BY Donald J. Spero, Esq.

I. Introduction

Frequently there are opportunities for employment lawyers to serve their clients in ways other than doing full battle in the judicial arena. A lawyer may guide a potential plaintiff in securing his or her entitlements or in how to avoid a confrontation that could lead to adverse action from which litigation would follow. The defense lawyer can offer guidance to employers that will help avoid circumstances that may give rise to litigation or at least place the employer in the best posture if litigation is not avoided. Where a controversy does exist between employer and employee early resolution offers manifold advantages to both parties. These include certainty of outcome, flexibility in creating the terms of resolution and savings in litigation costs. Expeditiously placing a dispute to rest allows the parties to devote their attention to matters that are more beneficial to them both personally and professionally. It is the purpose of this article to explore ways of shortening the duration of differences between employers and employees or potential employees.

II. Unconditional Offer of Employment

The best defense to any type of employment discrimination controversy is to carefully examine the basis and consequences of an adverse action before initiating it. Consider how the affected employee is to be treated in comparison to those in comparable situations, both in and out of the protected group.

When a complaint is received, whether directly from the employee or in the form of an attorney letter or an administrative charge from the EEOC, employers should take a second look to determine if their actions are defensible. The employer should balance its interest in defending the action with both the cost of the defense and the likelihood of success. If re-examination suggests that resolution is the best course, the earlier settlement is reached, the less expense to the employer. It may be much easier to resolve the case before both the employer and the employee have incurred expenses. It is often more economical to settle than to fight, even for the prevailing party. Additionally, the employer must consider that attorney's fees will be awarded against the employer if the employee prevails.

One technique that will immediately curtail the damages available to the employee is to make an unconditional offer of a job to the person who is complaining about a refusal to hire or a discharge. The job should be comparable to the position sought or lost. The offer should not be conditioned on the employee's releasing his or her claim. It should be made clear that the employee can continue to pursue the claim even after accepting the job. Where an unconditional job offer is made promptly there will be little if any back wages recoverable. Likewise, liquidated damages, if any, will be negligible. The reduction of available damages at times will make the employee more amenable to a negotiated settlement.

The United States Supreme Court strongly endorsed the concept that an unconditional offer stops the clock on recovery of back pay in Ford Motor Co. v. EEOC, 458 US 219, 230 (1982). The court stated that the purpose of Title VII of the 1964 Civil Rights Act (and by inference similar statutes such as ADEA and the Americans With Disabilities Act (the "ADA") is to "make the victims of unlawful discrimination whole by restoring them so far as possible...to a position where they would have been were it not for the unlawful discrimination."

The Court commented at 458 U.S. 231-32:

The employee's duty to mitigate mandates that an employee may not remove herself from the labor market and be compensated for lost wages. See Miller v. Marsh, 766 F.2d 490, 492 (11th Cir. 1985) (employee who chose to attend school rather than obtain other employment was not entitled to back pay for the period during which she attended school); Hunter v. Allis-Chalmers Corp., 797 F.2d 1417, 1428 (7th Cir. 1986), ("You cannot just leave the labor force after being wrongfully discharged, in the hopes of being some day made whole by a judgment of law.") and Stanfield v. Answering Service, Inc., 867 F.2d 1290, 1295-1296 (11th Cir. 1989) ( plaintiff, who was wrongfully discharged in violation of the ADEA, was not entitled to recover lost wages or to be reinstated where she had refused her employer's offer of reinstatement).

The offer of reinstatement must be "a job substantially equivalent to the one the individual was denied." id at p. 232. The offer must not be an offer to compromise the claim. It may not be conditioned on the employee giving up the right to any claim. Lightfoot v. Union Carbide Corp., 75 FEP Cases 355, 361 (2d Cir. 1997).

Of course an unconditional offer of a position is not advisable in every case. Some individuals will be altogether unsuited for bringing into the employment environment by virtue of lack of skills, history of poor deportment or other clearly disqualifying traits. Nonetheless it sometimes happens that a valuable employee has been too hastily dismissed or quit with justification or due to a bona fide misunderstanding. A proper resolution of the person's grievance may return a valuable employee to the employer

III. Offer of Judgement/Offer of Settlement

The Legislature and the Supreme Court have provided means for litigants to discourage opponents from proceeding to trial by making a formal proposal to settle a pending case on specific terms. Florida Statutes §768.79(1) allows a defendant to serve an offer of judgement and a plaintiff to make a demand for judgement. If the opposing party declines the offer that party must do better than the offer by at least 25 percent to avoid being assessed the offering party's attorney's fees and costs. The Supreme Court has adopted the statute, with some modification, in Florida Rule of Civil Procedure 1.442 which designates the procedure an "offer of settlement." F.S.§45.061 also provides a means for a party to make an offer of settlement, which a non-accepting offeree must better by at least 25% to avoid being assessed attorney's and costs. Additionally the Legislature has made provision for the timing of offers of judgement in Florida Statutes §44.102 which is the section of the statutes authorizing courts to order parties to a suit to mediate.

A. The Respective Powers of the Supreme Court and the Legislature Governing Offers of Judgement

The differences among the statutes and Rule 1.442 have on occasion raised constitutional issues as to which shall apply. In Leapai v. Milton, 595 So. 2d 12, (Fla. 1992) the Florida Supreme Court found that the Legislature has the constitutional power to allow attorney's fees in the offer of judgement statute. The court held at 595 So.2d 13 that F.S. §45.061 "... is constitutional to the extent that its procedural provisions have not been superseded by rule 1.442, Florida Rules of Civil Procedure." The Court then found that the Legislature has the power to create substantive rights, but the Constitution reserves to the Supreme Court the right to make procedural rules.

