Mandatory Arbitration, Quirky Question # 59
Quirky Question # 59:
We are a large company with substantial number of employees. We have decided to compel our employees to arbitrate all of their employment claims, through the adoption of a mandatory arbitration policy. Since we are writing the agreement that binds the employees, we have decided to include a provision barring any class action claims. Any problems with this approach?
Roy’s Analysis:
The fundamental questions your company is evaluating – should your firm adopt a mandatory arbitration policy, and how should it be written – are important inquiries. Before you completely commit to the arbitration path, let me offer a few observations for your consideration. Then, if your company still wishes to implement a mandatory arbitration policy, I’ll offer a few suggestions on the contours of such a policy.
As you know, there are pros and cons to requiring your employees to arbitrate their employment claims with your company. The principal justification I hear expressed for the adoption of an arbitration policy is that mandatory arbitrations save companies money. Frankly, I’m not convinced that’s true.
I don’t dispute the notion that a case filed and resolved by an arbitrator following a hearing is likely to be less expensive than a case filed and resolved by a federal or state court judge following a trial. But the broad question of whether requiring your firm’s employees to arbitrate their claims would be less expensive for your firm should not be assessed on this type of single case comparison alone. I suggest that you consider whether your company, when assessing all of the potential claims and/or litigation, would spend less on employment lawsuits if you adopted a mandatory arbitration policy. There are a number of variables that cause me to question whether these policies truly result in a cost savings.
First, as you likely know, most civil cases that get filed in state or federal court, are resolved before trial. (I’ve seen different statistics on this question but nearly all of them are that fewer than five percent of filed cases actually are tried to verdict.) Many of them are resolved through a motion for summary judgment. Occasionally, they are resolved at an even earlier stage in the proceeding, through a motion to dismiss. The expenses associated with these dismissed cases are substantially less than cases that are tried to verdict.
In arbitrations, however, you rarely can persuade an arbitrator to dismiss a case early on. Even obtaining summary judgment is an unusual event in an arbitral forum. Some arbitrators won’t even allow parties to file such a motion. Other arbitrators permit such motions to be filed but grant them only infrequently. Given these facts, the more meaningful comparison is what will it cost your company to participate in an arbitration hearing 95 percent of the time. Juxtapose that figure to what it would cost your company to try in court fewer than 5 percent of the cases.
Second, a potentially significant part of litigation expenses are the fees associated with discovery. But, the federal and state courts have taken steps to rein in discovery expenses. For example, in the federal courts, as well as many state courts, lawyers need agreement from opposing counsel or judicial permission to take a deposition for more than seven hours. Moreover, if there are discovery abuses, these issues can be brought to a court’s attention. In contrast, arbitration is a far more undefined environment. Some arbitrators allow substantial discovery; others do not. Some arbitrators will simply use the federal or state rules of civil procedure when defining the appropriate scope of discovery, which means that there will be only a minimal cost savings in this area. (One practical recommendation for you, as a consequence, is to consider how your firm would like to define the scope of appropriate discovery in your arbitration policy. A corollary cautionary recommendation is that, although discovery can be expensive, you should not be too limiting in defining the scope of permissible discovery. Don’t write your policy in a way that precludes all depositions or so circumscribes your ability to obtain information from the plaintiff before the hearing that you are clueless as to what your employee, or former employee, will say when testifying.)
Third, keep in mind that you have to pay arbitrators. You don’t have to pay state or federal judges. Moreover, an arbitrator has a financial incentive to allow a broad inquiry. That is not true for judges, whose dockets typically are so congested that they work diligently to assist the parties to resolve the matters before trial, and sometimes (if those efforts fail) impose tight time limits on the actual trial itself.
A second common justification advanced by those advocating arbitration is that arbitration is a more expeditious dispute resolution procedure than civil litigation in state or federal courts. This is probably true. But, when viewed from a defense perspective, I’m not sure this is necessarily an advantage. Moreover, if defendants are eager to move a case along more quickly, there are many ways to expedite the process (short discovery periods, early motions, early deposition of plaintiff, etc.). Typically, however, defendants recognize that delay is not disadvantageous.
