STATE OF MICHIGAN
COURT OF APPEALS
FOR PUBLICATION
April 9, 1999
9:15 a.m.
No. 196542
Genesee Circuit Court
LC No. 95-39834 CZ
JOHN REMBERT,
Plaintiff-Appellant,
v
RYAN’S FAMILY STEAK HOUSES, INC.,
a foreign corporation and MICHAEL
JEAN, jointly and severally,
Defendants-Appellees.
Before: Gage, P.J., and Kelly, Hood, McDonald, Cavanagh, Saad
and O'Connell, JJ.
SAAD, J.
I
Nature Of The Case
This conflicts panel convened to decide if a predispute1
agreement to arbitrate statutory employment discrimination claims
(arising under the Michigan Elliott-Larsen Civil Rights Act2
[“ELCRA”] and the Persons With Disabilities Civil Rights Act3
[“PWDCRA”]) is valid and enforceable. In Rushton v Meijers, 225
Mich App 156; 570 NW2d 308 (1997), this Court held that this kind
of predispute agreement is invalid as a matter of public policy.
Contrary to Rushton’s holding, the overwhelming majority of
federal and other state courts have held that these agreements
are enforceable provided that the arbitration procedures are fair
and the agreement waives no substantive rights and remedies. We
join the majority of courts and hold that so long as no rights or
remedies accorded by the statute are waived, and so long as the
procedure is fair, employers may contract with their employees to
arbitrate statutory civil rights claims.
Our holding breaks no new ground, but rather is consistent
with our state’s public policy, and federal public policy, both
of which increasingly and overwhelmingly favor arbitration as an
inexpensive and expeditious alternative to litigation.
Specifically, our holding furthers the objectives of the Michigan
Arbitration Act (“MAA”),4 which is a strong and unequivocal
legislative expression of Michigan’s pro-arbitration public
policy. In accordance with the MAA’s endorsement of arbitration,
and ELCRA’s and PWDCRA’s silence on the matter, we will not
interfere with private parties’ contractual undertakings to
arbitrate these claims. 5
Our opinion is also consistent with the traditional
principles of freedom of contract in the employment context.6
Clearly, employers are free to condition employment on employer-
drafted wage and benefit structures and work rules so long as
they comply with applicable statutory and common law mandates.
Similarly, we hold that employers are also free to require
arbitration of claims as a condition of employment, provided that
the agreement complies with our holding here.
While our decision upholds the principle of freedom of
contract and advances the public policy which strongly favors
arbitration, it does so on two conditions generally accepted in
the common law: that the agreement waive no substantive rights,
and that it afford fair procedures. These conditions are rooted
in two critically important bases: (1) our Supreme Court’s
decision in Renny v Port Huron Hospital, 427 Mich 415; 398 NW2d
327 (1986), which held that agreements to arbitrate employment
claims must have fair procedures; and (2) Michigan and federal
decisions (generally persuasive authority in Michigan employment
discrimination cases) which uniformly hold that these arbitration
agreements may not waive any substantive rights or remedies
provided by the statute, and must provide for fair procedures.
With regard to procedural fairness, we will also detail below the
specific procedural safeguards which we believe are mandated by
Renny’s requirement of fair procedures.
Additionally, as we discuss below, contracts providing for
compulsory arbitration of discrimination claims must, of course,
meet the general rules on the validity of contracts. Although
other contractual issues raised in this case are beyond the scope
of this conflicts panel, we do hold, as a matter of law, that an
arbitration agreement which does not diminish the rights and
remedies guaranteed by the relevant employment discrimination
statute, and which is fair procedurally, is not an unenforceable
contract of adhesion.
After discussing the facts, we will analyze the issues in
the following sequence. We begin by discussing the prevailing
public policy favoring arbitration in both Michigan and federal
law. We then address how this pro-arbitration policy developed
to include claims arising under public interest statutes, and
trace that development to judicial approval of predispute
agreements to arbitrate statutory civil rights claims.
Thereafter, we examine the necessary conditions for enforcement
of these agreements: (1) a valid arbitration contract, (2) the
absence of statutory prohibition against arbitrating particular
statutory claims, and (3) the requirements of procedural
fairness. Finally, we set forth the specific requirements for
procedural fairness, and define the standard of review.
II
Facts and Proceedings
Defendant Ryan’s Family Steakhouse hired plaintiff as a
bread maker in October, 1993. At the time he was hired,
plaintiff signed an arbitration agreement with Employment Dispute
Services, Inc. (“EDS”). The arbitration agreement provided, in
pertinent part:
Your potential Employer (“signatory company” or
“Company”) has entered into an agreement with
Employment Dispute Services, Inc. (EDS) to arbitrate
and resolve any and all employment-related disputes
between the Company’s employees (and job applicants)
and the Company. The following Agreement between You
and EDS is a “selection of forum” agreement by which
you agree that employment-related disputes between You
and the Company shall be resolved through arbitration.
