On March 21, 2013, the Second Circuit Court of Appeals compelled an individual arbitration in an ongoing class action sex bias suit against Goldman Sachs (Goldman) in the Southern District of New York. Parisi v. Goldman, Sachs & Co., No. 11-5229-CV, 2013 WL 1149751 (2d Cir. Mar. 21, 2013).

Background

In 2010, Lisa Parisi (Parisi) a former managing director at Goldman, and two other former female employees, Shanna Orlich, an associate, and H. Christina Chen–Oster, a vice president, sued Goldman Sachs, individually and on behalf of a putative class, alleging that Goldman engaged in “a continuing pattern and practice of discrimination based on sex against female Managing Directors, Vice Presidents, and Associates with respect to compensation, business allocations, promotions, and other terms and conditions” of employment in violation of Title VII of the Civil Rights Act of 1964 (Title VII) and the New York City Human Rights Law.

In 2003, Parisi was promoted to managing director. Upon her promotion, Goldman required that she sign a “Managing Director Agreement” that contained an arbitration clause. The clause provided, inter alia, that “any dispute, controversy or claim arising out of or based upon or relating to Employment Related Matters will be finally settled by arbitration in New York City.” In the agreement, “Employment Related Matters” are defined as “matters arising out of or relating to or concerning this Agreement, your hire by or employment with the Firm or the termination thereof, or otherwise concerning any rights, obligations or other aspects of your employment relationship in respect of the Firm.” In 2008, Parisi was terminated and she sued Goldman as described above on a putative class wide basis.

The District Court Proceedings

In November 2010, Goldman moved to compel arbitration of Parisi’s claim on an individual basis. Goldman contended that, in light of the Supreme Court's holding in Stolt–Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), a party cannot be compelled to arbitrate on a class-wide basis where the relevant arbitration clause is silent as to the arbitration of class claims. Parisi opposed individual arbitration on the grounds that, in signing her employment agreement, she did not understand it to require a ban on class claims, nor did she waive her substantive right to challenge alleged systemic discrimination at Goldman.

In April 2011, a magistrate judge denied Goldman’s motion. He acknowledged that the arbitration clause in Parisi's employment agreement was fully valid, that it covered Parisi's employment discrimination claims, and that it did not provide for arbitration on a class-wide basis. However, he also concluded that the agreement's preclusion of class arbitration would make it impossible for Parisi to arbitrate a Title VII pattern-or-practice claim, and that consequently, the clause effectively operated as a waiver of a substantive right under Title VII. The district court adopted the magistrate judge’s recommendations and denied Goldman’s motion to compel arbitration.

The Second Circuit’s Opinion

Goldman appealed the district court’s decision to the U.S. Court of Appeals for the Second Circuit. In the appellate court, Parisi contended that she has a substantive right under Title VII to pursue a “pattern-or-practice” claim, which is available only to class plaintiffs. She argued that because she cannot proceed on a class-wide basis in arbitration under Goldman’s agreement, she must be permitted to proceed in court as a class plaintiff and not be compelled to arbitrate. In other words, Parisi claimed that the arbitration clause in her agreement must be invalidated because arbitration would preclude her from vindicating a statutory right. Goldman took the position that there is no substantive statutory right to pursue a “pattern-or-practice” claim and therefore the arbitration clause should be enforced.

The Second Circuit agreed with Goldman and remanded the case to compel arbitration. As a threshold issue, it reinforced that the Supreme Court has consistently interpreted the Federal Arbitration Act (the “FAA”) as establishing a federal policy favoring arbitration agreements. This preference for enforcing arbitration agreements applies even when the claims at issue are federal statutory claims, unless the FAA’s mandate has been overridden by a contrary congressional command.

The Court then considered the two circumstances where motions to compel arbitration may be denied. First, in an antitrust class action with American Express, the Court held that an arbitration agreement was unenforceable because it contained a class waiver forcing plaintiff merchants into individual arbitrations of Sherman Act claims. The Court concluded that given the complexities of antitrust litigation, individual arbitrations would render the costs associated with these actions prohibitive and would effectively preclude plaintiffs from bringing such claims. Second, the Court noted that a number of Circuits have altered or invalidated arbitration agreements where they interfered with the recovery of statutorily authorized damages, such as when the clause language insulated an employer from damages altogether.

Parisi contended that her claim for “pattern-or-practice” discrimination should receive particular protection because individual arbitration would preclude her from exercising her right to bring such a claim. The Court disagreed and held that in Title VII jurisprudence “pattern-or-practice” simply refers to a method of proof and does not constitute a “freestanding cause of action.” The Court explained that references to “pattern-or-practice” in the statute do not confer a particular right per se—rather they enable the government to enforce Title VII on behalf of groups of employees by alleging a “regular procedure or policy” of unlawful employment discrimination. As such, the Court concluded that Parisi is compelled to arbitrate her claim on an individual basis.

Conclusion

The Goldman Sachs case demonstrates the important role arbitration agreements may play in the employment context. Being able to avoid a class action lawsuit, which can be very complex and expensive to defend, can be of great value to employers.