The U.S. Supreme Court, in a 6-3 decision, knocked a huge hole in the concept of arbitrability of employment disputes, holding that the EEOC can sue for back pay and other "victim-specific" relief for an individual, even though the individual had agreed to arbitrate his employment claims.

In EEOC v. Waffle House, Case No. 99-1823 (January 15, 2002), the employer’s application form contained a clause in which applicants agreed to submit employment disputes to arbitration. Eric Baker signed the application form and began work at Defendant Waffle House in South Carolina. Approximately 16 days after starting work, he had a seizure and was terminated shortly afterward. He never sought to arbitrate his claim, but he did file a timely charge with the EEOC alleging disability discrimination under the Americans with Disabilities Act ("ADA"). After conciliation failed, the EEOC sued Waffle House on Baker’s behalf, seeking, among other things, backpay, reinstatement, and compensatory and punitive damages for Baker.
Waffle House filed a motion seeking to stay (postpone) or dismiss the lawsuit while the parties arbitrated pursuant to the agreement. The district court denied the motion on the ground that the arbitration clause was not part of the employment agreement. The Court of Appeals for the Fourth Circuit (the Carolinas, Maryland, Virginia and West Virginia) held that the EEOC could pursue the litigation to achieve injunctive (non-monetary) relief but could not recover individual monetary relief for Baker because of the arbitration agreement. The Fourth Circuit decision was consistent with decisions on the same issue from the Second (Connecticut, New York, Vermont) and Eighth (Arkansas, Iowa, Minnesota, Missouri, Nebraska, and the Dakotas) circuits. The Sixth Circuit (Kentucky, Michigan, Ohio, Tennessee) had held to the contrary.
In a decision by Justice Stevens (joined by Justices O’Connor, Kennedy, Souter, Ginsburg, and Breyer), the Court held that the arbitration clause did not preclude the EEOC from seeking relief for Baker as an individual. Justice Thomas, along with Chief Justice Rehnquist and Justice Scalia, dissented.

The majority said that its holding was justified for several reasons: (1) Congress intended to give such authority to the EEOC, and the EEOC is "in charge of the process" once a charge of discrimination is filed with it; (2) the Federal Arbitration Act ("FAA"), which provides that arbitration agreements are generally enforceable, does not mention actions brought by public agencies and does not apply to non-parties to the agreements; and, (3) in any event, the EEOC files suit in only a small fraction of the charges brought before it. The majority said that, had Baker chosen to pursue arbitration, his remedies would have been limited accordingly.

In his dissent, Justice Thomas – who once headed the EEOC – noted that there was no dispute that the Waffle House arbitration agreement was valid and that Baker had waived his own right to bring a discrimination suit. He also argued that Congress gave the EEOC only the right to seek "appropriate" relief for discrimination but left it to the courts to determine what type of relief was appropriate.

Justice Thomas then argued that individual relief was inappropriate where the employee was bound by an arbitration agreement for two reasons: First, the EEOC should "take the individual as it finds him" – in other words, it should have no greater right to "victim-specific" relief than the individual himself would have had. Second, allowing the EEOC to sue for individual relief when the individual has waived his right to sue contravenes the "liberal federal policy favoring arbitration agreements."

Justice Thomas would have interpreted the EEOC’s authority in a manner that accommodated the competing concerns of the FAA. Where an individual waived his right to sue an employer under an arbitration agreement, Justice Thomas would allow the EEOC to seek broad-based injunctive relief but not relief specific to the individual, similar to the position taken by the Second, Fourth, and Eighth circuits. Moreover, he said, "This Court’s jurisprudence . . . should not depend on how many cases the EEOC chooses to prosecute in any particular year."

The implications of the Waffle House decision should be of concern to employers. After the Court’s Circuit City decision in 2001 (see Constangy’s Executive Labor Summary, March/April 2001), it appeared that arbitration agreements would be a useful tool in preventing employment litigation and limiting employers’ liability. Now that seems much less certain. Even more alarming, as Justice Thomas noted, if the EEOC is truly "the master of its case," there is arguably no reason why the EEOC should not pursue individual relief claims on behalf of employees who have entered into otherwise valid settlement or severance agreements with their employers. The EEOC has already taken this position to some extent in age discrimination cases. (See "EEOC Rules on Age Waivers: An Analysis," Constangy’s Labor & Employment Insights, Spring/Summer 2001.)

Although it is doubtful that the majority of the Court would go so far as to effectively invalidate agreements entered into after the employment relationship ends, the Waffle House decision certainly gives employees and the EEOC some new leverage against employers.

CONSTANGY, BROOKS & SMITH, LLC