Court Recognizes An Exception To Arbitration Agreements

(RIVERWOODS, ILL., January 17, 2002) – If you have a beef with your boss, a government agency can go to court on your behalf, even if you’ve signed away your right to sue, according to CCH INCORPORATED (CCH), a leading provider of employment law and human resources information and software.

By a 6-3 majority, the Supreme Court decided on January 15 that the Equal Employment Opportunity Commission (EEOC) was within its rights to sue Waffle House, Inc., in the case of a fired grill operator who had signed an agreement to settle all employment claims through arbitration, rather than through the courts. The EEOC wasn’t a party to the arbitration agreement, the Court reasoned, and although it was seeking remedies such as back pay and damages for the former employee, it "does not stand in the employee’s shoes."

The decision opens a potential "back door" for employees who sign arbitration agreements with their employers, said James Taylor, an employment law analyst with CCH.

"Only last March, the Court closed the door on attempts by employees to avoid mandatory arbitration of employment disputes, holding that a possible exemption from arbitration for ‘employment contracts’ found in a 1925 federal law, the Federal Arbitration Act, was limited to contracts of transportation workers," Taylor observed

In that case, the Court ruled in a 5-4 decision that a gay former employee who alleged discrimination by his employer was required to arbitrate his claim under an arbitration agreement the employee signed as a condition of being hired.

"Here, Justice Stevens, writing for the majority, found that there was nothing in the Federal Arbitration Act that authorizes a court to compel arbitration on anyone, such as a public agency, who was not a party to an employment agreement," Taylor noted.

Arbitration agreements prevent employees from taking their employment disputes to either federal or state courts and instead require employees to utilize alternative dispute resolution procedures, such as arbitration, specified by their employers.

Arbitration a Trend

"There has been a trend toward writing mandatory arbitration into individual employment contracts and employee handbooks because it allows companies to avoid costly court cases and the uncertainty of jury awards. Arbitration is usually a quick process, and it’s also private," Taylor added.

Unlike court proceedings, the findings of an arbitrator are not normally a matter of public record.

In the latest case, the former Waffle House employee did not submit to arbitration, as mandated by an agreement he signed before being hired, nor did he take his employer to court. Instead, he lodged a discrimination complaint based on disability directly with the EEOC. Although the EEOC sought relief that would directly benefit the employee, it was acting on its own behalf, the Court found.

"The reasoning the Court used in this case would seem to apply in the case of other government agencies with a statutory mandate to address other violations of employment law, such as the Fair Labor Standards Act," Taylor observed.

Writing in dissent, Justice Clarence Thomas argued that the EEOC could not seek "victim-specific" relief, such as back pay, in court when the victim could not seek that relief on his own because of an arbitration agreement.

He also observed that the majority opinion "has no logical or principled stopping point," and could arguably allow agencies like the EEOC to step in even when an employee submits an issue to arbitration and signs a settlement agreement.

"If Justice Thomas’ concerns are widely shared, arbitration agreements may become much less popular with employers, since one of the attractions of arbitration is that it is supposed to be a quick, final resolution to disputes," Taylor said. "On the other hand, as the Court noted, the EEOC rarely takes cases to court, filing suit in less than 1 percent of the charges filed with it each year."


CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer U.S. The CCH web site can be accessed at The CCH Human Resources Group site can be accessed at