In Timmons v. Combs. 608 So.2d 1 (Fla. 1992) the Supreme Court considered the language of F.S. §45.061 allowing sanctions if "... the judgement entered is at least 25 percent less than the offer rejected." The court ruled that this language allowed a defendant to recover fees and costs where the defendant made an offer of settlement and there was a verdict of no liability. Thus the judgement was for the defendant. This was in contrast to the result that would then obtain under the language at that time in F.S.§768.79 where sanctions were available "... if the judgement obtained by the plaintiff" was at least 25 percent less than the offer. Under that language the defendant who made an offer of judgement would only be awarded attorney's fees if the plaintiff recovered a judgement that was less than 25 percent of the offer. If the defendant was completely successful and the plaintiff recovered nothing, no attorney's fees would be awarded.

In Timmons the Court noted that at as of the time of its decision F.S. § 45.061 had been repealed by the legislature, leaving only F.S. §768.79 applicable to offers of judgement. The court therefore decided to discuss the differences in that statute and Rule 1.442. The court reasoned that the conditions giving rise to the right to attorney's fees were substantive and within the power of the Legislature to determine. Since the right to attorney's fees is not procedural it can not be affected by a Supreme Court Rule. The Court found that F.S. §768.79 contained procedural aspects which were within the exclusive rule making authority of the Court under Article V, Section 2(a) of the Florida Constitution. The Court reconciled the conflict by repealing Rule 1.442 and adopting in its place the procedural portions of F.S. §768.79.

In TGI Friday's, Inc. v. Dvorak, 663 So.2d 606,611-12 (1995), the Supreme Court ruled that attorney's fees may be awarded to the party making an offer of judgement pursuant to F.S. 768.79, even where the rejection of the offer was reasonable. This was in contrast to F.S. 45.061 under which fees would not be assessed if the offer was reasonably rejected. The Court adopted the opinion of the Fourth District Court of Appeals in Schmidt v. Fortner, 629 So.2d 1036 (Fla. 4^th DCA 1993). The appellate court's holding included a finding that where a party rejects an offer and obtains a result less favorable by more than 25 percent the offering party is entitled to fees and costs, providing the offer was made in good faith. The Court further found that F.S. §768.79 was constitutional in its creation of substantive rights, following its reasoning in Lepai v. Miltion, supra, as it related to F.S. §45.061.

In Knealing v. Puleo, 595 So.2d 12 (Fla. 1995) the Supreme Court had to consider the Constitutionality of F.S. §102(6), a section of the statute that authorizes courts to order mediation. Section 6 tolls the period for responding to an offer of judgement when there is court ordered mediation. The time to respond is tolled until the mediator declares an impasse, (section 6(a) 1), or until the mediator reports to the court that the parties have not reached an agreement, (section 6(a) (2)). Section 6(b) permits a party to make an offer of judgement at any time after an impasse in court ordered mediation is declared or reported to the court. That section further provides that an offer is deemed rejected when the trial commences. These sections conflict with Rule 1.442 which allows 30 days for a party to accept an offer of judgement. In Knealing the defendants made an offer of judgement 15 days after a failed mediation and 11 days before the commencement of trial. The plaintiff obtained a judgement that was more than 25 percent less than the amount of the offer. The Court denied the defendants' motion for fees and costs as they had not been afforded the full 30 days to respond as required by Rule 1.442. In finding F.S. 44.102(6) unconstitutional the Court reasoned that it was exclusively procedural, unlike F.S. §45.061 and F.S. §768.79 which contain both substantive and procedural provisions. The statute was therefore found to intrude on the Supreme Court's rule making authority.

The Supreme Court again found time limits to be procedural and subject to the rule-making power of the Court in Gulliver Academy, Inc. v. Bodek, 694 So. 2d 675 (Fla. 1997). In that case the plaintiff moved for a new trial and a judgement notwithstanding the verdict. The trial court reserved jurisdiction to consider questions relating to attorney's fees and costs. The defendant filed its motion for fees and costs pursuant to F.S. §768.79 within the period during which the court had reserved jurisdiction, although beyond the 30 day period after the entry of judgement required by F.S. §768.79(6). The Supreme Court found the defendant's motion to be timely since the court had the power to reserve jurisdiction. The Court noted, as it had in the above decisions, that time limits are procedural and not substantive. They are therefore governed by the Florida Rules of Civil Procedure. Rule 1.090(b) allows for the enlargement of time. The Court stated at 694 So. 2d 677 that "Since these time requirements are procedural, the rule prevails where it differs from the statute."

