Many employers believe that a mandatory arbitration agreement prevents their employees from going to court when an employment dispute arises. Many employers may not know that they may be heading for court – not arbitration – if their arbitration agreements are too broad to meet specific guidelines provided in recent cases.

Recent Developments

In 1997, the Equal Employment Opportunity Commission (“EEOC”) issued a policy statement opposing employers' use of mandatory arbitration provisions for employment-related claims. ( In that statement, the EEOC explained that it finds voluntary alternative dispute resolution agreements acceptable only if entered into after an employment dispute has arisen. However, the EEOC believes that mandatory pre-dispute agreements signed as a condition of employment are contrary to non-discrimination laws. A recent case indicates the EEOC's intention to litigate its position in this regard. The consent decree entered in EEOC v. Ralph's Grocery Co., N.D. Ill., 07 C 5110, 5/22/08 required the employer to revise its policy on mandatory arbitration of employee claims to specifically state that employees still have the right to notify the EEOC and other federal or state agencies of potential claims. The Court stressed that the Federal Arbitration Act, an act permitting agreements between employers and employees to arbitrate employment-related claims, does not limit the EEOC's ability to investigate charges. The Court approved the consent decree, requiring that Ralph's Grocery's arbitration policy be revised to provide language notifying employees that they still retain the right to file claims with, and participate in investigations by, the EEOC or other comparable state or local agencies.

The National Labor Relations Board (“NLRB”) also has taken issue with mandatory arbitration provisions. In U-Haul Co. of California and Machinist District Lodge 190, the NLRB found that an employer's mandatory arbitration provision violated the National Labor Relations Act (“NLRA”) because it failed to inform employees that they were permitted to file unfair labor practices charges with the NLRB. 92006 NLRB LEXIS 237 (June 8, 2006). The NLRB did not stop there. It also found that if a mandatory arbitration provision could “reasonably be read by employees to prohibit the filing of unfair labor practice charges,” then it would still violate the NLRA, even if the arbitration provision did not specifically prohibit such a filing.

Illinois state courts similarly have limited a company's ability to require mandatory arbitration. In a consumer case, an Illinois appellate court resolved a conflict of laws between Illinois and Texas and held that a class arbitration prohibition violated Illinois public policy. (Wigginton v. Dell, Inc., 2008 Ill. App. LEXIS 577 (5th Dist. June 2, 2008)) Citing an Illinois Supreme Court case (Kinkel v. Cingular Wireless, LLC, 223 Ill. 2d 1 (2006)), the appellate court stated that while bans on class arbitration are not per se unconscionable, Illinois public policy required a finding that the policy at issue prohibiting class action arbitration was unconscionable. In Wigginton, the court reviewed the factors determining enforceability and found that the arbitration agreement was so imbalanced in favor of one party over the other that there was a strong implication it was not freely bargained. The court pointed out that although Illinois policy favors enforcement of arbitration agreements, that policy does not prevent a plaintiff “from seeking to arbitrate his claim as the representative of a class and that Illinois consumers cannot be prevented from being members of that class.”

Lessons for Employers

Recent case law indicates that courts and administrative agencies may be moving toward limiting the enforcement of mandatory arbitration agreements. The EEOC, NLRB and courts may permit challenges to these agreements on the grounds that they are retaliatory, a violation of law or against public policy. Employers using mandatory arbitration agreements should review those agreements to ensure that the arbitration provisions are not overly inclusive of an employee's claims and courses of action. Whether preparing your first arbitration policy or reviewing an existing policy, an employer must confirm that the policy conforms not only to the Federal Arbitration Act, but also to other applicable federal and state laws.