A third issue you may want to consider when evaluating the desirability of requiring arbitrations is the question of finality. There are pros and cons to assess on this point. If you mandate arbitration of employment claims and the claims are pursued through a hearing result, the case is over. (This is true except in the rarest of cases, beyond the scope of this Blog analysis, where arbitrators make errors that cause courts to step in post-arbitration.) In short, there is finality with the arbitrator’s determination. There likely will be times, however, when an arbitrator renders a decision you simply cannot believe. In this context, you will wondering how quickly you can file your appeal. Simply put, you can’t. As just stated, except in extraordinary situations, the arbitrator’s decision ends the case.
In a judicial forum, of course, if the jury gets it wrong, you have the right to file post-trial motions, in which you ask the court to rectify a jury’s “mistaken” analysis. If the judge doesn’t share your perception that the jury erred, you have the right to file an appeal. If the intermediate appellate court also is unconvinced by your arguments, you can petition for review by a higher court. In other words, you often will have three layers of appeal from an adverse decision. Before you decide that you are going to adopt a mandatory arbitration policy, consider what you are giving up.
A fourth general observation regarding arbitration is that the Rules of Civil Procedure (all 300-plus pages), whether for federal or state courts, have been thoughtfully developed over decades. They address a multitude of issues that can arise in civil litigation. Arbitration rules, in contrast, if defined at all, usually are set forth in a few brief pages. This leaves a great deal of room for interpretation, rather than providing the clarity and certainty associated with the well-defined rules of civil procedure. Further, the Rules of Evidence also provide parties with guidance on what evidence is (and is not) admissible. In the arbitration context, the evidentiary standards usually are far more lax. So, for example, an arbitrator may be far more inclined to admit evidence that is only marginally relevant, or is based on otherwise inadmissible hearsay, than his or her judicial counterparts. This can prolong a hearing, introduce extraneous issues, and, at times, be outcome determinative.
My last general observation is that arbitrations sometimes involve “compromise” resolutions. More than a few arbitrators adopt a “split-the-baby” approach. This may reflect the fact that the arbitrators are hoping that at some future point, they will be retained by the parties and their lawyers in connection with another dispute. Judges, in contrast, do not feel that financial pressure and generally are indifferent to the prospect of involvement in future disputes involving the same parties. Therefore, they may be a bit less inclined to reach a compromise resolution.
I hope I’ve raised a few general issues for you to evaluate regarding the adoption of a mandatory arbitration policy. Assuming, however, that your firm still wants to implement an arbitration policy, let me now address the specific question you posed regarding the prohibition of class actions in the policy.
Many courts recognize that employees do not truly “bargain” with respect to policies and procedures that employers adopt and impose upon them. Therefore, courts scrutinize these “contractual” obligations carefully. Although the courts have found that employer-imposed arbitration policies are enforceable, courts often evaluate whether the policies implemented by employers either impose obligations on employees that would not exist in the court system, or deprive employees of the rights they otherwise would have if the claims were being pursued in court. For example, when employees are required to pay a portion of the arbitration costs, courts often have rejected those arbitration policies since the employees would not be obligated to pay these costs to pursue a claim in federal or state court. Conversely, if the arbitration policies take away rights available in a judicial forum, such as the right to pursue claims on a class action basis, again courts are skeptical. Judicial skepticism, especially when applied to arbitration policies, often results in a repudiation of the arbitration agreement as “unfair,” or “unconscionable,” or an “adhesion” contract. In other words, courts hold these types of agreements unenforceable.
Here, you are contemplating prohibiting employees from pursuing class claims through your arbitration policy. Yet, if employees can meet the standards for class claims in a judicial forum, they would be able to pursue a class wide claim. Therefore, a court may well conclude that your arbitration policy deprives employees of rights to which they otherwise would be entitled and reject your policy on that basis. Given that risk, I recommend that you not include such a prohibition in your company’s arbitration policy. Inclusion of this type of provision risks invalidating the entire arbitration policy.
Conflicts Between Religion and Other Discriminatory Prohibitions, Quirky Question # 58
I read with interest your last question about a company’s obligation to accommodate an individual’s religious beliefs, assuming that it would not cause an undue hardship to the employer. We have a slightly different problem. One of our employee’s religious beliefs would appear to be in conflict with our anti-discrimination prohibitions.