B. Offers of Judgement Not Made in Good Faith

A party's right to obtain fees and costs where an offer of judgement is rejected and all other statutory requirements have been met can be disallowed only where the court determines that the "...offer was not made in good faith." See TGI Fridays, Inc. v. Dvorak, supra, at 663 So.2d 612. Considerable case authority deals with what is and what is not a good faith offer. In Eagleman v. Eagleman, 673 So. 2d 946 (Fla. 4^th DCA 1996) the court found that a $100 offer of judgement in a malicious prosecution suit was not a good faith offer. The court denied the defendant fees and costs after the plaintiff dismissed his action following a trial in which the jury deadlocked, three and three. The court reasoned at 673 So.2d 948 that:

In cases where liability is reasonably and realistically disputed, the offer of judgement need not equate with the total amount of damages. The offer should bear a reasonable relationship both to the amount of damage and a realistic assessment of liability. For example if the damages in a case have the potential for a verdict of $100,000 and the defendant has reasonably and realistically assessed the chances of the plaintiff prevailing at 25 percent, then a $25,000 offer might very well be a good faith offer.

The court cautioned at 673 So.2d 948 that

...trial courts should view with considerable scepticism nominal offers which bear no reasonable to damages and which are not founded upon a reasonable and realistic assessment of liability. Such nominal offers cannot advance the statutory purpose of encouraging settlement, but instead serve no purpose other to lay a predicate for a subsequent award of attorney's fees as occurred here.

The reasoning in Eagleman suggests that if an offer of judgement is to be made early in the case, before discovery has taken place, the offeror should be able to demonstrate that a thorough investigation has been made to evaluate the party's exposure and that the offer bears a reasonable relationship to that exposure.

The District Court of Appeals for the Third Circuit was less concerned about an offer of judgement being used as a predicate for an award of attorney's fees in Lieff v. Sandoval, 726 So.2d 335 (Fla. 3d DCA 1999). In Lieff the plaintiff made a demand for judgement for $250,000 that was not accepted. Subsequently the plaintiff obtained a judgement for $700,000. The trial court declined to award the plaintiff attorney's fees and costs giving two reason for ruling that the offer was not made in good faith. First, the court found that acceptance would have not terminated the litigation as the plaintiff intended to sue the defendant's insurer for bad faith. Second, the court reasoned that the offer was made for the purpose of obtaining an award of attorney's fees. The appellate court reversed the ruling of the trial court in a decision rejecting both of these reasons. It found that the offer would have terminated the present litigation, avoiding a jury trial as well as an earlier appeal of the judgement. The court reasoned that an award of attorney's fees was an inducement to make an offer, stating at 726 So.2d 336 that:

It is the carrot held our by the statute to encourage early settlements. If we were to conclude that it is bad faith to utilize section 768.79 to obtain the right to attorney's fees, then the legislative inducement, the reason section 768.79 exists, disappears into a judicial black hole.

In Mateo v. Rubiales, 717 So.2d 133 (Fla. 4^th DCA 1998) the trial court refused to award

attorney's fees to a plaintiff because it could not determine which of her three demands for judgement would apply. The appellate court reversed reaffirming the doctrine that where the other prerequisites for an offer are met, a court can only deny attorney's fees where the offer is not made in good faith.

In Pennsylvania Lumbermens Mutual Insurance Company v. The Sunrise Company, 724 So. 2d 629 (Fla. 3^rd DCA 1998) the court found that the defendant insurer's offer of judgement in the amount of $300,000 was not made in bad faith where a verdict was rendered in its favor. The court found that the offer was properly structured in the light of the surrounding circumstances and relative strengths of the parties cases. The court considered the fact that the offer included forgiveness of over $530,000 previously paid on the plaintiff's claim which the insurer contended was fraudulently obtained.

The party who makes an offer of judgement does not have the burden of proving that it was made in good faith. The burden is on the opposing party to show that the offer was not made in good faith. Allstate Insurance Company v. Manasse, 715 So.2d 1079,1081 Fla. 4^th DCA 1998) citing Schmidt v. Fortner, 629 So.2d 1036,1039.

Although a court cannot deny attorney's fees where the statutory prerequisites of an offer of judgement are fulfilled and the offer was not made in bad faith, F.S. §768.79(7)(b) requires the court

to take into account six factors in determining the reasonableness of an award of fees. These are as follows:

C. Rule 68 of the Federal Rules of Civil Procedure

The Federal Rules of Civil Procedure provide some opportunity to encourage settlement in Rule 68, Fed. R. Civ. P. The rule allows a defendant to serve an offer of judgement on the opposing party at any time more than ten days before trial. The rule further provides that "If the judgement finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer." (emphasis supplied)

Questions sometimes arise as to what the term "costs" in the rule includes. In Marek v. Chesny, 473 U.S. 1 (1985) the Supreme Court held that costs include attorneys fees if the underlying action is brought under a statute that allows for the recovery of costs and it includes attorney's fees as a part of costs by definition. In Marek the underlying action was brought by the plaintiff under 42 U.S.C. .§1983. Special provision is made by 42 U.S.C. 1988 to allow a prevailing party in actions brought under 42 U.S.C. §§1981, 1981a, 1982, 1983, 1985 and 1986 as well as Title IX of the educational amendments and Title VI of the Civil rights act of 1964 to recover "...a reasonable attorney's fee as part of its costs" within the court's discretion. The plaintiff in Marek recovered less than the $100,000 that the defendant offered for the plaintiffs then "...accrued costs and attorney's fees.

The court in Marek found first that the offer of settlement was not invalid because it did not itemize what portion of the offer was for costs and what portion was for attorney's fees. Itemization of a Rule 68 offer is not required. The Court did however find at 437 U.S. 6, that when a party accepts a rule 68 offer that does not make a reference to costs, the court should award costs in addition to the amount of the offer. The Marek court proceeded to find that the defendant was entitled to recover attorney's fees. The Court reasoned that the language of 42 U.S.C. 1988 includes reasonable attorney's fees as part of costs in a section 1983 action.

