'Luce, Forward' Case Is Green Light, But Not a Blank Check
by Richard S. Rosenberg and John J. Manier

Until recently, the 9th Circuit stood alone among federal appellate courts in holding that pre-dispute agreements to arbitrate job bias claims are unenforceable under Title VII of the 1964 Civil Rights Act, 42 U.S.C. Section 2000e et seq., as amended by the 1991 Civil Rights Act. Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998). Indeed, the California Supreme Court refused to apply Duffield to state law bias claims, describing it as “a minority of one” and “find[ing] its reasoning unpersuasive.” Armendariz v. Foundation Health Psychcare Servs., 24 Cal.4th 83 (2000).

Recently, the 9th Circuit finally fell in step with the rest of the country on this important issue. In EEOC v. Luce, Forward, Hamilton & Scripps, 345 F.3d 742 (9th Cir. Sept. 30, 2003), an en banc panel of the 9th Circuit voted 8-3 to overrule Duffield and held that pre-dispute agreements to arbitrate discrimination claims are enforceable.

The Luce Forward litigation began as a state court lawsuit filed by Donald Lagatree. Luce Forward agreed in 1997 to hire Lagatree as a legal secretary. On Lagatree’s first day of work, the firm asked him to sign a standard offer letter which included a provision requiring both parties to submit any employment-related claims to binding arbitration. Lagatree objected to the arbitration clause and refused to sign the letter. Both sides’ positions remained “non-negotiable,” and the firm thus revoked its job offer after Lagatree’s third day at work.

Lagatree sued Luce Forward for wrongful termination in violation of public policy, unfair competition and related claims. The Superior Court dismissed Lagatree’s lawsuit on demurrer and the Court of Appeal affirmed, holding that there was no well-established public policy which precluded enforcement of the arbitration provision. Lagatree v. Luce, Forward et al., 74 Cal.App.4th 1105 (1999).

Meanwhile, Lagatree filed a discrimination charge with the Equal Employment Opportunity Commission. Ultimately, the Commission sued Luce Forward on Lagatree’s behalf in federal district court. The EEOC claimed that the firm’s arbitration agreement was illegal and unenforceable under Duffield, and that the firm unlawfully retaliated against Lagatree for asserting his right to a jury trial.

District Judge Florence Marie Cooper recognized that Duffield was still binding precedent in the 9th Circuit. Thus, she issued an injunction prohibiting Luce Forward from: (1) requiring employees to agree to arbitrate Title VII claims as a condition of employment; and (2) attempting to enforce previously-executed arbitration agreements. Judge Cooper denied the Commission’s request for “make whole” monetary relief, finding it was barred by the state court judgment and principles of res judicata. EEOC v. Luce, Forward et al., 122 F.Supp.2d 1080 (C.D. Cal. 2000).

A three-judge panel of the 9th Circuit voted 2-1 to vacate Judge Cooper’s injunction and direct entry of judgment for Luce Forward. EEOC v. Luce, Forward et al., 303 F.3d 994 (9th Cir. 2002). The panel found that Duffield was implicitly overruled by Circuit City Stores v. Adams, 532 U.S. 105 (2001), in which the Supreme Court held that the Federal Arbitration Act, 9 U.S.C. Sections 1-16, applies to most agreements to arbitrate employment disputes. Thus, the panel ruled that Luce Forward’s arbitration provision was enforceable, and that the firm could lawfully refuse to hire Lagatree for his refusal to sign the letter.

The full 9th Circuit agreed to rehear the case en banc. In an opinion by Judge Wallace Tashima, the majority concluded that “Circuit City did not overrule Duffield” but that “Duffield was wrongly decided; we therefore overrule it ourselves.”

The court quoted relevant text from the 1991 Civil Rights Act, which included a “‘polite bow to the popularity of [arbitration].’” Section 118 of the Act stated that “[w]here appropriate and to the extent authorized by law, the use of alternative means of dispute resolution, including ... arbitration, is encouraged to resolve [job bias] disputes.”

It was this language which Duffield found to preclude enforcement of pre-dispute arbitration agreements. The en banc majority rejected this interpretation as “ironic” and emphasized that “[n]othing in the text directly demonstrates a congressional intent to preclude compulsory arbitration agreements.”

