maritime Service Corp, 525 US 70; 119 S Ct 391; 142 L Ed 2d 361 (1998). Our decision does not turn on the outcome of this controversy, and we express no opinion concerning the proper application of Gilmer to general arbitration clauses in collective bargaining agreements.
For example, in Duffield, supra at 1189-1190, the Court of Appeals for the Ninth Circuit refused to enforce the arbitration agreement as it applied to the plaintiff‘s title VII claims. The court held that Gilmer was distinguishable because there, the plaintiff‘s lawsuit arose under the ADEA. The court then reasoned that Gilmer did not apply to title VII claims, because congressional intent precluded compulsory arbitration of title VII claims. The court inferred this “intent” from the legislative history of the Civil Rights Act of 1991. Id. at 1191. See also Rosenberg v Merrill Lynch, Pierce, Fenner & Smith, Inc, 995 F Supp 190, 200 (D Mass, 1998).
We are not persuaded by this reasoning. Instead, we agree with the reasoning in Frank‘s Nursery, supra, 966 F Supp 503, which concluded that “a prospective, voluntary agreement to proceed to arbitration” is not the sort of coercive action that the 1991 legislative history cautioned against. The legislative history cited by the Duffield court warned against arbitration agreements that precluded claimants from seeking relief under title VII‘s enforcement provision, and averred that alternate dispute resolution [ADR] should supplement, but not replace, judicial procedures. See Duffield, supra at 1195. The Court of Appeals for the First Circuit recently rejected the Duffield reasoning. Rosenberg v Merrill, Lynch, Pierce, Fenner & Smith, Inc, 170 F3d 1 (CA 1, 1999). Arbitration agreements that meet the Gilmer prerequisites of appropriate due process and that provide for full statutory rights and remedies do not implicate the concerns raised by the legislative history. Furthermore, we note that Congress has had seven years to act in response to the Gilmer decision. In any event, Duffield is obviously inapplicable here, where plaintiff has not raised any claims under title VII.
Various other cases have refused to enforce arbitration clauses on grounds of general contract principles, e.g., because the particular contract provision did not extend to the plaintiff‘s particular cause of action, or because the parties had not actually entered into a legally binding contract. These cases are consistent with Gilmer, and we do not regard them as “resisting this trend.”
Stempel, Reconsidering the employment contract exclusion in section 1 of the Federal Arbitration Act: Correcting the judiciary‘s failure of statutory vision, 1991 J Disp Resol 259, 294-295; Sternlight, supra at 647.We note that Cole was written by one of this country‘s leading and respected authorities on the subject of arbitration and employment discrimination, Chief Judge Harry T. Edwards of the United States Court of Appeals for the District of Columbia.
Finkin, supra at 296; Stempel, supra; Sternlight, supra.For additional information concerning the Department of Labor Commission on the Future of Worker-Management Relations (Dunlop Commission), see Cole, supra at 151, n 11. For the text of the report see http://www.irl.cornell.edu/library/e_archive/Dunlop.html.
Finkin, supra at 284.Furthermore, a contract is an adhesion contract only if the party agrees to the contract because he has no meaningful choice to obtain the desired goods or services elsewhere. Morris v Metriyakool, 418 Mich 423, 440; 344 NW2d 736 (1984). If the prospective employee (applicant) would be able to obtain work elsewhere, the contract is not one of adhesion because the applicant has a meaningful choice in accepting the offer of employment. Beauchamp, supra, 918 F Supp 1098. Therefore, a predispute agreement to arbitrate statutory employment discrimination claims is not a contract of adhesion if either (a) the terms of the contract are reasonable or (b) the employee had a meaningful choice.
As a practical matter, the enforceability of a predispute agreement to arbitrate statutory civil rights questions will turn on whether the contract preserves substantive rights and remedies and is procedurally fair. If it satisfies these conditions, then it is reasonable, and it will be enforceable even if the employee did not have meaningful choice in signing it. Rehmann, Robson & Co v McMahan, 187 Mich App 36, 43-44; 466 NW2d 325 (1991); Ryoti, supra, 142 Mich App 805. If it does not satisfy these conditions, but the employee had meaningful choice in signing it, then it is not an adhesion contract, but it still will not be enforceable because it will
Finkin, supra at 285, quoting Hearing on S. 4213 and S. 4214 Before the Subcomm of the Senate Comm on the Judiciary, 67th Cong, 4th Sess 9 (1923).We recognize that a panel of this Court recently adopted the majority view and held that “the exclusionary provision in 9 USC 1 is limited to employees directly engaged in the movement of goods in interstate commerce.” DeCaminada v Coopers & Lybrand, LLP, 232 Mich App 492, 499; 591 NW2d 364 (1998). However, for the reasons discussed in this opinion, we believe that this interpretation is erroneous.