EEOC Not Bound By Arbitration Agreements

On January 15, 2002, the United States Supreme Court rendered a decision in a case closely watched by the EEOC, employers and lawyers around the nation, EEOC v. Waffle House, Inc. At issue was whether an employee's agreement to arbitrate all disputes with his employer, rather than seek relief in court, prevented the EEOC from filing suit on the employee's behalf. The Supreme Court held that arbitration agreements between employers and employees do not preclude the EEOC from filing suit on behalf of employees who believe they have been subjected to unlawful discrimination.

At issue in Waffle House was an arbitration agreement contained on the company's application that all prospective employees were required to sign. The agreement stated that any claim or dispute regarding the applicant's employment would be "settled by binding arbitration." Eric Baker suffered a seizure at work and was subsequently terminated. Baker did not initiate arbitration proceedings, but instead filed a charge of discrimination with the EEOC alleging his termination was based on his seizure, thus violating the Americans with Disabilities Act.

The EEOC filed suit on Baker's behalf against Waffle House. Waffle House, however, sought to compel arbitration based on Baker's signature of the arbitration agreement. The appellate court held that the arbitration agreement was valid. The court further held that, while the arbitration agreement did not prevent the EEOC from filing suit against Waffle House, the agreement did prevent the EEOC from recovering monetary damages on Baker's behalf. In other words, the EEOC could obtain injunctive relief (such as a court order prohibiting Waffle House from discriminating against employees because of disability), but it could not win money from Waffle House.

Baker appealed and the Supreme Court reversed the appellate court's decision. While recognizing the liberal federal policy favoring arbitration agreements, the Supreme Court also recognized the EEOC's statutory authority to bring suits for injunctive and monetary relief. Therefore, since the EEOC had not executed the arbitration agreement, it had not relinquished that statutory authority. Accordingly, the Supreme Court held that the EEOC's enforcement power was not affected by the arbitration agreement and it could seek injunctive and monetary relief in court against Waffle House.

After the Supreme Court's ruling, it is clear that arbitration agreements will not provide employers a bulletproof shield from the EEOC. Nonetheless, such agreements can serve as valuable tools to control litigation costs. The reality is, of the almost 80,000 charges of discrimination received by the EEOC in the year 2000, the EEOC filed only 291 lawsuits nationwide.

As a practical matter, the threat of litigation is much greater from employees than it is from the EEOC. Arbitration agreements, when properly drawn, can still prevent employees from filing suit in court, even after the Waffle House decision.