In Arencibia v. Miami Shoes, Inc., 113 F.3d12121 (11^th Cir. 1997) the plaintiff in a Fair Labor Standards Act (FLSA) case accepted the defendant's Rule 68 offer of judgement that did not mention costs or attorney's fees. The plaintiff sought attorney's fees and costs after the entry of the judgement. The court held that it could award costs since costs were not mentioned in the offer. The court found, however, that it could not award attorney's fees. The FLSA provides for an award of attorney's fees to a prevailing plaintiff, but the statute does not define attorney's fees as being included in costs. Therefore the court could not award attorney's fees as part of costs in addition to the amount of the settlement offer.

A different result was reached in Dalal v. Alliant Techsystems, Inc, 72 F.3d 137 (10th Cir. 1995) where the plaintiff in an action brought under the Age Discrimination in Employment Act (ADEA) recovered less than the defendant's Rule 68 offer of judgement. The court held that the plaintiff could still recover statutory attorney's fees incurred after the offer. The court observed that ADEA adopts the section of the FLSA that provides for attorney's fees. That section does not include attorney's fees within the definition of costs. The Dalal court cited with approval Haworth v. State of Nevada, 56 F.3d 1048 (9^th Cir. 1995) where attorney's fees were awarded although the plaintiffs' judgement was far less than the defendant's Rule 68 offer. The court reasoned that the fee shifting provision of Rule 68 did not apply as the FLSA provides that a prevailing plaintiff is entitled to attorney's fees. The plaintiffs were, however, required to pay their own costs as well as those of the defendant. They were not required to pay the defendant's attorney's fees as attorney's fees are not defined as part of costs under the FLSA. The court also ruled that the amount of the attorney's fees awarded to the plaintiffs should be adversely affected by the fact that they recovered less than the defendant's offer.

Although Rule 68 does not require an itemization of what the offer is to include, in most cases it is a good idea to furnish some detail. As indicated above, when an offer that does not state that it includes costs is accepted, the court will add costs to the amount of the offer. If the underlying action is pursuant to a statute that allows attorney's fees as part of costs, the offeror will be awarded attorney's fees. The case of Stewart v. Professional Computer Centers, Inc., 148 F.3d 947 (8^th Cir. 1998) demonstrates another reason for being specific. In that case the plaintiff accepted a lump sum offer that merely stated that the amount was being offered as provided by Rule 68. After the judgement was entered on the offer the plaintiff moved for fees and costs. The court applied contract principals to determine if there was a valid offer and acceptance. The court found that the offer was susceptible of more than one interpretation and there was no meeting of the minds. Finding no valid offer and acceptance, the court vacated the judgement and remanded the case to allow the offer of judgement to be withdrawn.

Where an offeree who has declined to accept a Rule 68 offer of judgement fails to obtain a result that is at least as good as the offer, the court must award costs in favor of the offeror. The court has no discretion to deny such an award. Jordan v. Time Inc., 111 F.3d 102 (11^th Cir. 1997) was an appeal of a trial court decision denying costs to a defendant whose Rule 68 offer was not matched by the plaintiff. The court stated that it was exercising its "equitable discretion." The appellate court reversed, holding that no such equitable discretion exists where Rule 68 is concerned.

IV. Mediation

Parties to employment law actions should not overlook the potential benefits of mediation. Although the courts in Florida order mediation in most cases, this usually takes place close to the end of the proceeding. By that stage most parties have incurred considerable expense and positions have hardened. Consideration should be given to initiating mediation during the earliest stage of the dispute that it is practicable to do so. Currently the EEOC is engaged in a program of pre-investigation mediation conducted by experienced mediators who are knowledgeable in employment law. The program has resulted in settlement of many claims that might have gone on to litigation that obviously was avoidable.

Early settlement not only saves money, it avoids the diversion of time and effort the parties must expend pursuing their respective positions. It also allows for a more flexible outcome. The court's power is limited to awarding money and certain injunctive relief. Where the parties settle on their own they have greater flexibility in coming to terms that best suit their circumstances. Where continued or new employment is involved, an agreed upon settlement can salvage a relationship that is to be ongoing. In mediation the parties work together to arrive at a mutually satisfactory resolution.

Early mediation is much more likely to be successful where the parties freely exchange information regarding the strengths of their cases. A defendant is not likely to make a generous offer unless it is convinced that there is strong evidence supporting the plaintiff's case. A plaintiff is not likely to be flexible without being given credible information that supports the defendant's position. There are occasions where settlement will result because one party allows the other party to interview the key witness or witnesses. For example, if the defendant interviews a plaintiff and as a result believes that a jury will find the plaintiff convincing, the defendant may be far more willing to make an acceptable offer.

