The EEOC Backs Off its Policy Against Mandatory Arbitration for Employment Disputes

In December, the Equal Employment Opportunity Commission (EEOC) rescinded a policy from the 1990s that disfavored mandatory arbitration for employment disputes. In doing this, the Commission has embraced the Supreme Court’s support of arbitration agreements. This post will discuss the former policy, why it changed, and what this means for employers.

Policy Statement From 1997

In 1997, the EEOC issued a policy statement opposing the use of mandatory arbitration in employment disputes. The Commission reasoned that imposing mandatory arbitration as a condition of employment harmed “individual civil rights and the public interest in eradicating discrimination.” The Commission argued that the judicial process was essential to guarantee that discrimination laws were interpreted and applied correctly. In the opinion of the Commission, settling the matter out of court undermined public enforcement and did not properly safeguard against abuses of the law. Generally, policy statements like this are not treated as law. Still, they serve as informal guidance for best practice and give an idea of how the agency will handle specific situations that are brought to it for resolution.

Change in Policy

In the twenty years since the policy statement was issued during the Clinton Administration, and despite the EEOC effort to give guidance, the Supreme Court has consistently held that mandatory arbitration is a valid exercise under the Federal Arbitration Act. The Federal Arbitration Act became law in 1925 and allows for the private resolution of disputes through arbitration. Throughout case law, the Supreme Court has clarified that the existence of an arbitration agreement does not waive an individual’s right to file a charge and have the complaint investigated by the EEOC, which offers two ways to resolve issues.

In light of the Supreme Court’s rulings, the EEOC recently voted to rescind the earlier policy statement. The vote predictably fell along party lines: two Republicans supported the revocation and one Democrat opposed it (the two remaining seats on the Commission are currently vacant). Those voting for the change argue that the old policy is inconsistent with current law. They believe that arbitration saves time and money spent on resolving disputes and does so more privately than open court. Opponents counter that forced arbitration allows harassers to get away with abuse because of the secrecy of arbitration. Democrats in Congress have introduced legislation this session that would amend the Federal Arbitration Act to make forced arbitration in employment disputes illegal. Barring a change in federal statutes, the Supreme Court’s interpretation of the current law remains valid.

Impact of the Change

Practically speaking, this change should have no impact on how the courts review mandatory arbitration agreements since the courts already must follow U.S. Supreme Court precedents. But it could impact the number of cases the EEOC decides to investigate related to arbitration agreements.

The new position will probably give employers more confidence in requiring arbitration to resolve employment disputes and in asserting the agreements as a valid defense.

Employers should proceed with caution, however, as this was not a blanket approval for all arbitration agreements. The Commission was careful to clarify that the change in policy should not be interpreted as a limit on the authority of the EEOC to challenge the enforceability of any particular arbitration agreement. Employers must use best practices when drafting an arbitration agreement to make sure it is valid.

Religious organizations may also choose to include a religious mediation/arbitration agreement clause. Courts have generally upheld the validity of these clauses in agreements. Organizations that wish to include a religious arbitration agreement should provide as much clarity as possible regarding what principles will guide the arbitration, relevant biblical texts, and how the arbitration will be run in order to guarantee informed consent by the other party.

Conclusion

The EEOC’s decision to stop opposing arbitration agreements in employment disputes moves towards consistency between case law and public policy. Organizations should review their arbitration agreements and consult legal counsel with any questions.

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Featured Image by Rebecca Sidebotham.