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Car dealership’s ‘class waiver’ arbitration provision was enforceable, did not violate civil rights laws

By Thomas K. Lauletta, J.D.

An employer’s mandatory arbitration agreement requiring employees to waive their rights to class-action representation did not violate provisions of Title VII, the ADA, or the ADEA, the Sixth Circuit explained in an unpublished decision upholding a district court’s dismissal of a class action discrimination suit. In so ruling, the court relied on the broad federal mandate favoring arbitration, and on the Supreme Court’s holding in Epic Systems Corp. v. Lewis. The arbitration clause also did not deprive the employees of any substantive rights, such as injunctive relief, because an arbitrator could issue a “cease and desist” order. Furthermore, the court concluded, the employees’ reliance on the pattern-or-practice theory as an independent ground to prove an employment discrimination claim was misplaced (Williams v. Dearborn Motors 1, LLC, August 30, 2021, Rogers, J.).

Refused to sign. After employing the named plaintiff for several months, Dearborn Motors 1, LLC, a car dealership located in Dearborn, Michigan, required him, and all other employees, to sign an arbitration agreement to continue employment. He refused to sign and was fired. The arbitration agreement contained a “class waiver” providing that an employee agreed to litigate all disputes with the employer individually, rather than seeking or joining class action suits against it. Further, if made a member of a class action, an employee would be required to opt-out of the action and waive all right to any monetary recovery.

Class action. The employee, along with others, sought to represent a class of the dealership’s current and former employees who were required to sign an arbitration agreement as a condition of their employment or continued employment. In addition to this class-based discrimination claims, he raised individual claims for retaliation in violation of Title VII, the ADEA, and the ADA, based on his termination for refusing to sign the arbitration agreement.

The district court dismissed the class action discrimination claims, ruling that the employer’s class waiver was valid and enforceable under the U.S. Supreme Court’s Epic Systems Corp. v. Lewis decision. The court also dismissed the employee’s individual retaliation claims.

On appeal, the employees argued that district court’s dismissal of the class-based discrimination claims was improper, arguing that the employer’s class waiver policy was unlawful under Title VII, the ADA, and the ADEA (”the Civil Rights Acts”), because it limited their right to pursue certain claims or obtain certain types of relief.

Epic controls. The court rejected the employees’ argument that the employer’s class waiver policy constituted an unlawful employment practice under the Civil Rights Acts. The court stated that the employees’ class-based claims were precluded by the Federal Arbitration Act’s (”FAA”) broad mandate in favor of upholding arbitration agreements. Although the Epic decision did not address Civil Rights Act claims, the appeals court cited the case for the proposition that a federal statute does not displace the Arbitration Act unless it includes a ‘clear and manifest’ congressional intent to make individual arbitration agreements unenforceable. Here, the court saw no express NLRA provision overriding the right to contract for mandatory individual arbitration in the FAA. Accordingly, the NLRA did not foreclose the use of such individualized arbitration provisions.

Waiver provision did not violate Acts. The court also rejected the employees’ arguments that the employer’s class waiver provision violated the Civil Rights Acts because: (1) the waiver provision blocked the employees’ ability to litigate their discrimination claims under a pattern-or-practice method of proving such claims; and (2) the waiver provision limited the scope of possible relief by foreclosing their ability to obtain company-wide injunctive relief to eliminate an employer’s discriminatory practices.

The Supreme Court established the pattern-or-practice theory as an alternative means to the McDonnell Douglass framework for making a prima facie case of employment discrimination (International Brotherhood of Teamsters v. United States). Under the pattern-or-practice method, a prima facie case may be shown by demonstrating “that unlawful discrimination has been a regular procedure or policy followed by an employer or group of employers.” If this is done, the employer may defeat this prima facie showing by demonstrating that the employee’s proof is inaccurate or insignificant.

In the instant case, the Sixth Circuit court noted that the pattern-or-practice theory does not provide a statutory or substantive right on which to base an employment discrimination claim; rather it simply can be used for establishing a prima facie discrimination claim, which the employees here did not do.

Injunctive relief. The employees also argued that the class waiver provision constituted an unlawful employment practice because it deprived them of the ability to obtain company-wide injunctive relief. Rejecting this argument, the court noted that arbitrators can order the reinstatement of wrongfully terminated employees and have the power to fashion equitable relief such as cease and desist orders.

The appeals court thus concluded that the employer’s class waiver arbitration clause provision was valid and enforceable under the FAA, and that the district court’s dismissal of the employee’s class action claims was proper.

Williams’ individual retaliation claim. It also upheld that the district court’s decision regarding the employee’s individual claim based on his termination for failure to sign the arbitration agreement. Because the class action waiver provision was not an unlawful employment practice under the Civil Rights Acts the employee’s refusal to sign the agreement was not a protected activity.