Any arbitration matter shall be heard and decided under
the provisions and the authority of the Federal
Arbitration Act, 9 USC sec. 1, as applicable.
The purpose of this agreement is to provide You and the
Company a forum in which claims or disputes with the
Company and any other signatories may be resolved by
arbitration rather than litigation. This Agreement
does not restrict you from filing a claim or charge
with any state or federal agency, for example, Equal
Employment Opportunity Commission, state unemployment
agency, state workers’ compensation commission, where
applicable. Rather, the Agreement applies only to
State or Federal court proceedings.
While an employee with Ryan’s Steak House, plaintiff sued
defendants in circuit court for race discrimination under ELCRA
and handicap discrimination under the PWDCRA (then known as the
Michigan Handicappers’ Civil Rights Act). (Plaintiff alleges
that he suffers from epilepsy and cognitive defects resulting
from a head injury.) Plaintiff made a variety of allegations
relating to discrimination in the terms of his employment.
Plaintiff subsequently resigned his employment, and amended his
complaint to include a charge of constructive discharge.
Plaintiff also raised a common-law claim of intentional
infliction of emotional distress.
Defendants moved for summary disposition pursuant to MCR
2.116(C)(7) (agreement to arbitrate) based upon the signed
arbitration agreement. After ruling that plaintiff had failed to
establish that he was incompetent to understand the agreement he
had signed, the trial court granted defendants’ motion.7
Plaintiff appealed. Meanwhile, a majority of a panel of this
Court decided in Rushton, supra, that agreements to arbitrate
employment-related discrimination claims were unenforceable as a
matter of public policy. A panel of this Court therefore
reversed the trial court because it was obligated to follow
Rushton under MCR 2.715(H)(1). Rembert v Ryan Family Steak
House, 226 Mich App 821; 575 NW2d 287 (1997) (“Rembert I”). The
Rembert I panel opined that it reversed the trial court only
because it was obligated to follow Rushton, and that it would
have held otherwise if free to do so. The Court thereby invoked
the conflicts panel provision under MCR 7.215(H). Pursuant to MCR
7.215(H), Rembert I was vacated, 226 Mich App 821, and this
special conflicts panel was convened to resolve the conflict.
III
Analysis
A.
Michigan and Federal Law Endorse Arbitration
(1) Michigan Common Law and Statutory Law Strongly Favor
Arbitration
Our legislature has expressed a strong public policy
favoring private voluntary arbitration, and our courts have
historically enforced agreements to arbitrate disputes. As early
as the nineteenth century, our Supreme Court held that “ a parol
submission to arbitration is good at common law, and is not
forbidden by any statute. . . . If [the parties submitted their
agreement to a common arbiter], it would be a valid award”. Cady
v Walker, 62 Mich 157, 158; 28 NW 805 (1886). See also Hoste v
Dalton, 137 Mich 522, 526; 100 NW 750 (1904) (rejecting various
arguments against enforcement of arbitration) and City of Detroit
v A W Kutsche & Co, 309 Mich 700, 703; 16 NW2d 128 (1944), “
[t]he general policy of this State is favorable to arbitration .
. . [i]f parties desire arbitration, courts should encourage
them”).
Judicial approval of arbitration has broadened and
strengthened in recent decades. This Court stated in E E Tripp
Excavating Contractor, Inc v Jackson County, 60 Mich App 221, 246-
247; 230 NW2d 556 (1975) (emphasis supplied):
[t]he heavily case-loaded courts are no longer jealous
of their jurisdiction. Where the parties, by a fair
agreement, have adopted a speedy and inexpensive means
by which to have their disagreements adjusted, we see
no public policy reasons for the courts to stand in
their way. On the contrary we have a clear expression
of public policy in the legislative enactments which
provide for statutory arbitration.
Judicial approbation of arbitration has grown and now applies to
many fields. For example, in the important area of medical
malpractice, our Court, in Cox v D’Addario, 225 Mich App 113, 129-
130; 570 NW2d 287 (1997), upheld an arbitration agreement as
valid under Michigan’s medical malpractice act because “ the
public policy of this state favors the enforcement of valid
arbitration agreements”. Further, in Moss v Dep’t of Mental
Health, 159 Mich App 257, 264; 406 NW2d 203 (1987), involving
statutory and contract rights of mental health provider
employees, our Court held that arbitration was not an
“unconstitutional intrusion upon the powers of the judiciary”,
but rather is a “well-established mechanism for dispute
resolution which is highly favored by the courts”. In FJ Siller
& Co v City of Hart, 400 Mich 578, 581; 255 NW2d 347 (1977), our
Supreme Court declined to interpret an agreement to arbitrate a
construction contract dispute as meaning that arbitration was
merely a “condition precedent” to litigation. Id. at 581-582.
