EEOC v. Waffle House, Inc. (01/15/2002)

By: Michele Reaves, Medill News Service

Questions presented

Whether an employee's agreement to arbitrate employment-related disputes with an employer bars the Equal Employment Opportunity Commission, on behalf of the employee in an enforcement action against the employer, from obtaining victim-specific remedies for discrimination against the employee, such as backpay, reinstatement, and damages.

Brief

Like thousands of people who feel wronged by their employers, Eric Scott Baker filed a complaint with the Equal Employment Opportunity Commission.

He had been hired in August 1994 at a Waffle House restaurant in West Columbia, SC. A month later Baker was fired because he had a seizure while working. The company felt it unsafe for him to continue his job as a grill operator.

Two years later, the EEOC sued Waffle House, Inc. for violating Bakers civil rights under the Civil Rights Act of 1991. They wanted Baker reinstated and given back pay. The EEOC also sought a permanent injunction against Waffle House, barring discriminatory employment practices based on disabilities.

Waffle House responded by filing a petition, asking the federal magistrate to dismiss the case because Baker had signed an arbitration agreement written into the job application when he applied for work.

The application said, ""The parties agree that any dispute or claim concerning applicants employment with Waffle House, Inc. É will be settled by binding arbitration.""

The EEOC retorted that since the lawsuit was theirs, not Bakers, it was not subject to the arbitration agreement.

In May 1997, the federal magistrate agreed with Waffle House. The judge said Baker consented to arbitration when he signed the job application; therefore, the EEOC had to negotiate his case outside of court.

A year later, District Judge Matthew Perry reversed the decision.

He believed Baker did not have an agreement with Waffle House because he filled out an application at one location, but orally applied at a second location where he ultimately worked.

In October 1999, the 4th Circuit Court of Appeals split 2-1, reversing Perrys decision and favoring Waffle House.

""When an individual and an employer agree to submit employment disputes to arbitration, it is the federal policy to give that contract effect in order to favor the arbitration mechanisms for dispute resolution,"" Judge Paul V. Niemeyer wrote in the majority opinion. ""To permit the EEOC to prosecute in court Bakers individual claim — resolution of which he had earlier committed by contract to the arbitral forum — would significantly trample this strong policy favoring arbitration.""

Niemeyer said the EEOC could take the civil rights violation issue to court, but it could not seek damages for Baker.

Judge Robert B. King dissented, agreeing with the district court. He also believed the companys arbitration clause was unlawful under the Federal Arbitration Act (FAA).

""First, the arbitration provision mandates that the employee pay one-half of the costs and expenses of arbitration,"" King wrote in his dissent, adding that arbitration would cost Baker thousands of dollars. ""At least three of our sister circuits have held that a mandatory arbitration agreement that requires an employee to pay a portion of the arbitrators fees is unenforceable under the Federal Arbitration Act.

""Second, the arbitration provision would be unenforceable because it is so inconspicuous that it failed, as a matter of law, to provide Mr. Baker with sufficient notice that he was waiving his right to judicial forum for his statutory claims,"" King added.

The seesawing decisions in South Carolina mirrored similar conflicts in Michigan and New York.

In 1998, the 2nd Circuit Court of Appeals in New York City ruled against the EEOC in EEOC v. Kidder Peabody & Co., an age discrimination case.

""We believe that É allowing the EEOC to pursue injunctive relief in the federal forum while encouraging arbitration of the employees claim for private remedies strikes the right balanceÉ,"" Judge Fred I. Parker wrote in courts opinion. ""Further, to permit an individual, who has freely agreed to arbitrate all employment claims, to make an end run around the arbitration agreement by having the EEOC pursue back pay or liquidated damages on his or her behalf would undermine É the FAA.""

The 6th Circuit Court of Appeals in Detroit disregarded the 2nd Circuit's opinion a year later, favoring the EEOC in EEOC v. Franks Nursery & Crafts, Inc., a race discrimination suit.

""Congress granted the EEOC the discretion É to supplant an individuals legal action by a legal action of their own, for the benefit of the public and the individual on whose behalf the EEOC is proceedingÉ,"" Judge Eric L. Clay wrote. ""By the same act, Congress conferred upon the EEOC the discretion to take away the right of private actors to resolve through arbitration Title VII [of the Civil Rights Act of 1964] matters that implicate the public interest.""

The growing popularity of arbitration agreements in employment contracts over the past decade and their strength under the law is a growing concern for the EEOC.

Robert Gregory, senior attorney in the office of general counsel for the EEOC, who has been working on the Waffle House case, argues that if the EEOC could only fight for the issues and not for the clients the issues affect, the commission would become ""a hollow shell.""

""It would gut our ability to enforce the statute,"" Gregory said. ""Its really an issue of whether authority given by Congress can be limited by an employee and employer [agreement].""

Waffle House Inc.s attorney argues that there is no reason to purse this issue.

""The circumstances É will arise in only a small fraction of all actions filed by the EEOC, and an even smaller fraction of all charges that result in action by the EEOC,"" Stephen Floyd Fisher wrote in his brief when the case was petitioned to the U.S. Supreme Court. ""Therefore, the issue presented É is, at best, an infrequently arising anomaly unworthy of this Courts review.""

On March 26, 2001, the Supreme Court accepted the case, just days after it gave weight to the Federal Arbitration Act, in its 5-4 opinion in Circuit City Stores, Inc. v. Adams, that said the act applies in employment contracts.

On Jan. 15, 2002, the Court held 6-3 that Baker's agreement with Waffle House to arbitrate his employment disputes doesn't prevent the EEOC from suing for discrimination on his behalf.

Justice John Paul Stevens wrote the majority opinion; Justice Clarence Thomas wrote the dissent, which was joined by Justice Antonin Scalia and Chief Justice William Rehnquist.