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The casual observer might be forgiven for thinking that the debate over predispute employment arbitration agreements ended in 1991. That was the year the Supreme Court held, in Gilmer v. Interstate/Johnson Lane Corp., that the Federal Arbitration Act of 1925 (FAA) required enforcement of such agreements, even when obtained as a condition of employment and where employees would be barred from suing on their federal statutory discrimination claims. The plaintiffs’ bar, however, has mounted a decade-long battle to undo Gilmer, ultimately without success, except in the 9th U.S. Circuit Court of Appeals. One premise of their challenge is the fact that Gilmer did not decide the scope of the FAA’s Section 1 exclusion of “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” On Nov. 6, the Supreme Court heard oral argument in Circuit City Stores Inc. v. Adams to decide whether the 9th Circuit was correct in holding that Section 1 excludes all employment contracts from the FAA’s reach. The view in all other circuits is that such a broad exclusion cannot be squared with Section 1′s specific reference to “seamen” and “railroad employees,” and that this language indicates a congressional intention to carve out employment contracts only of other “class[es]” of workers engaged in interstate transportation in the same way that seamen and railroad employees are. What may seem a technical lawyers’ debate over the meaning of words used 75 years ago should not obscure the practical importance of this case for the future of employment dispute resolution. Presenting themselves as champions of federalism — no doubt, in an effort to win over the votes of Justices Sandra Day O’Connor and Anthony Kennedy — Adams and his amici (who include several state attorneys general) argue that all that is at issue in Circuit City is whether state or federal law governs the enforceability of employment arbitration agreements. If the 9th Circuit’s expansive reading of the Section 1 exclusion is affirmed, they insist, all this means is that each individual state will determine whether arbitration is suitable for resolving employment claims, in keeping with traditional state responsibility in this area. What Adams’ counsel did not highlight during oral argument, but which is acknowledged in Adams’ papers, is their firm belief that even those states that are favorably disposed to arbitration will be able to enforce arbitration agreements only with respect to state law claims. But these days, most employment disputes raise state and federal law claims. State law will not apply to federal claims — we are told in an Adams footnote — because a “federal anti-waiver rule would govern by reason of the Supremacy Clause.” Although Adams’ lawyers did not elaborate, their point is that, if the FAA were no longer in the picture, plaintiffs would argue that federal statutes, like Title VII of the 1964 Civil Rights Act, the Age Discrimination in Employment Act, and the Americans With Disabilities Act, by their terms contemplate lawsuits as the exclusive enforcement mechanism, and generally disfavor or preclude any prospective waiver of rights. Thus, unlike cases to which the FAA would still apply, employment lawsuits would face no countervailing “federal presumption of arbitrability.” Whatever the outcome of Adams’ case, two key points are clear. First, it will take at least another decade of litigation to resolve decisively this unspoken issue (perhaps in a multiple of state and federal courts), during which time the Equal Employment Opportunity Commission and the plaintiffs bar will, no doubt, pursue their newly minted theory of retaliation discrimination whenever job applicants are required to waive their federal rights to a judicial forum as a condition of employment. Second, employers are likely to respond to the uncertainty of obtaining resolution of all claims in a dispute under state law by virtually abandoning employment arbitration. In other words, what Adams and his amici present as a states’ rights position, in favor of allowing states to fashion their own policies on employment arbitration, will effectively end the utility of arbitration in resolving employment disputes. Not surprisingly, this is what the plaintiffs’ bar has been seeking all along in their campaign to render Gilmer a dead letter in the employment arena. But the outcome sought by Adams and his amici is not in the best interests of most employees or the larger society. CADILLACS AND RICKSHAWS In a world without employment arbitration, we would essentially have a “Cadillac” system for the few and a “rickshaw” system for the many. The unspoken (yet undeniable) truth is that most claims filed by employees do not attract the attention of private lawyers because the stakes are too small and the outcomes too uncertain to warrant their time and resources. These claims have only one place to go: administrative agencies, where they languish because the agencies lack the staffing to serve as lawyers for average claimants. The people who benefit under a litigation-based system are those whose salaries are high enough to warrant the costs and risks of a lawsuit, and for whom the vagaries of a jury trial offer considerable potential. Relatively few claimants can even enter the litigation lottery. Most plaintiffs’ lawyers, understandably, value this system because it enables them to be highly selective in taking cases. Moreover, the sheer costs of defending litigation and the risks of a jury trial create considerable settlement value irrespective of the merits of the claim. Thus, most cases in which claimants obtain competent counsel will settle, and settle at sufficiently high value to give counsel ample reward without actually having to try many suits. Thus, litigation works well for high-end claimants and most plaintiffs’ lawyers, and not very well for average claimants. Properly designed arbitration, we submit, can do a much better job of delivering accessible justice for average claimants. Its lower costs also mean less risk for the lawyers. Moreover, unlike litigation, where resolutions often come too