In so holding, the Court made the broad statement that “the
parties’ intent regarding the finality of arbitration should be
ascertained by the usual rules of interpretation and given
effect”. In Chippewa Valley Schools v Hill, 62 Mich App 116; 233
NW2d 208 (1975), involving a public employee’s right to pregnancy
leave, the Court declared that “[d]oubt should be resolved in
favor of arbitration. The burden is on the party seeking to show
nonarbitrability”. Indeed, this Court has upheld arbitration
even in the highly sensitive area of child custody disputes.
Dick v Dick, 210 Mich App 576, 587-588; 534 NW2d 185 (1995). The
Court found “no clear prohibition in case law, court rule, or
statute against the use of binding arbitration in the resolution
of custody disputes” and held that “[b]inding arbitration is an
acceptable and appropriate method of dispute resolution in cases
where the parties agree to it.” Id. at 588.
Following federal precedent (discussed in detail, infra),
Michigan law has upheld predispute agreements to arbitrate
statutory claims, Scanlon v P & J Enterprises, Inc, 182 Mich App
347; 451 NW2d 616 (1990), provided, of course, that the
“agreement to arbitrate does not diminish the impact of the law”.
Mid East Transcontinental, Inc v Onion Crock, Inc, 114 Mich App
57, 59; 318 NW2d 604 (1982).
Further, and most importantly for our analysis, our courts
have upheld arbitration agreements in the employment context.
Moss, supra, Chippewa Valley Schools, supra. Our Supreme Court
recently held that employers who establish individual just-cause
employment contracts with their employees can require arbitration
of employment claims arising out of the employment contract.
Renny, supra. Since Renny, our courts have routinely held that
just-cause employers can require employees to challenge breaches
of just-cause employment through arbitration or other grievance
procedures. Carlson v Hutzel Corporation of Michigan, 183 Mich
App 508, 513; 455 NW2d 335 (1990), Dahlman v Oakland University,
172 Mich App 502; 432 NW2d 304 (1988). Clearly then, Michigan
jurisprudence favors arbitration and the employment context is no
exception. To be sure, our courts, and others, have cautioned
that certain safeguards are necessary, particularly in connection
with arbitration of statutory (as opposed to private) claims, but
we will address this aspect in due course.
Before analyzing our legislature’s strong endorsement of
arbitration, we will answer plaintiff’s contention that
Heurtebise v Reliable Business Computers, 452 Mich 405; 550 NW2d
243, stands as a repudiation of our state’s public policy
favoring arbitration. A unanimous Supreme Court held in
Heurtebise that the employee handbook, which purportedly
established compulsory arbitration, was not, in fact, a binding
contract for reasons unrelated to arbitration. Therefore, the
remaining question—whether the handbook would have violated
public policy if, in fact, it had been a binding contract—was
moot. Nonetheless, a minority of the court expressed the opinion
that ELCRA voided the arbitration agreement (contained in the
handbook) as a matter of public policy. However, statements in a
minority opinion are obviously insufficient to undermine our
state’s historical public policy favoring arbitration.
Furthermore, the Heurtebise minority apparently did not consider,
as we do here, whether arbitration agreements would be acceptable
if written to preserve all substantive rights and remedies under
the civil rights statutes, and to comport with the “fair
procedure” requirement of Renny, supra. We therefore find
nothing in Michigan’s case law which dissuades us from approving
arbitration agreements in the employment discrimination context.
On the contrary, the consistent and strong common-law endorsement
of arbitration reinforces our conclusion that these agreements
are valid, and consistent with Michigan public policy.
Michigan statutory law further reinforces this conclusion.
Unquestionably, public policy pronouncements of the Michigan
legislature, enacted as statutes, are binding on this Court.
International Recovery Systems, Inc v Gabler, 208 Mich App 49,
53; 527 NW2d 20 (1994), citing Lieberthal v Glens Falls
Indemnity Co, 316 Mich 37, 40; 24 NW2d 547 (1946). Our
legislature significantly advanced the public policy favoring
arbitration in 1961 when it enacted the Michigan Arbitration Act,
(“MAA”), MCL 600.5001 et seq.; MSA 27A.5001, et seq. This
statute, patterned on the Uniform Arbitration Act, is a strong
and unequivocal endorsement of binding arbitration agreements:
(1) Parties. All persons, except infants and
persons of unsound mind, may, by an instrument in
writing, submit to the decision of 1 or more
arbitrators, any controversy existing between them,
which might be the subject of a civil action, except as
herein otherwise provided, and may, in such submission,
agree that a judgment of any circuit court shall be
rendered upon the award made pursuant to such
submission.