Certain precautions must be observed in settling an ADEA claim. The employer will want a waiver or a release of the employee's claims. To be valid and enforceable a waiver of an ADEA claim must fulfill certain requirements. These requirements are spelled out in Older Workers' Benefit Protection Act ("OWBPA") 29 U.S.C. §626(f) which amended ADEA in October of 1990. OWBPA requires that a waiver must be "knowing and voluntary." To be knowing and voluntary (1) the waiver must be in writing, it must refer to the ADEA rights or claims it is releasing; (3) It must not attempt to release future claims; (4) the employee must receive valuable consideration in excess of what he or she would have otherwise received; (5) the employee must be advised in writing to confer with an attorney; (6) The employee must be given no less than 21 days to consider signing the agreement or least 45 days if the waiver is in connection with an exit incentive or other employment termination program offered to a group or class of employees; (7) The agreement must be revocable by the employee for seven days after its execution; (8) Where an exit incentive or employment termination program is involved the employee is entitled to know any class or groups of individuals entitled to or eligible for the program as well as the job titles and ages of all individuals eligible for or selected for the program.

Where a waiver is in settlement of a charge filed with the EEOC only the first five of the above requirements apply. However, the employee must be given a reasonable period of time to consider whether to sign. 29 U.S.C. §626(f)2(A) and (B). It is recommended that the employer be generous in allowing time. In at least one case the court found a reasonable time to be the time limits for signing where no charge is involved. Jacobs v. New York Financial Center Hotel, DC SNY 96 Civ. 7088, 6/5/97.

Although the employer and the employee may settle a statutory discrimination claim as between themselves, their settlement cannot bar the EEOC from proceeding. However, the EEOC cannot make a monetary recovery for the benefit of the employee who has signed a release. See EEOC v. Cosmair, Inc., L'Oreal Hair Care Division, 82 1 F.2d 1085 (5th Cir. 1987) and EEOC v. Kidder Peabody & Co., 74 FEP Cases 1833 (S.D. NY 1997).

On occasions employees have settled their claims and then filed suit claiming that the waiver did not bind them as it was invalid. Unfortunately for employers, the employee who has received consideration for signing a release does not have to tender back that consideration to be able to maintain a suit since the decision in Oubre v. Entergy Operations Inc., 118 S. Ct. 838 (1998). Sums paid to the plaintiff will, however, be set off against any subsequent judgement in favor of the employee. The moral is be certain that all the requirements for a release to be knowing and voluntary have been fulfilled in all cases. Where an ADEA case is involved be particularly diligent in observing the requirements of OWBPA.

V. Arbitration

Not every employer should have an agreement with any or all of its employees waiving the right to a judicial trial and requiring all employment disputes to be arbitrated, but most employers should at least consider whether there are advantages to such a procedure. On the employees' side it is quicker, cheaper and thereby more accessible. The employer also gains by lower litigation costs in arbitration where discovery is likely to be minimized. Since there are very few bases on which to appeal an arbitrator's decision there is finality without the cost and delay of appeals. Where an employee's attorney sees that the case can not get to a jury there is a better chance for an earlier and more reasonable settlement. Additionally a valid arbitration clause prevents the EEOC from recovering damages on behalf of a covered employee, although it can sue for injunctive relief. EEOC v. Kidder Peabody & Co., Inc., 156 F.3d 298 (2^nd Cir. 1998). Since there are many pitfalls in the drafting of an arbitration agreement, it should be undertaken with the aid of counsel familiar with the various legal hazards.

Considerable impetus was given to the enforcement of pre-dispute agreements to arbitrate statutory employment law disputes by the United State Supreme Court in Gilmer v. Interstate/Johnson Lane Corp, 500 U.S. 20 (1991). In Gilmer the plaintiff filed suit under ADEA. Gilmer, who was a registered security representative, was required to file with each securities exchange with which he registered , a registration form entitled "Uniform Application for Securities Industry Registration or Transfer." 500 U.S.23. This form is entitled a "U-4" form. The form contains a clause requiring the registrant, to "'arbitrate any dispute, claim or controversy' arising between him and [the broker] 'that is required to be arbitrated under the rules constitutions or by laws of the organizations with which [he] register[ed].'" The New York Stock Exchange, with which Gilmer was registered, had a rule requiring the arbitration of any dispute relating to the employment or termination of employment of a registered representative and the representative's employer. The Supreme Court found that the clause was enforceable. Gilmer was required to arbitrate his ADEA claim.

The Gilmer decision was a departure from the Court's earlier decision in Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974). The plaintiff in Alexander, prior to filing a Title VII race discrimination suit, had arbitrated his termination under a collective bargaining agreement. The arbitrator denied him relief, concluding that he had been discharged for good cause. The Supreme Court ruled that Alexander's suit should be permitted to proceed. The Court rejected the employer's contention that the action should be barred by the doctrine of election of remedies. The Court reasoned that the arbitration clauses in union contracts have the purpose of determining contractual rights rather than statutory rights. 415 U.S. at 52-3 The Court also indicated a belief that labor arbitrators' skills were honed more to the determination of contractual rights than statutory rights. 415 U.S. at 56, citing Warrior & Gulf Navigation Co., 363 U.S. 574, 581-583 (1960). The Court further found at 415 U.S. 57, that the arbitration process is

...usually not equivalent to judicial fact-finding. The record of the arbitration proceedings is not as complete; the usual rules of evidence do not apply; and rights and procedures common to civil trials , such as discovery, compulsory process, cross examination and testimony under oath, are often severely limited or unavailable.