Acknowledging the changing composition of our workforce and customers, our company instituted a diversity initiative. As part of that effort, we display posters of some of our diverse employees (an African American, a woman, a Hispanic, an older employee, a disabled employee, and a Gay employee who is very active in our GLBT efforts).
Shortly after the posters were displayed, a long-term employee placed a quotation from the Bible in an overhead bin in his cubicle in large letters. The quoted passage stated: “If a man also lie with mankind, as he lieth with a woman, both of them have committed an abomination; they shall surely be put to death.”
Co-workers who sit by or have to pass by the employee’s cubicle have complained about the quotation as being contrary to the diversity and anti-harassment policies of the company. They correctly point out that displaying this Bible quotation also appears to be in conflict with Minnesota’s prohibition of discrimination based on sexual orientation. When we approached the individual, he explained that he is a devout Christian who believes he must expose homosexuality as evil.
What recommendations do you have for resolving the conflict between our company’s obligations to prevent sexual orientation discrimination and our company’s obligation to accommodate different religious beliefs.
Many states, including Minnesota, have statutes that prohibit discrimination on the basis of sexual orientation. Further, independent of state laws, most of the largest and mid-size corporations in this country have policies prohibiting discrimination on the basis of sexual orientation. In short, the type of quotation displayed by your employee conflicts with state law and sound corporate policies. In my view, in this context, corporations are fully justified in terminating employees who are unwilling to remove these types of anti-Gay statements from their work spaces.
Out of an abundance of caution, however, companies should follow the prescriptions of the courts and the EEOC guidelines before making the discharge decision. First, explore with the employee displaying the bigoted statement why it is being displayed. If he advises you that his actions reflect a “sincerely held” religious belief, you need to move to the next step of the analysis. (Of course, if he tells you that he simply hates homosexuals and does not tie his antipathy to “sincerely held” religious beliefs, your rights to discipline or discharge him are even more unfettered.) Second, assuming your employee’s beliefs are religiously linked, you need to explore whether you can accommodate these beliefs. As I discussed last week, however, your accommodation obligations are not substantial. If the accommodation would cause your company even a minimal “undue hardship,” the accommodation does not have to be made.
There are many ways in which you can demonstrate that allowing this hateful message to be displayed (whether based on a Biblical passage or not) would be harmful to your company. The message violates state law, at least in Minnesota and a number of other states. The message violates your company’s policies. The message is contrary to your company’s diversity initiative. The message is hurtful to employees, both heterosexual and homosexual. The message is divisive and counter-productive to a harmonious and effective workforce. If displayed in an area where your customers and/or vendors have access, your message also may offend representatives of those groups and may adversely affect your company’s relationships with these third parties.
The bottom line is that allowing hateful, hurtful messages to be displayed in your workplace (regardless of which group is targeted) adversely affects your company’s profitability. For these reasons (and undoubtedly others as well) your company should be able to demonstrate easily that allowing the Biblical quote to be displayed would constitute an “undue hardship” for your company.
I recommend, therefore, that you discuss with your employee whether he is willing to remove the quotation from his work area. If he is not willing to remove the offensive material, impose discipline. If you want to help the employee understand the seriousness of your concerns, you could consider progressive discipline. For example, you could suspend him without pay for a defined period of time. If that action does not convince your employee that you view his actions seriously, and he still insists on displaying this Bible quote, you would be justified in terminating him. If he later sued on the basis of religious discrimination, your company should prevail.
Several years ago, a similar case was presented to the Ninth Circuit, Peterson v. Hewlett Packard, 358 F.3d 599 (9th Cir. 2005). In Peterson, a case arising out of the District of Idaho, a Hewlett-Packard employee displayed a number of virulently anti-Gay Biblical quotes in his cubicle, all within the view of other company employees. Peterson, who characterized himself as a “devout Christian” acknowledged that he the quotations were “intended to be hurtful.” (Apparently, there were other sections of the Bible that he somehow overlooked.) Peterson claimed that he hoped his Gay and Lesbian colleagues would see his message, “repent and be saved.” Hewlett Packard met with Peterson, explored whether it could accommodate his religious beliefs, discovered that Peterson would not agree to the removal of the quotations, and terminated his employment, both for violating the company’s policies and for insubordination. The District Court granted the company’s summary judgment motion in Peterson’s disparate treatment and failure to accommodate religious discrimination claims. The Ninth Circuit affirmed.