(2) Enforcement; rescission. A provision in a
written contract to settle by arbitration under this
chapter, a controversy thereafter arising between the
parties to the contract, with relation thereto, and in
which it is agreed that a judgment of any circuit court
may be rendered upon the award made pursuant to such
agreement, shall be valid, enforceable and irrevocable
save upon such grounds as exist at law or in equity for
the rescission or revocation of any contract. Such an
agreement shall stand as a submission to arbitration of
any controversy arising under said contract not
expressly exempt from arbitration by the terms of the
contract. Any arbitration had in pursuance of such
agreement shall proceed and the award reached thereby
shall be enforced under this chapter.
(3) Collective labor contracts excepted. The
provisions of this chapter shall not apply to
collective contracts between employers and employees or
associations of employees in respect to terms or
conditions of employment.
“The MAA evidences Michigan’s strong public policy favoring
arbitration.” Grazia v Sanchez, 199 Mich App 582, 584; 502 NW2d
751 (1993) (citing Marciniak v Amid, 162 Mich App 71, 76; 412
NW2d 248 [1987]). For example, Justice Taylor correctly observed
in his dissent in Rushton:
This act allows predispute contracts to arbitrate and
only excepts collective bargaining and certain real
estate disputes from its purview. . . . Because the
act allows predispute agreements to arbitrate civil
rights claims, it establishes Michigan’s public policy
concerning this issue. Obviously, if the Legislature
wanted to preclude predispute agreements to arbitrate
civil rights claims, it would have excluded such claims
by name, just as it excluded collective bargaining
agreements and certain real estate claims. The express
exclusion of some claims implies inclusion of those not
mentioned. . . . Therefore, for this reason also,
there is no justification for this Court to substitute
its judgment for that of the contracting parties in
declaring the parties’ predispute agreement to
arbitrate invalid. [Id. at 174-175.]
As the foregoing review of Michigan law makes clear, our
legislature and our courts have strongly endorsed arbitration as
an inexpensive and expeditious alternative to litigation.
Accordingly, the question which naturally calls for close
examination is whether, under Michigan law, this overwhelming
authority favoring arbitration should apply with equal force to
statutory employment discrimination claims. In analyzing this
question we will first review the historical development of
statutory claims under federal law and then under Michigan law.
(2) Federal Law Strongly Favors Arbitration
The Federal Arbitration Act (“FAA”), 9 USC 1 et seq.,
provides, in pertinent part:
A written provision in any maritime transaction or
a contract evidencing a transaction involving commerce
to settle by arbitration a controversy thereafter
arising out of such contract or transaction, or the
refusal to perform the whole or any part thereof, or an
agreement in writing to submit to arbitration an
existing controversy arising out of such a contract,
transaction, or refusal, shall be valid, irrevocable,
and enforceable, save upon such grounds as exist at law
or in equity for the revocation of any contract. [9
USC 2.]
Obviously, this statute expresses a strong federal policy in
favor of arbitration.8 As the following discussion will reveal,
cases interpreting the FAA have continued to strengthen this pro-
arbitration policy, both for statutory claims in general and
statutory employment discrimination claims in particular.9
(3) Arbitration of Statutory Claims and the Mitsubishi Trilogy
(a) Federal Recognition of Arbitrability of Statutory Claims
Opponents of arbitration in this case, as elsewhere,
generally acknowledge the public policy favoring arbitration, but
claim that it ought not apply to claims arising under public
interest statutes such as civil rights statutes. They argue that
the public policy advanced by the statutes would be undermined if
these disputes were addressed in the relatively private forum of
arbitration. These very arguments were thoroughly considered and
rejected by the United States Supreme Court in a trio of cases
known as the “Mitsubishi Trilogy” 10 and, later, in Gilmer v
Interstate/Johnson Lane Corporation, 500 US 20; 111 S Ct 1647;
114 L Ed 2d 26 (1991). Although initially reluctant to endorse
predispute arbitration agreements of statutory claims, federal
law has long since strongly endorsed arbitration of statutory
claims.
Wilko v Swan, 346 US 427; 74 S Ct 182; 98 L Ed 168 (1953),
is representative of the initial skepticism toward arbitration.
There, the United States Supreme Court held that predispute
agreements to arbitrate claims arising under the Securities Act
of 193311 (“Securities Act”) were void under Section 14 of the
Securities Act, which nullified stipulations to waive compliance
with the Securities Act. Like the opponents of arbitration here,
the Court in Wilko equated a waiver of a judicial forum with a
waiver of compliance with the substantive provisions of the
statute.
Wilko has since been overruled, and its entire rationale has
been thoroughly discredited and unequivocally rendered obsolete
by the “Mitsubishi Trilogy”. In this Trilogy, the Supreme Court
repudiated its former characterization of arbitration as a second-
rate forum in which statutory rights are necessarily diminished.