The court noted that six months before the 1991 Act took effect, the Supreme Court held that a federal age bias claim could be subjected to compulsory arbitration pursuant to a provision in a securities registration application. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). Gilmer stated that statutory job bias claims are arbitrable absent Congressional intent “to preclude a waiver of judicial remedies,” and it reaffirmed the strong “‘federal policy favoring arbitration.’”

Applying established canons of statutory construction, the 9th Circuit assumed that when Congress passed the 1991 Act, it knew that arbitrability of job bias claims was governed by Gilmer, rather than the more restrictive dictum of Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), which indicated that “the judicial forum could not be waived for Title VII claims.” As such, the court found no ambiguity in the 1991 Act “suggesting that it may be intended to preclude compulsory arbitration.”

The court also rejected Duffield’s presumption “that allowing compulsory arbitration weakens the 1991 Act [as] inconsistent with the Supreme Court’s endorsement of arbitration” in Gilmer and other cases. Rather, the Supreme Court has held that “arbitration affects only the choice of forum, not substantive rights,” and that the EEOC retains the authority to pursue the judicial forum notwithstanding an employer-employee arbitration agreement. EEOC v. Waffle House, 534 U.S. 279 (2002).

Duffield noted that the 1991 Act created a right to jury trial in federal job bias cases. However, the Luce Forward court rejected the notion that Congress intended to prohibit the waiver of this right pursuant to compulsory arbitration agreements.

The court also eschewed Duffield’s reliance on the legislative history of the 1991 Act. Legislative history may be considered only to resolve ambiguous statutory language, and the court found no ambiguity in the Act which could be construed to prohibit compulsory arbitration agreements. At any rate, the court noted that the legislative history was inconsistent on this issue.

However, the 9th Circuit’s decision was not a total loss for the EEOC or Lagatree. Rather than dismissing the retaliation claim altogether, the court remanded the case to allow the EEOC to pursue a “novel theory” as to why Luce Forward could be found to have unlawfully retaliated against Lagatree even with the overruling of Duffield. The court did not describe this theory, but it did note that “[a]t least on the surface, it would appear that” an employee who refuses to agree to compulsory arbitration does not engage in any “protected activity” for purposes of a retaliation claim.

Vigorous dissenting opinions were written by Judges Harry Pregerson (who dissented from the earlier panel decision in Luce Forward) and Stephen Reinhardt (the author of Duffield). According to Pregerson, “[t]he underlying purpose [of the 1991 Act] was not to allow employers to shove arbitration provisions down the throats of individual employees as a nonnegotiable precondition of employment. But sadly that is the consequence of the majority’s holding.”

Reinhardt excoriated the majority for issuing “precisely the type of callous anti-civil rights, pro-employer decision that Congress condemned when it enacted the [1991 Act].” He also accused the majority of “invit[ing] employers to discharge (and/or not to hire) any woman, or any African American, Hispanic, Native American, or other minority group member, who has the courage to refuse to surrender his [or her] hard won right to confront, and thereby hold liable, his persecutor in the federal courts.”

Employers would be ill-advised to infer any such invitation from Luce Forward. While the decision allows employers to require employees to agree to arbitrate job bias claims, it hardly condones retaliation against those who assert their statutory rights. Moreover, neither Pregerson nor Reinhardt point to any evidence that arbitration is an inherently hostile forum for job bias claimants.

The future prospects for enforceability of pre-dispute agreements to arbitrate job bias disputes appear bright, at least for now. The demise of Duffield eliminates the previous split among federal appellate courts, thereby making it far less likely that the Supreme Court will ever address this issue.

In addition, as Luce Forward notes, Congress has rejected legislation which would preclude waiver of the judicial forum in statutory job bias cases. Former Governor Gray Davis has twice vetoed similar bills which passed the state Legislature, including AB 1715 this year, and future bills probably would meet the same fate at the desk of new Governor Arnold Schwarzenegger.

However, while Luce Forward gives employers a “green light” to require employees to sign compulsory arbitration agreements, it is not a “blank check.” To be enforceable in California, such agreements must adequately protect employees’ substantive rights under statutory job bias laws and other sources of public policy. Armendariz; Little v. Auto Stiegler, 29 Cal.4th 1064 (2003). Many federal courts have adopted similar requirements. See, for example, Cole v. Burns Int’l Security Servs., 105 F.3d 1465 (D.C. Cir. 1997).