With respect to the failure to accommodate claim, the Ninth Circuit pointed out that an accommodation need not be made where the accommodation “would result in discrimination against [ ] co-workers or deprive them of contractual or statutory rights.” Further, the court emphasized that Title VII’s prohibition against religious discrimination “does not require an employer to accommodate an employee’s desires to impose his religious beliefs upon his co-workers.” This observation holds true regardless of which religious zealot is desirous of imposing his set of beliefs upon his co-workers.
Note that the EEOC has recently published an informative “Fact Sheet” relating to religion and Title VII, in which the EEOC addresses a number of questions and answers about religious discrimination. See, http://www.eeoc.gov/policy/docs/religion.html .
Finally, another way to consider this question is to substitute another issue in the message that was displayed and evaluate whether there would be any serious debate about the outcome. For example, if an employee posted a message in his or her cubicle that anyone who married someone of another race should be put to death, claiming that this sentiment was based on his or her religious beliefs, there would be little tolerance for the expression of this idea. Or, if an employee communicated the sentiment that a young woman should be killed if she marries someone other than the marriage partner selected for her by her parents, again there would be immediate rejection of this message as completely unacceptable. The same immediate rejection should apply when an employee is asserting that individuals with a different sexual orientation should be “put to death,” regardless of whether he links this sentiment to his religion.
My last observation is that the train has left the station with respect to protecting individuals on the basis of sexual orientation. State laws prohibit discrimination against these individuals. It is likely that federal legislation will pass in the next Congress prohibiting sexual orientation discrimination. Most responsible companies have established policies regarding sexual orientation discrimination, and are working hard to ensure their workforces are both diverse and tolerant. Employers are well within their rights in insisting that their employees get on board, regardless of those employees’ religious beliefs.
Religious Discrimination and Accomodations, Quirky Question # 57
Our retail firm used to operate six days a week. We recently decided however, that we needed to remain open on Sundays to ensure that we can compete effectively with other similar retailers, many of whom have been operating 7 days/week for some time. When we made the decision to keep our stores open on Sundays, we advised our employees that we would establish a rotating shift system to spread the Sunday burden among all of our employees.
When we announced this new approach, we received objections from several of our employees who advised us that they consider Sundays to be “family time” and who stated that they did not want to work on Sundays. We informed these employees that we could not accommodate their concerns without causing resentment among the other employees who then would be compelled to work additional Sunday shifts to cover for them.
Soon thereafter, two of these employees came to us and told us that they could not work on Sundays due to their religious beliefs. Frankly, I do not even know what their religious beliefs are. They certainly have not seemed very devout in the past.
Does our company have to accommodate their demands to avoid Sunday work? I suspect it will create considerable animosity among the other employees, especially those who also expressed frustration with a Sunday work schedule. Moreover, it is going to be difficult (and costly) for us to find alternative employees to work on Sundays.
It seems to me as though there are a lot of “religious discrimination” cases in the news these days. Do we have to honor these employees’ requests? If we don’t, would we be liable for religious discrimination?
One of the battlegrounds in the religious discrimination cases is employees’ work schedules. This may relate to employees’ desire to take time during the workday to pray or participate in other religious practices, to take time off (sometimes quite a bit) to observe various religious holidays, or, as in the fact pattern you describe, not to work during the Sabbath. Of course, depending on the religion, these days of worship may be different.
Under Title VII, employers with 15 or more employees may not discriminate against employees on the basis of religion (as well as various other protected categories). One of the obligations imposed upon employers under Title VII is to make an effort to accommodate employees’ religious beliefs when there is a conflict between an employee’s religious beliefs and some work rule or requirement. Here, you point out that there is a conflict between your firm’s need to staff your Sunday shifts and a few of your employees’ desire to avoid working on Sunday. This is the type of issue that requires an employer to explore whether an accommodation of the employee is possible.