Instead, the Court recognized arbitration as an efficacious means
for parties to enforce their statutory rights, and held that
parties who had agreed to arbitrate would be bound by those
agreements. Mitsubishi Motors v Soler Chrysler-Plymouth, 473 US
614; 105 S Ct 3346; 87 L Ed 2d 444 (1985), Shearson/American
Express, Inc. v McMahon, 482 US 220; 107 S Ct. 2332; 96 L Ed 2d
185 (1987), and Rodriguez de Quijas v Shearson/American Express,
Inc, 490 US 477; 109 S Ct 1917; 104 L Ed 2d 526 (1989). In
Mitsubishi, the Court stated that “we are well past the time when
judicial suspicion of the desirability of arbitration and of the
competence of arbitral tribunals inhibited the development of
arbitration as an alternative means of dispute resolution”. Id.
at 628. Accordingly, the Court upheld the federal public policy
favoring arbitration, applying it to statutory claims under
statutes which prohibited any contractual waiver of the statutory
rights. Id. The Court’s holdings were largely based on the FAA,
which, like the MAA, broadly sanctioned agreements to arbitrate
without excepting statutory claims: “we find no warrant in the
[Federal] Arbitration Act for implying in every contract within
its ken a presumption against arbitration of statutory claims.”
Id. at 625. Citing the “liberal federal policy favoring
arbitration agreements”, the Court concluded that there was “no
reason to depart from these guidelines where a party bound by an
arbitration agreement raises claims founded on statutory rights.”
Id. at 626.
In addition to strongly endorsing arbitration of statutorily
based claims, the Supreme Court also carefully considered and
rejected the many arguments against arbitration raised by
plaintiff and amici here. Most relevant for our purposes was the
argument that the persons protected by these statutes would
necessarily be harmed if required to pursue their rights in
arbitration rather than in court. Just as plaintiff in the
instant case argues that compulsory arbitration will inevitably
compromise the objectives of ELCRA and PWDCRA, the plaintiffs in
the Mitsubishi cases also argued that the objectives of the
pertinent public interest statutes12 would be seriously
jeopardized if those claimants were held bound by predispute
arbitration agreements. In each instance, after careful
analysis, the Court concluded that arbitration need not undermine
the public policy behind these statutes. In Mitsubishi, the
Court stated that “concern for statutorily protected classes
provides no reason to color the lens through which the
arbitration clause is read”. Id., 628. In McMahon, supra,
involving the Racketeer Influenced Corrupt Organizations Act
(“RICO”) the Court commented that RICO’s emphasis is on
providing redress for victims, and arbitration will competently
serve that emphasis. Id., 240-241. And in Rodriguez, supra, the
Court stated that the “[arbitration] avenue of relief is in
harmony with the Securities Act’s concern to protect buyers of
securities”. Id., 484.
Most importantly for our purposes, the Court roundly
dismissed the suggestion that a waiver of the judicial forum
means a waiver of statutory rights: “By agreeing to arbitrate a
statutory claim, a party does not forgo the substantive rights
afforded by the statute; it only submits to their resolution in
an arbitral, rather than a judicial forum.” Mitsubishi, 628
(emphasis supplied). In McMahon, supra, and Rodriguez, supra,
the plaintiffs argued that the predispute arbitration agreements
were void under the two securities statutes’ provisions
prohibiting stipulations to waive compliance with the statutes.13
The Court rejected this argument because the arbitration
agreement did not, in fact, waive compliance with either statute.
McMahon, 234; Rodriguez, 480. As for public policy and RICO, the
McMahon Court stated that “there is nothing in the text of the
RICO statute that even arguably evinces congressional intent to
exclude civil RICO claims from the dictates of the [Federal]
Arbitration Act.” Id. at 238. The Court would neither infer an
anti-arbitration injunction from the securities statutes’
prohibition of stipulations to waive compliance, nor would it
infer an anti-arbitration prohibition from RICO.
Also, like plaintiff and amici here, plaintiffs in the
Mitsubishi cases argued that while arbitration of statutory
claims would serve the compensatory goals of the statutes,
arbitration would undermine their deterrent purpose. In
response, the Court in Mitsubishi reasoned that “so long as the
prospective litigant may effectively vindicate its statutory
cause of action in the arbitral forum, the statute will continue
to serve both its remedial and deterrent function.” Id. at 637.
The McMahon Court held that these principles applied to RICO as
well. Id. at 240-241.14
The Court also rejected the rather questionable argument
that arbitrators are insufficiently equipped to handle legally
complex antitrust claims. Mitsubishi, supra at 633-634. Also,
the Court held (as we do) that judicial review of arbitration
awards, albeit limited, was nonetheless sufficient to ensure
compliance with the statutory requirements. Id. at 636-637.15
In each of the Mitsubishi Trilogy cases, the Supreme Court
concluded that the broad provisions of the FAA, coupled with the
public policy favoring arbitration, mandated enforcement of the
arbitration agreements. Accordingly, the Court held that if the
parties had agreed to arbitrate statutory claims, the agreement
should be enforced unless the relevant statute prohibited
arbitration or the agreement foreclosed effective vindication of
statutory rights. Mitsubishi, 628.