The Gilmer Court gave three reasons why the decision was distinguishable from Alexander v. Gardner-Denver and its progeny at 500 U.S. 35. First, Gardner-Denver dealt with an arbitrator's decision in a contract claim. It did not involve the enforcement of an agreement to arbitrate. The Gardner-Denver Court found that the arbitrator's decision did not preclude a subsequent Title VII suit by the employee. In contrast Gilmer dealt with the enforceability of an agreement to arbitrate a statutory claim. Gilmer found that agreement to be enforceable. Second, Gardner-Denver involved a contract between a union and an employer, bringing into play the tension between individual statutory rights and collective rights. Gilmer involved a contract entered into individually by Mr. Gilmer. Third, Gardner-Denver did not involve the Federal Arbitration Act, 9 U.S.C.§1, et seq. (the FAA) which has a policy of favoring arbitration agreements.

In Gilmer the Supreme Court noted at 500 U.S. 24 that the FAA "...had the purpose to reverse the longstanding judicial hostility to arbitration agreements that had existed in English common law and had been adopted by American courts, and to place arbitration agreements on the same footing as other contracts." (citations omitted) However there are many questions relating to the enforcement of arbitration clauses that have yet to be decided by the Supreme Court. One unanswered question is the interpretation of the language contained in section 1 of the FAA, 9 U.S.C. §1that "...nothing contained herein shall apply to contracts of employment of seamen, railroad employees, or any class of workers engaged in foreign or interstate commerce." 500 U.S. 25, FN. 2. The Court reasoned that the registration agreement was not an employment contract. Thus it remains to be decided whether employment agreements purporting to mandate arbitration of statutory employment discrimination claims are enforceable Gilmer also did not decide whether the FAA section 1 exclusion from its coverage of employment contracts of "...seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce" excludes coverage only of those directly related to transportation of goods or whether that coverage is as broad as the Commerce Clause.

The Supreme Court took another look at pre-dispute, mandatory arbitration contracts in Wright v. Universal Maritime Service Corp., ___U.S.__ , 119 S.Ct. 391 (1998). In Wright the employer sought to dismiss the Americans With Disabilities Act (ADA) claim of an employee covered by a collective bargaining agreement that contained a grievance procedure which included an arbitration clause. The Court acknowledged a tension between Gilmer and Gardner-Denver, but did not fully resolve that tension. 119 S.Ct. 395. The Court found the arbitration agreement unenforceable as Wright had not knowingly waived his right to a judicial forum. The Court reasoned that the presumption of arbitrabilty of contractual disputes, which is based on the rational that arbitrators provide a better forum for resolving contractual disputes, does not apply to statutory disputes. Accordingly any waiver of the right to a judicial forum in a collective bargaining agreement must be "clear and unmistakable." Wright at 119 S.Ct.396 Wright did not decide whether or not a union could not bargain away the rights of members to a judicial forum. It merely said that it had not done so in that case. If an arbitration clause in a collective bargaining agreement is to be upheld the language will have to be quite explicit.

Since Gilmer courts have tended to uphold agreements mandating arbitration of employment disputes. The cases may be considered under three categories. First, there are securities industry \cases like Gilmer where the arbitration requirement was involved through the U-4 form. Second, there are those like Wright where the subject arbitration clause was contained in a collective bargaining agreement. Finally there are the cases where the arbitration clauses were in individual employment contracts or were a part of the employer's policy and purported to be a condition of the employment relationship.

The Federal Appellate Court for the Eleventh Circuit held that a Title VII claim of sexual harassment along with state claims of battery, intentional infliction of emotional distress, and negligent retention were subject to arbitration under the securities industries U-4 form involved in Gilmer, in Bender v. A. G. Edwards & Sons, Inc., 971 F.3d 698 (11^th Cir. 1992). The court cited with approval like findings of the Fifth and Sixth Circuits in Alford v. Dean Witter Reynolds, Inc., 939 F. 2d 229 (5^th Cir. 1991) and Willis v. Dean Witter Reynolds, Inc., 948 F. 2d 305 (6^th Cir. 1991). The First Circuit held that the arbitration requirement of the U-4 is valid and enforceable in Rosenberg v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., No. 98-1246, 1998 WL880910 78 FEP Cases 1037 (1^st Cir. 1998), an action filed under Title VII and ADEA. The court rejected the plaintiff's arguments that post Gilmer enforcement was barred by the enactment of the 1991 Civil Rights and the Older Workers Benefit and Protection Act (OWBPA). The court found, however, that the plaintiff could not be compelled to arbitrate as the employer had failed to give her the New York Stock Exchange Rules as required by the U-4 form. As a result the court found inadequate notice to the employee of the arbitration requirement.

Enforcement of the arbitration requirement of the U-4 form was also ordered by the Seventh Circuit in Koveleskie v. SBC Capital Markets Inc., 167 F.3d 361 (7^th Cir. 1999), an action brought under Tile VII and the Equal Pay Act (the EPA). The court specifically rejected the contrary holding of the Ninth Circuit in Duffield v. Robertson Stephens & Co., 114 F.3d 1182 (9^th Cir. 1998). In Duffield the Ninth Circuit refused to allow the enforcement of the mandatory arbitration requirement of the U-4 in a Title VII action. The court accepted the argument rejected by the First Circuit in Rosenberg v. Merrill, Lynch, Pierce, Fenner & Smith, supra, that the language of section 118 of the Civil Right Act of 1991 bars employer mandated arbitration of Title VII claims. Section 118 provides that "Where appropriate and to the extent authorized by law, the use of alternative dispute resolution, including ...arbitration, is encouraged to resolve disputes under [Title VII]." The court found that the phrase "where appropriate" means where the employee elects to arbitrate and the phrase "to the extent authorized by law" codifies the pre-Gilmer law. The statute was drafted before Gilmer, but passed after the Supreme Court decision. The reasoning of the Ninth Circuit leaves little doubt that it would not enforce a contract clause requiring arbitration of a Title VII claim in an employment contract. The Ninth Circuit would undoubtedly apply the same reasoning to the mandatory arbitration of an ADA action as the ADA has language like that in section 118 of the 1991 Civil Rights Act.

