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EEOC Ramps Up Attack On Mandatory Arbitration Agreements

Over the course of its history, the U.S. Equal Employment Opportunity Commission ("EEOC") has disfavored the application of mandatory arbitration agreements within the employment context.  Indeed, until the decision in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), it was unclear whether employer/employee arbitration agreements were even enforceable.  However, since such time, the U.S. Supreme Court has consistently displayed favorable treatment to arbitration agreements as applied to the employer/employee relationship.

The EEOC may now be ready to mount another attack on arbitration agreements.  On September 18, 2014, the EEOC filed suit in Florida against a large franchisee of Applebee's and Panera Bread restaurants, wherein the EEOC claimed that the franchisee impermissibly requires its employees to sign a mandatory arbitration agreement that restricted the employees' rights under Title VII. Importantly, the applicable franchisee, Doherty Enterprises, Inc. ("Doherty"), maintains franchise restaurants not only in Florida, but also in Georgia, New Jersey and New York.  Therefore, this case could have implications far beyond Florida and also exhibits increased attention being paid to franchise employers by labor and employment administrative agencies.

At the time of employment, Doherty requires both hourly employees and management-level positions working in its restaurants to sign a mandatory arbitration agreement.  The arbitration agreement states that any claim, dispute and/or controversy between Doherty and an employee "shall be submitted to and determined exclusively by binding arbitration."  In other words, the arbitration agreement requires all claims, including claims for employment discrimination, harassment and retaliation covered under Title VII, to be decided by binding arbitration rather than through the court system.

The EEOC contends that the arbitration agreement is unenforceable because it interferes with an application's and/or employee's right to: (1) file a charge with the EEOC; and (2) communicate and participate in EEOC investigations and/or proceedings.  The EEOC maintains that the right to file a charge of discrimination is guaranteed by Title VII, and this arbitration agreement serves to show that Doherty allegedly engages in a pattern and practice of attempting to prohibit employees from enjoying such right.  The EEOC seeks to obtain injunctive relief prohibiting Doherty from using this arbitration agreement, and also allowing employees three hundred (300) days to file a charge with the appropriate administrative agency.

Despite its claims in the lawsuit against Doherty, the EEOC's position seeks to ignore clear established precedent holding that mandatory arbitration agreements within the employment context are enforceable.  The Supreme Court has previously noted that arbitration agreements within the employer/employee relationship do not unfairly restrict employees' rights under Title VII.  This is because, while arbitration agreements may prevent an employee from bringing a lawsuit against her employer for discrimination, such arbitration agreements are not binding on the EEOC and do not prevent the EEOC from suing an employer on behalf of an injured employee.  Indeed, pursuant to EEOC v. Waffle House, Inc., 534 U.S. 279 (2002), the Supreme Court has held that the EEOC may even seek employee-specific damages on behalf of an injured employee and is not limited strictly to injunctive relief (as had arguably been the case in the past).  Consequently, unless the Florida court were to overlook past precedent, it appears unlikely that the EEOC will prevail in its action against Doherty.

Nevertheless, the lawsuit filed against Doherty is not without substance to the extent it raises the point that employers  may not prohibit or restrict an employee's right to file a complaint with the EEOC or from cooperating with the EEOC in connection with the EEOC's investigation of any complaints as to employment discrimination.  Rather, employers should recognize that even if employees are required to sign an arbitration agreement, they are not prohibited from filing a discrimination charge with the EEOC.  If an employee later files a lawsuit against the employer, the employer's proper remedy is to compel arbitration under the terms of the arbitration agreement.  The quickest way to draw the ire of the EEOC is to attempt to restrict an employee's access to the governmental agency.

The facts present in this proceeding raise an important question: is it advisable for employers to require employees to sign mandatory arbitration agreements?  In an upcoming post, we will address some practical pros and cons associated with arbitration agreements within the employment context.