There are several key points, however, to keep in mind with respect to religious accommodation issues. First, not all requests for an accommodation must be honored. The employer only need accommodate those beliefs that are religious and “sincerely held.” If an employer has a bona fide (or legitimate) concern about whether the religious beliefs are sincerely held, it may engage in limited inquiries to gain a better understanding of this issue. Here, for example, you point out that the employees first raised an issue with you about working your Sunday shifts because of the impact these shifts would have upon their “family time.” The fact that your employees’ initial objection had nothing to do with a religious-based concern may cast doubt on the legitimacy of the subsequent request for a religious accommodation. Note, however, that there appears to be a relatively low bar for determining whether an employee’s religious beliefs are “sincerely held,” so it’s difficult for an employer to prevail upon this issue.
Second, the standard for religious accommodation is quite different than the standard for an accommodation of a disabled employee. Although both statutory schemes refer to the concept of “undue hardship,” the burden on the employer to show undue hardship is far less significant for religious accommodation issues than it is for disability accommodation.
Fourth, monetary costs are not the only measure of assessing an undue hardship. Other factors to consider include the impact of the accommodation on other aspects of the employer’s business. Would the accommodation decrease efficiency? Would the accommodation affect workplace safety? Would the accommodation increase the burden on other employees, especially with respect to potentially hazardous or difficult work? These are but a few illustrations of the ways in which an employer could legitimately demonstrate that the accommodation would constitute an undue hardship. If an undue hardship is established, an employer is justified in rejecting the requested accommodation.
Fifth, an employer does not have to grant an accommodation if it would adversely affect another employee’s rights pursuant to a collective bargaining agreement, or a bona fide seniority system. For example, if your company allowed employees to select their shifts based on the length of their tenure with your firm, and the employees who were seeking to avoid working on Sunday were junior employees who would not have the requisite seniority to select non-Sunday shifts, your company would not be obligated to accommodate them if that meant bumping a more senior employee into the undesirable Sunday shift. Of course, another employee could elect to swap shifts with the employee hoping to avoid Sunday work due to his or her religious beliefs.
In sum, there are a number of issues you should explore when trying to assess whether your company must accommodate an employee’s request for a religious accommodation. Is the religious belief sincerely held? Will accommodating the employee’s request result in more than a de minimis hardship for your company, whether measured by costs or other legitimate considerations? Would granting the accommodation conflict in some way with other rights guaranteed to your other employees?
Once these questions are considered, you will be better positioned to evaluate whether you can grant your employees’ requests to avoid the Sunday shift assignments. Keep in mind that even if you do determine that you can accommodate the requests by your employees, you should think creatively about how you approach this issue. It may be that other employees are willing to swap shifts on a voluntary basis. Hypothetically, you might even find that you could accommodate individuals of different religions by flexible scheduling. For example, some employees may ask not to work from sundown on Friday to sundown on Saturday. Other employees may have no reservations about working shifts that conflict with this timeframe but are desirous of avoiding Sunday work.
If, however, you conclude that you cannot accommodate your employees’ requests, you may have a defensible position. Engage in an interactive process with the affected employees, consider any ideas or solutions they may propose, and document your communications with your employees. Treat these kinds of situations individually, carefully examining the particular needs and beliefs of each employee. Finally, consider thoughtfully the types of issues described above and document your analysis. By engaging in a thoughtful and deliberative assessment of these issues, you will reduce your potential exposure if you are subsequently sued for religious discrimination.
Punitive Damages for Sexual Harassment, Quirky Question # 56
Our company is committed to eliminating sexual harassment. We have a well-defined sexual harassment policy that is included in our employee handbook. We also have conducted training sessions on a bi-annual basis to ensure our employees understand our company’s position on sexual harassment.
Some time ago, one of our employees complained of sexual harassment. For various reasons (including the timing of her complaint, our company’s hectic schedule at the time, and her lack of persistence), her complaint fell through the cracks. She now has sued our company and included a claim for punitive damages. Given our commitment to eliminating sexual harassment (as reflected by our well-established policy), we do not have any risk of a punitive damages award, do we?
Courts are not particular sympathetic to a company’s failure to investigate employees’ sexual harassment complaints and typically do not find that a company’s “hectic schedule” justifies delaying the initiation of an investigation. Further, in my experience, courts would be completely unimpressed by a company’s attempt to shift responsibility to the harassment victim by suggesting that she was not sufficiently persistent in pursuing her claim. Once an employee reports the harassment to you, it is incumbent upon your company to act. I doubt that there is anything in the handbook you referenced or in the training you conduct suggesting that if your company is unresponsive to the employee’s first complaint, she needs to follow up by complaining again.