(b) Michigan Application of the Mitsubishi Trilogy
This Court adopted the Mitsubishi rationale in Scanlon, 182
Mich App 347. At issue in Scanlon was whether a franchisee, who
had executed a predispute arbitration agreement with the
franchisor, would be required to arbitrate a claim arising under
the Michigan Franchise Investment Law.16 Citing the Mitsubishi
Trilogy, the Court held that “[a]ny claim the parties have agreed
to arbitrate, including a statutory claim, is a proper subject of
arbitration under substantive federal law unless Congress has
specifically excepted the issue from arbitration.” Id., 350
(emphasis supplied).
Three years before the Supreme Court decided Mitsubishi,
this Court had already rejected the rationale of Wilko and
enforced a predispute agreement to arbitrate a statutory claim
arising under the Franchise Investment Law. In Mid East
Transcontinental, 114 Mich App 59, the Court held:
We do not find the rationale employed by the Court
in Wilko to be applicable under the Franchise
Investment Law. By agreeing to arbitrate, the
franchise holder does not surrender any advantage
derived exclusively from the Franchise Investment Law.
Where an agreement to arbitrate does not diminish the
impact of the law, we see no reason to limit the
declared policy favoring the resolution of disputes by
arbitration.
Our Court thus anticipated the holding in Mitsubishi by upholding
an agreement to arbitrate statutory claims provided that the
arbitration caused no detriment to substantive rights. Michigan
law is therefore entirely consistent with Mitsubishi.
In sum, in favoring arbitration, Mitsubishi’s basic
rationale, like ours, is two fold: first, the Court endorsed the
principle that an agreement to arbitrate a statutory claim does
not constitute waiver of substantive rights. 17 Id. at 628.
Second, the Court recognized that a statute will serve both its
remedial and deterrent functions so long as the prospective
litigant can vindicate his statutory cause of action in the
arbitral forum. Id. at 637.
With these general principles established regarding
arbitration of statutory claims, we proceed to the question of
how the United States Supreme Court applied its rulings in the
Mitsubishi Trilogy to predispute agreements to arbitrate the type
of claim we deal with here—statutory employment discrimination
claims.
(4) Public Policy Favoring Arbitration of Statutory Civil Rights
Claims
(a) Gilmer v Interstate/Johnson Lane Corporation
Relying on Alexander v Gardner-Denver, 415 US 36; 94 S Ct
1011; 39 L Ed 2d 147 (1974), plaintiff and amici argue that the
strong national and state pro-arbitration policy should not
extend to statutory employment discrimination claims. In Gardner-
Denver—a case decided eleven years prior to Mitsubishi—the
Supreme Court held that a unionized employee’s earlier exercise
of the compulsory arbitration provision in a collective
bargaining agreement did not preclude him from later pursuing his
Title VII discrimination claim in a judicial forum. There, the
Court expressed its concern that in the collective bargaining
context, the employee asserting the discrimination claim might be
harmed by waiving the litigation forum.18
The critical distinction between the instant case and
Gardner-Denver is that the arbitration agreement in Gardner-
Denver arose out of a collective bargaining agreement, rather
than an individual employment contract. This distinction became
salient in Gilmer v Interstate/Johnson Lane Corporation, 500 US
20, where the Supreme Court significantly narrowed the scope of
Gardner-Denver. In Gilmer, the Court reinforced the presumption
in favor of arbitration and reiterated its “healthy regard for
the federal policy favoring arbitration” where, as here, the case
involved private arbitration of an individual federal employment
discrimination claim. Id. at 26.
In Gilmer, the Court approved a compulsory arbitration
agreement as applied to the plaintiff’s federal Age
Discrimination in Employment Act (ADEA)19 claim. At issue was
whether plaintiff would be held bound by the agreement to
arbitrate his ADEA claim. The Court held that the factors in
Gardner-Denver which militated against collective bargaining
arbitration of civil rights claims were not applicable in the
individual employment contract context:
There are several important distinctions between
the Gardner-Denver line of cases and the case before
us. First, those cases did not involve the issue of
the enforceability of an agreement to arbitrate
statutory claims. Rather, they involved the quite
different issue of whether arbitration of contract-
based claims precluded subsequent judicial resolution
of statutory claims. Since the employees there had not
agreed to arbitrate their statutory claims, and the
labor arbitrators were not authorized to resolve such
claims, the arbitration in those cases understandably
was held not to preclude subsequent statutory actions.
[Id. at 35.]
The Gilmer Court also noted that the Gardner-Denver Court was
concerned that collective bargaining arbitration of civil rights
claims might be hampered by competing interests:
Second, because the arbitration in those cases occurred
in the context of a collective-bargaining agreement,
the claimants there were represented by their unions in
the arbitration proceedings. An important concern
therefore was the tension between collective
representation and individual statutory rights, a
concern not applicable in the present case. [Id.