The decision in Wright v. Universal Maritime Service Corp., supra, does not hold out much hope for the mandatory arbitration of statutory discrimination claims under the grievance procedures in collective bargaining agreements. The only notable case finding such a claim to be arbitrable is Austin v. Owens- Brockway Glass Container Corp.,Inc. 78 F.3d 875, 4^th Cir. (1996), cert denied 117 S. Ct. 432 (1996). After Wright that decision has questionable precedential value. In Carson v. Giant Foods, Inc., 1999 WL 254438 (4^th Cir. Apr. 29 1999) the Fourth Circuit declined to order arbitration of an ADA claim pursuant to the arbitration clause in a collective bargaining agreement. The court, citing Wright, held that the language of the agreement did not "clearly and unmistakably" give the arbitrator the right to decide statutory claims. The court further held that the arbitrator did not have the power to determine if the action was arbitrable under the agreement as the agreement did not give the arbitrator to decide questions of arbitrabilty. This ruling suggests that the employer may want to write an arbitration agreement to grant the arbitrator the right to determine the scope of the arbitrator's jurisdiction.

Even before Wright the Eleventh Circuit had held that the arbitration clause in a collective bargaining agreement did not require an employee to arbitrate an ADA claim in Brisentine v. Stone & Webster Engineering Corp., 117 F.3d 519 (11^th Cir. 1997). The court reasoned that the arbitration clause in question, by its language, gave the arbitrator the power to decide only contractual claims and not statutory claims. The Brisentine court set forth three fundamental requirements for an arbitration clause to include statutory claims at 117 F.3d 526:

The court went on to observe that all three of those requirements were present in Gilmer.

Employer mandated pre-dispute arbitration agreements have fared reasonably well since Gilmer. As noted above Gilmer did not decide whether the FAA excludes all employment contracts covering employees whose work is within the scope of the commerce clause or only those employed directly in transportation. In Cole v. Burns International Security Services, Inc., 105 F.3d 1465 (D.C. Cir. 1997) the court limited the exclusions in section 1 of the FAA, finding that it does not exclude all employees whose employment affects commerce. The court held that the arbitration clause in the pre-dispute resolution agreement that Cole was required to sign to retain his employment was enforceable. Cole was required to arbitrate his Title VII claim. The Fifth Circuit similarly ruled that the plaintiff in Miller v. Public Storage Management Inc., 121 F. 3d 215 (5^th Cir. 1997) was required to arbitrate her ADA claim. The Fifth Circuit held that the FAA exclusion applies only to employees directly involved in moving goods in commerce. The Eighth Circuit also found that the FAA applies to employment contracts other than those involving employees who actually move goods in commerce in Patterson v. Tenet Healthcare Inc.,113 F.3d 832 (8^th Cir. 1997). The Ninth Circuit took a different view in Craft v. Campbell Soup Company., 161 F.3d 1199 (9^th Cir. 1998) in which it held the plaintiff could not be compelled to arbitrate his Title VII claim. The court ruled that section 1 of the FAA excludes all labor and employment contracts from its coverage under the act..

Claims under the Family and Medical Leave Act (the "FMLA") and the Fair Labor Standards Act (the "FLSA") have been found to be subject to the enforcement of pre-dispute arbitration agreements. An FMLA claim was found to be arbitrable under a pre-dispute agreement in O'Neil v. Hilton Head Hospital, 115 F.3d 272, 3 WH Cases 2d 1697 (4^th Cir. 1997). The court gave a narrow interpretation to the exclusionary language in Section 1 of the FAA. In Reese v. Commercial Credit Corp., 955 F. Supp. 567 (D.S.C. 1997) arbitration of an FMLA claim was also compelled. The court focused on the language of the agreement to determine if the parties had in fact agreed to arbitrate and whether the particular dispute is included in the language of that agreement.

A pre-dispute arbitration agreement that covered FLSA claims was found to be binding on the employee by the Eleventh Circuit in Montes v. Shearson Lehman Brothers, 128 F.2d 1456 (11^th Cir. 1997), 4 WH Cases 2d 385 (11 th Cir. 1997). This was an action brought for overtime compensation by an employee who contended that she was not exempted from overtime coverage by the administrative exemption to the FLSA. Although the Eleventh Circuit found that the arbitration clause was binding it vacated the decision of the arbitrator and remanded the claim with instructions for it to be heard by a different arbitration panel. The employer's attorney had urged the arbitration panel to ignore the letter of the FLSA, and that is exactly what the arbitration panel did. The court held that an arbitration award can not be set aside because it is merely erroneous. In this case the decision was vacated as it was in a "manifest disregard of the law."

