August 18, 2009

Massachusetts Supreme Judicial Court Holds That Agreements to Arbitrate State Discrimination Claims Are Enforceable As Long As the Agreement Specifically References Discrimination Claims

In the recently decided case of Warfield v. Beth Israel Deaconess Medical Center, Inc., the Massachusetts Supreme Judicial Court (“SJC”) held that agreements by employees to arbitrate claims brought pursuant to M.G.L. ch. 151B, Massachusetts’ anti-discrimination statute, are enforceable provided that the agreement contains a reference to such discrimination claims in “clear and unmistakable terms.” The SJC’s decision also suggests that an agreement to arbitrate all claims “arising out of” an employment agreement should not be read to compel the arbitration of claims regarding the employment relationship generally, including claims regarding the termination of that relationship. The court’s ruling will require some employers to modify the language in their mandatory arbitration agreements in order to ensure that discrimination claims are covered.

Summary of Court’s Decision in Warfield

In Warfield, the plaintiff entered into an employment agreement with Beth Israel Deaconess Medical Center (“Beth Israel”) in which she agreed to serve as the hospital’s anesthesiologist-in-chief. The agreement contained an arbitration clause, which stated, in relevant part, “Any claim, controversy or dispute arising out of or in connection with this Agreement or its negotiations shall be settled by arbitration.” According to the plaintiff, she was subsequently subjected to a pattern of gender-based discriminatory treatment, which she complained of to her supervisor but which allegedly went uncorrected. The plaintiff’s appointment as anesthesiologist-in-chief was ultimately terminated several years later, a decision the plaintiff characterized as discriminatory and in retaliation for her prior discrimination complaints. The plaintiff filed a complaint in Massachusetts superior court, alleging that her termination was motivated by gender discrimination and retaliation in violation of M.G.L. ch. 151B. The plaintiff’s complaint also contained counts for defamation and tortious interference with contractual relations. Beth Israel moved to dismiss the case and compel arbitration pursuant to the Massachusetts Arbitration Act (“MAA”) based on the arbitration clause in the plaintiff’s employment agreement. The superior court denied the motion to dismiss on the basis that the employment contract only governed the plaintiff’s duties as chief anesthesiologist and not her employment relationship with Beth Israel generally. The defendant then appealed the decision, and the SJC granted the defendant’s application for review.

The SJC began its legal discussion by addressing the tension between the public policy inherent in the Federal Arbitration Act (“FAA”) and the MAA, on the one hand, which favor the enforcement of agreements to arbitrate, and the public policy codified in M.G.L. ch. 151B, on the other hand, which requires that the anti-discrimination statute be construed liberally. The court ultimately held that, to give effect to the statutory edict that M.G.L. ch. 151B be construed liberally, any agreement by the employee to limit or waive any of the rights or remedies conferred by M.G.L. ch. 151B, such as the right to litigate one’s discrimination claim in court, is enforceable only if the agreement is stated in “clear and unmistakable terms.” 

Having announced its new rule, the SJC then turned to the specific arbitration provision at issue in Warfield to determine whether it contained a clear and unmistakable waiver of the employee’s claims under M.G.L. ch. 151B. The court held that the provision did not expressly state that employment discrimination claims were subject to arbitration and, therefore, the provision was unenforceable with respect to discrimination claims under M.G.L. ch. 151B. Before reaching this conclusion, the court also noted that the agreement only provided for the arbitration of disputes “arising out of or in connection with this Agreement or its negotiations.” According to the court, such language suggests an intent to arbitrate only those disputes that might arise from or be connected with the specific terms of the agreement itself, rather than an agreement to arbitrate all disputes arising out of the employment relationship generally. The court concluded by holding that the plaintiff’s claims for defamation and tortious interference with contractual relations were so inextricably intertwined with her discrimination claim that they should also be tried in court rather than in a separate arbitration proceeding.

Drafting of Arbitration Clauses in Jurisdictions Outside Massachusetts

Massachusetts is not the first state to hold that discrimination disputes fall outside the scope of arbitration clauses which, by their terms, only govern disputes arising out of an employment agreement. In 2001, the New Jersey Supreme Court held that an employer could not compel arbitration of a claim brought pursuant to New Jersey’s anti-discrimination statute without an arbitration clause that expressly waived such statutory claims. See Garfinkel v. Morristown Obstetrics & Gynecology Assoc., P.A., 168 N.J. 124, 136 (2001). According to the New Jersey Supreme Court, a provision to arbitrate claims “arising out of, or relating to, [the employment agreement] or the breach thereof” was too ambiguous to constitute an enforceable waiver of the plaintiff’s state law discrimination claims. However, courts in other states, such as New York, have held that arbitration agreements are enforceable as applied to discrimination disputes even where the agreement contains only a broad provision for the arbitration of disputes “arising out of” the employment relationship and does not expressly mention discrimination disputes. See Tong v. S.A.C. Capital Management, LLC, 860 N.Y.S.2d 84 (N.Y. App. Div. 2008).   

Warfield ’s Implications for Employers

The SJC’s holding in Warfield requires that employers seeking to arbitrate discrimination claims take affirmative steps to ensure that their arbitration clauses contain an express reference to discrimination claims. In light of Warfield, an employment agreement that does not expressly provide for the arbitration of state discrimination claims cannot be invoked to compel arbitration of claims brought by employees pursuant to M.G.L. ch. 151B. The court’s narrow interpretation of the scope of the arbitration clause at issue in Warfield will also require employers to reexamine the breadth of the arbitration clauses in their employment agreements to ensure that they reference the employment relationship generally and are not limited to disputes arising out of the employment agreement itself.

Employers should be mindful that even the most artfully drafted arbitration clause cannot preclude the Massachusetts Commission Against Discrimination (“MCAD”) or the Equal Employment Opportunity Commission (“EEOC”) from bringing an action on the employee’s behalf. Neither the MCAD nor the EEOC is bound by an arbitration agreement to which it is not a party, and each has the discretion to pursue an employee’s discrimination claim despite an agreement by the employee to submit such claims to binding arbitration. While the MCAD’s remedies in such a case are limited to traditional equitable relief, the EEOC may seek a wide range of remedies in court, including compensatory and punitive damages.

While the new rule announced in Warfield is relatively easy to follow, arbitration is not necessarily a preferable forum for resolution of discrimination claims. Arbitration clauses have the potential for offering some advantages over traditional litigation in court, such as the ability to participate in the selection of an arbitrator, the potential for reduced litigation costs and the non-public resolution of employment-related disputes. In some circumstances, however, the cost of arbitration fees may make that forum even more costly than traditional litigation. Also, in many instances arbitral discovery is extensive and hearings are both prolonged and intermittent. Other potential drawbacks to arbitration include a lack of clear discovery rules, the absence of procedures for summary judgment and the inability to appeal an adverse decision. The desirability of including an arbitration provision in an employment agreement will ultimately depend on each employer’s unique perspective and circumstances.