BNA's Employment Discrimination Report - FEDERAL JUDGE HOLDS TITLE VII CLAIMS

Volume 10 Number 5
Wednesday, February 4, 1998

LITIGATION

Arbitration
FEDERAL JUDGE HOLDS TITLE VII CLAIMS
ARE NOT SUBJECT TO MANDATORY ARBITRATION

BOSTON--Delivering a blow to mandatory arbitration of employment disputes in the securities industry, a federal district court in Massachusetts ruled Jan. 26 that agreements compelling arbitration of claims under Title VII of the 1964 Civil Rights Act are unenforceable (Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith Inc., DC Mass, No. 96-12267-NG, 1/26/98).

Judge Nancy Gertner also held that while mandatory arbitration of age discrimination claims has been ruled permissible, the system used by the New York Stock Exchange is inadequate to protect employee rights.

The case involves a 45-year-old woman, Susan Rosenberg, who was hired in January 1992 as a financial consultant for Merrill Lynch in Wellesley, Mass. Two years later, Rosenberg alleged sexual harassment by her supervisor who on one occasion, allegedly handed Rosenberg a phallus-shaped vibrator when she came into his office looking for a document.

Shortly afterward, the supervisor told Rosenberg that her performance was inadequate, and he urged her to resign. She was terminated the next week for poor performance. Rosenberg alleged that the dismissal was caused by age and sex discrimination and that she had been sexually harassed.

Purpose Of 1991 Act Cited

When she was hired, Rosenberg had signed a standard U-4 form requiring her to submit disputes to arbitration under the rules of various securities industry organizations, including the New York Stock Exchange. Rosenberg did not dispute that she had signed the document, but said that no one pointed out that she was agreeing to arbitrate all future disputes with her employer, including employment disputes.

In a landmark 1991 decision, the U.S. Supreme Court in Gilmer v. Interstate/Johnson Lane Corp. had ruled that a securities industry employee who had signed a U-4 form must submit his age discrimination claims to arbitration (55 FEP Cases 1116).

However, Judge Gertner observed that in Gilmer, the justices did not address whether claims brought under Title VII are arbitrable and they left open for other courts to determine if particular arbitral systems are adequate to protect employees' statutory rights. Soon after Gilmer was decided, Congress passed the Civil Rights Act of 1991, ''stating both in the amended text of the Act and in the legislative history that mandatory arbitration agreements have no place under Title VII and should not be enforced,'' Gertner wrote.

The 1991 act was intended to enhance the remedies available under Title VII, Gertner observed. Rejecting Merrill Lynch's argument that the 1991 law endorsed rather than repudiated Gilmer in Title VII cases, Gertner reasoned that it is ''unlikely that the same Congress would in a single act create a new constitutionally-based right to a jury trial for Title VII plaintiffs, only to erode that right by endorsing mandatory pre-dispute arbitration agreements.''

Structural Bias In System Seen

Because Congress has not expressed a similar intent to preclude enforcement of pre-dispute arbitration agreements under the Age Discrimination in Employment Act, Gertner said that the court must determine whether the NYSE arbitration system offers Rosenberg an opportunity to vindicate effectively her ADEA rights.

Although the Supreme Court considered the identical NYSE arbitral system in Gilmer and declined to find it inadequate, Gertner pointed out that the justices also ''left open the possibility of evaluating the adequacy of the arbitral forum in specific cases.''

While Gilmer offered generalized arguments about the incapacity of arbitrators to resolve statutory civil rights claims, Rosenberg ''has risen to the Supreme Court's challenge'' and ''put forward a detailed, concrete, and voluminous critique of the NYSE system,'' Gertner found.

The plaintiff has demonstrated ''a structural bias in the system,'' by showing that the NYSE arbitration procedure ''is dominated by the securities industry, that is, by the employment side of this dispute,'' according to Gertner.

Under the system, securities firms form self-regulating organizations to police themselves. The self-regulating organizations ''run almost every aspect of the arbitration process in which the employees must have their employment discrimination cases resolved,'' Gertner wrote. Merrill Lynch is a member firm of the New York Stock Exchange; its chairman is on the NYSE board.

''From the rules that govern arbitral procedure, through the selection of the arbitrators, to the details of discovery practice, the system is dominated by the NYSE itself,'' Gertner declared. ''Merrill Lynch, in turn, helps govern the NYSE.'' The NYSE chairman, she pointed out, appoints the arbitration pools from which individual umpires are chosen.

While finding the forum inadequate to resolve employees' ADEA and Title VII disputes, Gertner said she did not intend to express any opinion about its effectiveness in vindicating the rights of securities customers.

Merrill Lynch spokesman Bill Haldin said the firm is ''reviewing the decision'' and declined to comment on whether it will appeal. Haldin emphasized that Merrill Lynch denies the allegations of discrimination. He pointed out that the Massachusetts Commission Against Discrimination and EEOC both had dismissed Rosenberg's discrimination charges.