late and the process is very divisive, arbitration holds out the promise of a prompt resolution more suitable for incumbent employees or even former employees truly desiring reinstatement. Plaintiffs’ lawyers acknowledge that arbitration enjoys these advantages over litigation, but they argue that the choice between the two should be made only after the dispute has arisen, not in predispute agreements secured as a condition of employment. As they might put it, if arbitration is so desirable, it will be readily accepted by claimants to an existing dispute, and hence employers have no legitimate interest in forcing the choice earlier. There is facial appeal to this contention, but one that on further reflection dissolves from view. We know from personal experience, both in representing clients and in preparing postdispute arbitration rules for the CPR Institute for Dispute Resolution, that postdispute arbitration agreements are rarely negotiated. They are a chimerical alternative. An understanding of the incentives driving employers and employees makes clear that postdispute arbitration, in all but the rarest cases, will not be offered by one or accepted by the other. Say that an employee has been fired. If that former employee cannot obtain counsel or appears to have less knowledgeable counsel, it may not be in the employer’s interest to offer arbitration. If, on the other hand, the former employee’s economic losses are great enough to attract competent counsel, that lawyer is exceedingly unlikely to accept arbitration (even if he would prefer not to go to trial). With an ever-watchful eye on settlement value, the lawyer will not consider it in his client’s interest to give up the in terrorem effect of a jury trial. By contrast, when arbitration agreements are reached at the predispute stage, the incentives are notably different. Employers do not know which of their employees will be claimants and thus offer the program to large categories of employees. Indeed, it is in the employers’ interest to make the program as broadly available as possible. Similarly, employees have no way of knowing whether they will one day be claimants and whether their claims will attract counsel who can win the litigation lottery. A low-cost, properly designed system for resolving disputes that may not occur — and, if they do, are not likely to elicit a lawyer’s attention — looks like a pretty good deal. Plaintiffs’ lawyers would counter at this point: If it is such a good deal, why must employees be compelled to accept? Give the employee the option to turn down a predispute arbitration agreement. Only if the employee “voluntarily” accepts should it be enforced. There are at least two problems with this response. First, employers offer predispute arbitration agreements precisely because they hope to avoid the costs and distractions of litigation. The prospect that enforceability will depend on the outcome of collateral litigation over whether that agreement was “voluntary,” in some abstract sense, detracts substantially from the value of the arbitration option. Second, it is unclear what is meant by a “voluntary” agreement. Most arbitration agreements are executed when employees are hired. At that juncture, the terms of the relationship are being set. These include matters of considerable importance to new hires, such as compensation, benefits, and job security. No one argues that agreement on these terms is not enforceable because the employee’s assent is not “voluntary.” Why should agreement on a properly designed arbitration system be treated differently? In the final analysis, we see here a resurrection of the early common law view that arbitration promises are disfavored and should be revocable. But the jurisprudence of at least the last 75 years makes clear that arbitration agreements should be treated no differently than other contracts, and should, in the words of the FAA, “be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” BETTER PROCEDURE To be enforceable, arbitration agreements must be fairly designed not to result, Gilmer teaches, in employees’ waiver of any substantive rights. Here, there is essentially no disagreement between plaintiffs and defense lawyers. As set forth in the American Bar Association’s “Due Process Protocol,” and as reflected in the rules of leading ADR service providers, an enforceable program to cover statutory employment claims must authorize the arbitrator to apply statutory law and remedies, including attorney fees (if authorized by law). Moreover, the arbitrator should be experienced in employment law, allow some reasonable opportunity for discovery, and issue a written opinion stating reasons for any award. Both the D.C. Circuit and the California Supreme Court have also required employers to front-load the costs of the forum. Arbitration programs so designed will not be attractive to every employer or employee, but they are an important option. And they are in the best interests of most employers and employees, not to mention overburdened courts that cannot effectively process these fact-sensitive, emotional disputes (today representing some 15 percent of the federal docket). If, as we predict, the Supreme Court in Circuit City brings the 9th Circuit in line with the other circuits, we look forward to the day when the plaintiffs’ bar will retreat from its opposition and work with defense counsel to improve employment arbitration. That would improve the quality of justice for everyone. Samuel Estreicher is professor of law and director of the Center for Labor and Employment Law at NYU School of Law, and counsel at the New York office of O’Melveny & Myers. Jay W. Waks is a litigation partner and chair of the employment and labor law practice of New York’s Kaye, Scholer, Fierman, Hays & Handler. Both are involved in Circuit City v. Adams, Estreicher as co-counsel for Circuit City and Waks as counsel for the amicus American Arbitration Association. This article represents the authors’ personal views and does not necessarily reflect those of any clients or organizations with which they are involved.

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