Employers who view arbitration as an effective alternative for resolving employment-related disputes can find some relief from whistleblower litigation in the Second Circuit's decision in Guyden v. Aetna Inc., 28 I.E.R. Cas. (BNA) 289, 2008 WL 4426478, 2008 U.S. App. Lexis 20783 (2d Cir. Oct. 2, 2008). The Court held that whistleblower claims brought under SOX are arbitrable and, accordingly, a court may compel a plaintiff to submit a SOX whistleblower claim to arbitration pursuant to a mandatory arbitration agreement.
The plaintiff in Guyden had filed her federal whistleblower action first in the DOL and then, when DOL had not resolved the matter within 180 days, in federal district court. Based on a number of documents through which the plaintiff had agreed to arbitrate all employment-related legal disputes, the district court dismissed her case. On appeal, the plaintiff's fundamental challenge to the mandatory arbitration agreement was her contention that Congress intended SOX whistleblower claims to be nonarbitrable. She argued that the "public purpose" of SOX's whistleblower protections, which she characterized as the transmission to the public of information about a corporation's fraudulent activity, inherently conflicts with the forced arbitration of such claims. The Second Circuit reviewed the legislative history of the SOX whistleblower provision and concluded that while the broad purpose of SOX as a whole "is to strengthen the integrity of capital markets," the primary purpose of the SOX whistleblower protections "is to provide a private remedy for the aggrieved employee, not to publicize alleged corporate misconduct." For that and other reasons, the Court found no basis to deviate from the strong policy favoring arbitration agreements.
Employers who adopt a mandatory arbitration program are typically motivated primarily by the desire to reduce the exorbitant costs of litigation and to get a quicker final resolution of the dispute. In the context of whistleblower litigation, the confidential nature of most arbitration proceedings can take on heightened importance for employers. Effectively redirecting whistleblower claims, in which a current or former employee may level all kinds of loaded allegations against the employer relating to health and safety issues or financial accounting irregularities, will help the employer contain the problem and reduce the leverage a whistleblower exercises with threats of public disclosure. In rejecting the plaintiff's argument in Guyden that the arbitration agreement is unenforceable because it prohibits disclosure of the arbitration hearing and the arbitrator's decision, the Second Circuit essentially blessed the concept of confidentiality in such proceedings despite reduced public disclosure.
There are, of course, limits to the power of mandatory arbitration agreements. For example, as with federal whistleblower claims, when federal agencies are the first stop for a claimant, mandatory arbitration agreements cannot completely insulate employers from administrative or court litigation. Just as the EEOC is not bound by an employer's agreement with its employees not to litigate in court, so too would the Department of Labor for any type of federal whistleblower claim, the Securities Exchange Commission for SOX whistleblower claims, the Nuclear Regulatory Commission for nuclear whistleblowing claims, or the Consumer Product Safety Commission for whistleblower claims under the 2008 Act not be precluded from initiating or continuing proceedings against an employer because of a mandatory arbitration agreement. As another example, jursidictions less friendly to arbitration, such as the Ninth Circuit, might reach a conclusion different from the Second Circuit's in Guyden. And Guyden addressed only SOX. Courts may view mandatory arbitration agreements differently when applied to federal whistleblower protection regimes other than SOX.
Finally, we note that mandatory arbitration agreements have been under assault in Congress. Powerful congressional forces have been seeking a prohibition on mandatory arbitration agreements in a number of areas, including employment disputes. Such efforts have thus far failed, but they will likely have better prospects in the new Congress.
Despite the limited power of mandatory arbitration agreements and their uncertain fate, employers still can enjoy the significant benefits of an enforceable agreement to arbitrate employment-related disputes, particularly whistleblower claims. Crafting an enforceable agreement can be difficult given the large body of law, often conflicting in different jurisdictions, but the savings in costs and resources alone usually make the effort worthwhile.