LEGISLATION: Arbitration Stacks The Deck Against Employee Rigts

When Rachel Hansen (not her real name) left a prominent waste management firm in Pennsylvania earlier this year, she and her lawyers believed they had a slam-dunk sexual harassment suit. At a trade show, a company officer tried to coax her into his hotel room as a chance "to get to know you better," she reported. Ms. Hansen balked and sued. "I wanted a jury trial," she said. "There is no doubt in my mind I would win. None."

However, Ms. Hansen, 28, probably won't get her day in court. When she joined the company, her employment contract stipulated that any dispute with the company would be settled through binding arbitration. The firm's personnel manual spelled out the rules for arbitration: the company would pick the arbitrator and pay the costs; she could not recover punitive damages; she would pay her own lawyers' fees; her lawyers could not question the company's witnesses; and the company would not make any documents available before the hearing.

Undaunted, Ms. Hansen has taken her case to court, asking for a ruling that would allow her to sidestep the arbitration process. The case now is pending.

A growing number of employers are using employment contracts not only for traditional purposes, such as protecting trade secrets and restricting competition from ex-employees, but also to protect themselves against lawsuits stemming from dismissals and discrimination. Last year, a poll commissioned by a leading executive search firm found that nearly a third of American companies with 20 or more employees intended to expand their use of employment contracts.

Contracts of this kind for lower-level workers do not resemble what "employment contract" means to the top executive - lavish bonuses and benefits. "People are signing away their right to take their claims to federal court and their right not to be discriminated against," said a lawyer for the Equal Employment Opportunity Commission.

For their part, employers cite situations where employees have abused rights under Title VII of the Civil Rights Act of 1964, which allows jury trials and punitive damages in discrimination cases. Employers claim that fired workers often - and unjustifiably - claim sex, age, race and religious discrimination.

"An employee who loses a job just has to find one of those cubbyholes to fit their claim in," said a labor-relations lawyer. "Everyone is a protected something. Even a white male can claim reverse discrimination."

Supporters say that mandatory arbitration, which eliminates jury trials, saves money for both sides. "Arbitration brings the recurring costs of discovery and appeals under control," said a spokesman for the waste firm where Ms. Hansen worked. "A company with vast resources can't wear down an opponent with fewer resources," he added.

Court rulings have blurred distinctions between "at will" employers who can be let go without a reason and "just cause" employees who can be fired only for poor performance or misconduct.

"What has changed is that courts in several states are seizing upon bland statements in employee handbooks, idle comments on growing up together and making lots of money in the future, a couple of good performance evaluations, and a comment at a company picnic" and accepting these as a contract, said a labor lawyer who represents employers.

Arbitrators are not bound by earlier cases in making a decision. Moreover, they do not necessarily put their decisions in writing or even offer reasons for the outcome. Customarily, their rulings are final for both sides, and no appeals follow. When a company sponsors an arbitration, it lays down the rules that the arbitrators must follow. As a result, some arbitrators won't take some cases.

"I personally have a problem with it," said a past president of the National Academy of Arbitrators. Employers like to stack the deck, he said, "and we are for fair play."

The National Employment Lawyers Association, a group of lawyers who represent employees, had threatened to boycott arbitration firms that hear mandatory arbitration disputes. However, the group has negotiated guidelines with arbitrators that stopped some unfair practices - for example, where employees who won could not collect lawyers' fees, but employees who lost were responsible for the employer's legal expenses.

Judges seem to like arbitration, which keeps many disputes from contributing to clogged court dockets. Indeed, some judges have left the bench for arbitration work, where they can earn two or three times their former salaries. Even the Senate is proposing legislation to even up the scale on both sides.

The mandatory-arbitration trend will grow, said experts. Employees, for now, have a choice: Sign the agreement or pass up the job.