The bottom line is that sexual harassment complaints must be investigated promptly. I am periodically asked just what “promptly” means. Like much of sexual harassment litigation, this issue depends on the “totality of the circumstances.” Moreover, there s a direct linkage between the seriousness of the allegations and the speed with which the company begins its investigation. If, for example, the allegation involves a sexual assault, it is imperative that the company start its investigation immediately. If, however, the harassment allegations were only a few off-color jokes, especially if they were not directed at the person complaining, a court might be a bit more tolerant of a slight delay in commencing the investigation. But for any type of harassment allegation, the commencement of the investigation should be measured in days, not weeks, and certainly not months. Even for allegations that involve less egregious conduct, failing to begin your investigation within days of receiving the complaint is a mistake.
Here, you state that your employee has filed a complaint and has included a claim for punitive damages. This suggests to me that the actions about which your employee complained could be serious. You inquire whether the mere fact that you have a sexual harassment policy, coupled with your bi-annual training, will suffice to defeat any claim for punitive damages. Sorry to disappoint, but if there is disconnect between your policies and your enforcement of those policies, your company may be at risk for punitive damages. In short, if your company ignores its well-established policies prohibiting sexual harassment, you may have exposure for punitive damages.
In a similar, more recent case, Bjornson v. Dave Smith Motors, No. 04-285 (D. Idaho July 31, 2008), the District Court denied the defendant’s post-trial motions and affirmed the jury verdict of $100,000 in punitive damages. The court rejected the auto dealer’s argument that its well-established harassment policy insulated it from a punitive damages award. The court found that the company had disregarded its policy by ignoring the plaintiff’s complaints, failing to investigate fully, and only providing the harasser a “meager warning” for his conduct. The court observed further, “The employer must show that it implemented its policy in good faith. As with the affirmative defense to the hostile work environment claim, there is substantial evidence from which a jury could conclude that the policy, although it existed, was not implemented in good faith. It must be shown that defendant made efforts to implement its policy, through education of its employees and active enforcement of its mandate.” (Emphasis added.)
The highlighted admonition of the Idaho District Court appears to apply to your fact situation. You will need to demonstrate the “active enforcement” of your policy’s mandate if you hope to rely on the existence of your policy to avoid potential exposure for punitive damages. Based on the facts you describe, I’m not convinced that you will be able to do so.
Finally, keep in mind that Title VII has capped exemplary damages at $300,000 (or less, depending on the employer’s size). Typically, however, sexual harassment claims are brought under both federal and state statutes, with a few common law claims thrown in as well. The state statutes may (or may not) cap available punitive damages. Be sure to check the state statute that may be implicated. The common law claims (assault, battery, intentional or negligent infliction of emotional distress) usually will not have any limits on the potential punitive damages. Given these facts, it is critical for you to treat sexual harassment seriously and effectively if you hope to avoid potential exposure for punitive damages.
California Non-Competes, Quirky Question # 55
We have a highly mobile workforce, and we are concerned about our former employees going to work for a competitor, stealing our customers, and raiding our employees. We are a technology based company and have developed proprietary information that would give our competitors an edge if our former employees were to use or disclose it to them. We are based in California and understand that it has a very narrow view of non-competition agreements. It seems very unfair. If we put provisions into our contracts to try to stop this from happening, what are the chances that the contract will be enforceable?
If you have any particularly unusual questions pertaining to California law, you can send them either to Karen or me.]
Karen’s Analysis:
The Court of Appeal and the Supreme Court both disagreed. Citing the express language of Section 16600, the Supreme Court rejected any “rule of reasonableness” or “narrow-restraint” exception that would uphold a non-competition agreement so long as it did not completely preclude the employee from engaging in a lawful profession, trade or business. The court concluded, “Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect.” The only exceptions are those set forth in the statute itself that allow non-competes in the context of a sale or dissolution of a corporation, partnership, or limited liability corporation where the individual granting the non-compete has an equity interest in the business being sold (e.g., a shareholder or a partner).
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