(emphasis supplied).]
Lastly, the Gilmer Court noted that Gardner-Denver and other
collective bargaining cases “were not decided under the FAA,
which . . . reflects a ‘liberal federal policy favoring
arbitration agreements.’” Id. at 35 (quoting Mitsubishi, supra,
625).
As it did in the Mitsubishi Trilogy, the Gilmer Court
squarely addressed the objections that the plaintiff raised to
the validity of predispute agreements to arbitrate statutory
employment discrimination claims. Like plaintiff here, the
plaintiff in Gilmer questioned whether an employment
discrimination plaintiff could obtain a full and fair
adjudication of his claim in arbitration. The Gilmer Court’s
answer is highly pertinent here, where plaintiff and amici raise
many of the same concerns.
First, like plaintiff here, the Gilmer plaintiff argued that
the social policies advanced by the civil rights statute would
inevitably be thwarted if wronged employees were required to
arbitrate their claims. The Court found no “inherent
inconsistency” between the ADEA policies and arbitration. Id. at
27. The Court agreed with the plaintiff’s contention that
arbitration focuses on “specific disputes between the parties . .
.” rather than on broad social issues, but also noted that this
is true in litigation. The Court concluded that this limitation
does not prevent either arbitration or litigation from furthering
“broader social purposes.” Id. at 27-28 (quoting Mitsubishi,
supra). We agree with this conclusion.
Second, the Gilmer Court found no inconsistency between
arbitration and the administrative role of the Equal Employment
Opportunity Commission (EEOC), because the employee bound by
arbitration agreement is still free, as plaintiff is here, to
file administrative charges—there with the EEOC, here with the
Michigan Department of Civil Rights (MDCR). 20 Id., 28.
Third, the Gilmer Court also rejected the argument that
compulsory arbitration wrongly deprived claimants of the judicial
forum Congress provided by enacting the ADEA. The Court
concluded that Congress could have precluded compulsory
arbitration when it passed the ADEA, but did not. Id. at 29.
Similarly, neither the language of ELCRA and PWDCRA nor their
legislative history exhibit any bar to agreements to arbitrate
ELCRA and PWDCRA claims. We discuss this further, infra, Section
(III) (C)(2)(b).
The plaintiff in Gilmer also raised a “host of challenges”
regarding “the adequacy of arbitration procedures” to adjudicate
statutory claims. Importantly, the Court responded that:
Such generalized attacks on arbitration “res[t] on
suspicion of arbitration as a method of weakening the
protections afforded in the substantive law to would-be
complainants,” and as such, they are '“far out of step
with our current strong endorsement of the federal
statutes favoring this method of resolving disputes.”
[Gilmer at 1654 (quoting Rodriguez, supra at 481).]
The Gilmer Court proceeded to address the specific objections the
parties raised to arbitration procedures. We will recount these
issues in detail, because we believe they are instructive as to
formulating arbitration agreements and procedures which are fair.
The plaintiff complained of potential arbitral bias against
employees. Id. at 30. The Court “’decline[d] to indulge the
presumption that the parties and arbitral body conducting a
proceeding will be unable or unwilling to retain competent,
conscientious and impartial arbitrators’” Id. (quoting
Mitsubishi, 634). The Court analyzed this issue further,
however, and was satisfied that NYSE arbitration rules and the
FAA provided sufficient safeguards against potential bias. NYSE
rules included access to information on the arbitrators’
backgrounds, one peremptory challenge per party and unlimited
challenges for cause. Id. at 30. Also, as an ultimate safeguard,
the FAA, like MCR 3.602(J)(1)(b), authorized courts to overturn
arbitration decisions on evidence of partiality or corruption.21
We would also note that aggrieved employees have the right to
counsel, MCR 3.602(G), and, therefore, can rely on counsel to be
vigilant in addressing any potential arbitral bias.
Plaintiff in Gilmer complained that he would be hindered by
arbitration discovery, which was more limited than discovery in
federal courts. The Court found, however, that NYSE discovery
provisions, which allowed for “document production, information
requests, depositions and subpoenas”, were sufficient to prove a
discrimination claim. Id., 31. Looking to the Mitsubishi
Trilogy, the Court reasoned that if arbitration discovery was
sufficient for RICO and antitrust claims, it must also be
sufficient for discrimination claims. Finally, the Court stated
that “an important counterweight to the reduced discovery in NYSE
arbitration is that arbitrators are not bound by the rules of
evidence.” Id.
The Gilmer plaintiff further argued that arbitration was
inadequate because arbitrators are not required to issue written
opinions. The Court dismissed this argument because the NYSE
rules required “that all arbitration awards be in writing, and
that the awards contain the names of the parties, a summary of
the issues in controversy, and a description of the award
issued”. Id. at 31-32. The Court stated that the written
opinions would serve to alert the public of discrimination
disputes and their outcomes, allow for effective appellate review
of arbitral decisions, and advance development of the law. Id.
