Sign Or Hit The Street

WHEN KAY BAKER WAS A TOP executive with JCPenney in 1995, she agreed to appear in a company video praising the retail giant's new plan for dealing with termination complaints. To avoid lengthy and expensive trips to court, Penney would pay 95 percent of the bill for an outside arbitrator to evaluate the claims. The decision would bind both parties. Baker thought it sounded like a good deal for employees who couldn't afford a lawyer. Then, a year later, Penney fired the 46-year-old Baker, stripping her of $300,000 in stock options. Believing herself a victim of both age discrimination and sexual harassment, she tried to take the company to court. Penney, which insists that Baker's claims are ""totally without merit,'' said she no longer had that option, thanks to the very plan she'd gone on camera to commend. Baker argued that arbitration was voluntary - after all, the policy is called ""the JCPenney Alternative'' - and that she had never signed a consent form. The court sided with the company. Now appealing her case, Baker says that Penney is using ""terror tactics'' to deny people their civil rights and is getting away with it.

Penney joins a growing list of corporations - including Brown & Root, Renaissance Hotels and ITT - that have figured out how to ease the burden of costly discrimination suits. The tactic is surprisingly simple: make the court-for-arbitration trade-off a condition of employment. If you don't waive your right to sue, you don't get a job. Civil-rights groups like the NAACP and the National Organization for Women see a sinister plot afoot. Says the Equal Employment Opportunity Commission's Ellen Vargyas, ""It's like being forced to give a mugger your wallet.''

Is any of this legal? The real push toward mandatory arbitration came after a 1991 Supreme Court case called Gilmer v. Interstate/ Johnson Lane. Gilmer, a stockbroker, was fired at 62 and wanted to sue his firm for age discrimination. Like all brokers, however, he had signed away the right to take his employer to court in order to get his license from the New York Stock Exchange (the securities industry doesn't like to see its money-sensitive affairs aired in public). Gilmer didn't claim that he was coerced into signing the document or that he didn't understand its significance, just that it was inherently illegal to compel arbitration of a discrimination case. The court surprised many by upholding the agreement on the basis of a 1925 statute, the Federal Arbitration Act, which says that the parties to a commercial contract can waive court rights in exchange for binding arbitration.

In theory, the narrow ruling applied only to stockbrokers. But in practice, it cleared a path out of the discrimination-law thicket for employers in every industry. Since 1991 more than 200 lower-court decisions have greatly expanded the boundaries of the decision. Michele Peacock joined Great Western Mortgage's Livingston, N.J., office in September 1994. After four months on the job, she says, her male boss was harassing her so blatantly that she had to quit. The final straw: she arrived at an out-of-town business conference and allegedly found herself pressed to share a hotel room with him. Turns out that as part of her job application she had agreed to mandatory arbitration. Unlike Gilmer, however, Peacock says she didn't understand what she was committing to. ""You need the job, you sign the paper,'' she explains. But through her first hearing and appeal, the courts have been unmoved.

Supporters of mandatory arbitration claim that the process is just as fair as a jury trial and has the added benefit of being swift and relatively inexpensive. Gary Mathiason of Littler Mendelson, a labor-law firm that represents management, insists that ""arbitration is the only way to get justice out of this clogged-up system.'' But opponents say it's second-class justice: arbitrators aren't required to follow the law, and employers can tilt the system in their own favor. For example, Circuit City, a Virginia-based electronics retailer, has set up an arbitration system that is mandatory for employees only; if the company finds it wants to go to court, it can. So one-sided a process is not unique. A survey of 36 companies published in January in Dispute Resolution Journal found that 10 percent disallowed outside counsel for employees, about 15 percent gave employers the sole right to choose arbitrators and one third didn't provide for discovery (the ability to demand relevant information from the opposing party).

Employees begin with one real disadvantage: the law doesn't spell out what rights or remedies an arbitration process must include to be legally binding. Annette Phillips was bartending for the Hooters restaurant chain in the summer of 1996 when, she alleges, a company officer came in, pulled up her uniform and slapped her buttocks. When she screamed at him to stop, he threatened to stuff her shorts in her face. She quit and is trying to file sexual- harassment charges despite having signed a mandatory-arbi- tration agreement. Phillips claims the policy is illegal - among other reasons, because Hooters caps pu- nitive damages far below the levels Congress established when it updated the civil-rights laws in 1991. Thus, she argues, her contract doesn't offer a remedy equivalent to what would be available through a trial. Unfortunately for Phillips, court rulings so far on restricting punitive damages have been contradictory.

Aggrieved employees have asked the Supreme Court to say more about what constitutes consent and a ""substantive'' remedy, but few experts believe the court will interfere with corporate America's expansive view of these agreements. Martin Payson, a partner with Jackson Lewis, another law firm that represents management, predicts that ""there is less than a 10 percent chance of any of this being found unconstitutional.'' Vargyas, like other civil-rights advocates, is pinning all her hopes on Capitol Hill. Sen. Russell Feingold and Rep. Ed Markey have introduced bills to ban mandatory arbitration, but such efforts don't stand much chance in the Republican-dominated Congress. Meanwhile, at least one set of plaintiffs - women at the brokerage firm Smith Barney - have found a way around the agreements they signed individually by filing together as a class. It's a creative solution, but one that lawyers say may not apply to discrimination complaints outside the securities industry. That means more and more American workers may not get a chance to tell it to the judge.

To keep the court costs of employee complaints down, many companies are turning to in-house dispute resolution. A sampling:

Brown & Root: Its plan tries to resolve problems early. An American Arbitration Association program is the last step, but employees can get $2,500 for legal costs.

JCPenney: Employees who feel they have been unjustly fired can appeal to an AAA arbitrator. Employees pick up part of the cost but are reimbursed if they win.

Hooters of America: Three arbitrators chosen from a company list decide disputes. Punitive damages for employees are capped at one year's compensation.

Renaissance Hotels: Under a process being phased in, unresolvable problems will be sent to a review committee of employees and managers. Its decisions will be final.

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