Predispute arbitration agreements took another blow when the Supreme Court decided that a shipping employee could not be forced to arbitrate a disability discrimination claim.
In a 9-0 decision in Wright v. Universal Maritime Service, the court last November overturned two lower court rulings that had compelled South Carolina longshoreman Ceasar Wright to arbitrate his claim arising under the Americans with Disabilities Act.
The court said Wright's collective bargaining agreement did not contain a specific waiver of his right to a judicial forum for resolution of the statutory discrimination claim.
The decision seemed to weaken a 1991 Supreme Court decision that allows Wall Street and other employers to force discrimination claims into arbitration, rather than let employees go to court. In the 1991 case, Gilmer v. Interstate/Johnson Lane, the court upheld a predispute arbitration agreement in an age discrimination case. The court held that Gilmer, a broker, had agreed to arbitrate his dispute when he signed his U-4.
Securities attorneys and employee advocates say the Wright case may indicate that the court is backing away from Gilmer's predilection toward upholding arbitration agreements.
"The presumption has flipped back to where it should be," says Cliff Palefsky, an employment law attorney in San Francisco and a vocal critic of the securities industry's mandatory arbitration system. "Unless you can show a knowing agreement, [the court is] not going to compel arbitration. The same standard clearly applies to the securities industry."
In a separate but equally compelling decision during the same session in November, the high court refused to hear an appeal of the Duffield v. Robertson Stephens & Co. case.
In that suit, Palefsky had successfully argued before the Ninth Circuit Court in San Francisco that a registered representative had a right under Title VII to sue her employer in court for sexual harassment, notwithstanding her agreement via the U-4 to arbitrate employment disputes.
Other circuit courts have upheld such predispute agreements, giving rise to speculation that the Supreme Court might hear Duffield. The Supreme Court could have reaffirmed its Gilmer decision by reversing Duffield.
"I think now that the Duffield case has not been reversed by the Supreme Court, many more circuits and judges are going to follow it," Palefsky says.
But how courts rule remains to be seen. "We're all reading tea leaves at this point," says Ellen Varygas, legal counsel for the Equal Employment Opportunity Commission, which has also criticized the industry's predispute agreements. But the fact that the court ruled the way it did in Wright and refused to hear Duffield suggests that it "isn't all that eager to shore up Gilmer," Varygas says.
The NASD and NYSE have amended their bylaws to exclude discrimination claims from compulsory arbitration. As a result, brokerage firms will now have to enter into private agreements with employees to continue the practice of arbitrating discrimination claims.
These individually negotiated agreements could still be enforced by courts. The Supreme Court ruled that waiving the right to go to court "must be clear and unmistakable," leaving open the option of using a properly drafted contract. Further, the Wright decision applies only to collective bargaining agreements.