Even in jurisdictions where pre-dispute agreements to arbitrate statutory employment law claims are enforced, those agreements are scrutinized for basic fairness. One sided agreements or those that may be onerous to the employee are not likely to stand up in court. The agreement can not require the employee to pay the arbitrator's fees as that would make the cost of arbitration greater than the filing fee in federal court where the magistrates and judges do not work on a fee basis. Shankle v. B-G Maintenance Management of Colorado, Inc., No. 97-1139 (10^th Cir. Jan. 5, 1999) and Cole v. Burns International Security Services, supra. An arbitration agreement that purports to forfeit any substantive right of the employee will not be enforced. In Graham Oil Co. v. Arco Products Co., 43 F.3d 1244 (9^th Cir. 1994) the court refused to order arbitration of a claim brought under the Petroleum Marketing Practices Act (the "PMPA") as the arbitration clause as the agreement waived the right to exemplary damages conferred by the PMPA. By contrast the right to a judicial trial or a jury trial is not substantive. A valid arbitration clause merely changes the forum in which a claim will be heard. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 26 (quoting Mitsubishi Motor Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614,628 (1985).

The arbitration clause involved in Hooters of America v. Phillips, 173 F.3d 933 (4^th Cir. 1999), a Title VII sexual harassment suit, was not enforced. The court found several conditions in the arbitration agreement that deprived the employee of basic fairness. The agreement was so loaded in favor of the employer that it failed to provide for a neutral proceeding Each party was allowed to select an arbitrator and those arbitrators would select a third arbitrator. All arbitrators had to be selected from a list approved by the company. This afforded Hooters excessive control over the process. The employee was limited in the proceeding to arbitrating matters contained in the employee's Notice of Claim. The employer was not limited in what it could raise during an arbitration. Only the employer was permitted to elect to have the hearing recorded either electronically or by a court reporter. Hooters alone was given the right to bring a judicial action to set a ruling aside; the employee did not have that right. Hooters also reserved the right to change the rules at any time, including in the middle of a proceeding. See also Hull v. Norcom, Inc., 750 F.2d 1547 (11^th Cir. 1985) where an arbitration clause was not enforced because the employer was not bound by it.

The arbitration agreement in Gibson v. Neighborhood Health Clinics, Inc., 121 F. 3d 1126 (7^th Cir. 1997) did not bar a discharged employee's ADA action as by its terms only the employee was bound to submit claims to arbitration. The employer was not bound to arbitrate. Therefore there was no promise to arbitrate in consideration for the employee's promise. The court also found no other promise of the employer served as consideration as there was none linked to the employee's promise to arbitrate.

To be certain that an arbitration agreement will be binding it should be in a form that makes it clear that the employee is aware of it and that the employee has agreed to be bound by it. A separate signed document is suggested. Courts may be reluctant to uphold arbitration requirements stated in employee handbooks. The court in Nelson v. Cyprus Bagdad Copper Corporation,, 119 F.3d 756 (9^th Cir. 1997) held that the arbitration agreement in an employee handbook was not knowingly entered into by the employee. The fact that the employee signed an acknowledgment that he had received the handbook and that he agreed to read and understand its contents did not suffice. The acknowledgment did not notify him that the handbook contained an arbitration clause, nor did it inform him that he was waiving his right to a judicial forum. In contrast the Eighth Circuit upheld an arbitration clause in a handbook in Patterson v. Tenet Healthcare, Inc., supra, notwithstanding disclaimers in the handbook that it did not constitute a contract. The handbook also reserved to the employer the right to amend or rescind any provision in the handbook. The court found that the arbitration agreement was separate and distinct from the balance of the handbook by virtue of its physical separation, its change in the tone of its language from the balance of the handbook and its use of contractual terms such as "I agree," "I understand" and "condition of employment". Patterson at 113 F.3d 835

In summary, to be certain that an arbitration clause will be enforced, it should contain certain provisions and limitations. The employer must be bound to it as well as the employee. The employee may not be compelled to pay arbitrator costs or any filing fees that would exceed the amount the employee would have to pay to file a suit in court. The agreement should leave no doubt that the employee is committing to arbitration. There should be no doubt that the rules governing the scope of the arbitration and the rules governing the hearing have been communicated to the employee. The agreement should be as specific as possible in designating the types of disputes subject to the arbitration clause. The arbitration clause should cover common law actions, as well as specifically enumerated statutory actions. If the arbitration clause attempts to bar punitive damages or any other relief allowed by the statutes it is intended to cover it is likely to be found non-binding.

The best shield an employer can devise against liability in any discrimination or in any type of employment case, is to have neutral policies based on considerations of merit or seniority, consistently applied. Sound business reasons and essential fairness to the individuals involved in many cases will avoid litigation or at least provide a viable defense. While protective laws certainly create hazards for employers, the courts have repeatedly said that these laws are not vehicles to impede sound management or to allow courts and juries to second guess business decisions.

Donald J. Spero is a graduate of the University of Michigan Law School. He served for over 20 years in the Law Department of Sears, Roebuck and Co. where he was senior employment law counsel. Mr. Spero has advised clients and served as counsel in cases dealing with an exceptionally wide variety of factual situations arising under the statutes and common law theories involving the employment relationship. Mr. Spero is a member of the state bars of Illinois and Florida. He has been certified by the Florida Supreme Court as a circuit and county court mediator. He currently devotes his time exclusively to serving as a mediator and an arbitrator. He is on the panels of Employment Arbitrators and Mediators of the American Arbitration Association and the National Association of Security Dealers.

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