On March 21, 2013, in Parisi v. Goldman, Sachs & Co., the Second Circuit compelled arbitration of the plaintiffs’ Title VII sex discrimination claims and ruled that a substantive statutory right to pursue a pattern-or-practice claim under Title VII does not exist.

On behalf of themselves and a putative class, three former female employees of Goldman Sachs alleged that the company had 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.”

Upon being promoted to managing director in 2003, the lead plaintiff signed a Managing Director Agreement that contained an arbitration clause, which required that any employment-related disputes be resolved via arbitration. After the lead plaintiff was terminated, she filed suit in federal court, and Goldman Sachs moved to compel arbitration. The district court denied Goldman Sachs’ motion, concluding that the arbitration agreement’s preclusion of class arbitration made it impossible to arbitrate a pattern-or-practice claim, and thus that the arbitration agreement operated as a waiver of a substantive right under Title VII and could not be enforced.

Applying de novo review, the Second Circuit reversed. First, the court reiterated the “federal policy favoring arbitration agreements,” as set forth in the Federal Arbitration Act (“FAA”). In light of that policy, agreements to arbitrate federal statutory claims must be enforced, except where the FAA has been “overridden by a contrary congressional command.” The court noted that Congress had specifically approved arbitration of Title VII claims in the Civil Rights Act of 1991, and the lead plaintiff could not establish that the cost of individual arbitration would be prohibitive or that arbitration would deny her statutorily authorized damages.

Plaintiff argued to the Second Circuit that, since she could not arbitrate a class claim, the individualized arbitration to which she was limited precluded her from vindicating her right to bring a substantive “pattern-or-practice” claim under Title VII. Although the district court had agreed with this argument, the Second Circuit rejected it. The Second Circuit reasoned that there is no substantive right to bring a “pattern-or-practice” claim, which merely refers to a method of proving a Title VII violation. The court noted that the plaintiff would be free to utilize “pattern-or-practice” evidence in attempting to prove her individual Title VII claim in the arbitral forum.

The Second Circuit’s ruling should serve as a reminder to employers of the broad enforceability of arbitration agreements, so long as they do not waive substantive rights, deny statutorily authorized damages, or preclude enforcement because of cost. This last issue is likely to be addressed when the Second Circuit rules on a similar case involving the Fair Labor Standards Act, Raniere v. Citigroup Inc. That decision, expected in the coming months, will be reported here.