Finally, the plaintiff in Gilmer argued that arbitration
procedures were inadequate to enforce the ADEA because they did
not permit equitable relief. The Court dismissed this argument
because the NYSE rules did not, in fact, restrict the
arbitrator’s power to fashion equitable relief.
In summary, Gilmer extended the Mitsubishi line of authority
to predispute agreements to arbitrate statutory employment
discrimination claims. Consistent with Mitsubishi, Gilmer
further reinforced the public policy favoring arbitration and
found no reason why it could not be reconciled with the public
policy of the civil rights statutes. It imposed on the party
seeking to avoid arbitration the burden of rebutting the
presumption that arbitration agreements are enforceable. It
declined to find an implicit disapproval of arbitration
agreements in the civil rights statutes, and upheld the
arbitration agreement in the absence of any clear statutory
prohibition. However, rather than granting carte blanche
approval of any predispute employment arbitration agreement, it
gave careful consideration to the plaintiff’s contentions of what
he saw as weaknesses in the arbitration process. The Gilmer
Court upheld the agreement because it determined that the
plaintiff waived no rights and that the arbitral procedures were
fair.
(b) Gilmer Progeny
Since the Court's landmark decision in Gilmer, the vast
majority of federal and state courts which have addressed this
issue have followed Gilmer and held that statutory employment
discrimination claims are subject to predispute compulsory
arbitration by way of employment contracts.22 Collectively, these
decisions have held that Gilmer applies not only to the ADEA, but
also to Title VII, state employment discrimination statutes, and
other federal employment statutes. We note at least nine federal
Circuit Courts of Appeal which have so ruled: McWilliams v
Logicon, Inc, 143 F3d 573, 576 (CA 10, 1998) (plaintiffs claims
under Americans with Disabilities Act23 are arbitrable because ADA
does not prohibit arbitration, but actually encourages it); Cole
v Burns International Security Services, 323 US App DC 133; 105
F3d 1465 (1997) (discussed, infra); O’Neil v Hilton Head
Hospital, 115 F3d 272 (CA 4, 1997) (claim under Family and
Medical Leave Act must go to arbitration); Patterson v Tenet
Healthcare, Inc, 113 F3d 832 (CA 8, 1997) (state and federal
employment claims subjected to compulsory arbitration agreement);
Great Western Mortgage Corporation v Peacock, 110 F3d 222 (CA 3,
1997), (FAA required enforcement of agreement to waive state law
right to judicial forum for state sexual harassment claims);
Rojas v TK Communications, Inc, 87 F3d 745, 747-748 (CA 5, 1996)
(enforceable arbitration agreement covered Title VII claims);
Matthews v Rollins Hudig Hall Company, 72 F3d 50, 54 (CA 7, 1995)
(employee required to arbitrate ADEA claim); Mago v Shearson
Lehman Hutton Inc, 956 F2d 932 (CA 9, 1992) (“privately
negotiated” employment agreement required plaintiff to arbitrate
her Title VII sex discrimination and harassment claims) (but see
Duffield v Robertson Stephens & Company, 144 F3d 1182 [CA 9,
1998], reaching a different result under the Civil Rights Act of
1991); Alford v Dean Witter Reynolds, Inc, 939 F2d 229, 230 (CA
5, 1991) (Title VII claims can be subjected to compulsory
arbitration agreement in securities registration); Willis v Dean
Witter Reynolds, Inc, 948 F2d 305, 307 (CA 6, 1991) (under
Gilmer, arbitration agreement in securities registration
enforceable as to Title VII claims).
Federal district courts in Michigan have also complied with
this precedent and adopted Gilmer’s reasoning. Prudential
Insurance Company of America v Shammas, 865 F Supp 429 (WD Mich,
1993) (arbitration agreement in securities registration required
plaintiff to arbitrate his ELCRA claims); and Beauchamp v Great
West Life Assurance Company, 918 F Supp 1091 (ED Mich, 1996)
(court enforced arbitration clause in securities registration
form and compelled arbitration of age and sex discrimination
claims).
Additionally, at least six states have followed Gilmer. See,
Freeman v Minolta Business Systems, Inc, 699 So2d 1182 (La App,
1997) (under FAA, court compelled the plaintiff to submit federal
and state sexual harassment claims to arbitration); Alamo Rent-A-
Car, Inc v Galarza, 306 NJ Super 384; 703 A2d 961, 963 (1997)
(employer and employee can prospectively agree to arbitrate
statutory claims under state civil rights statute); Brown v KFC
National Management Company, 82 Hawaii 226; 921 P2d 146 (1996)
(arbitration provision enforceable as to state civil rights
claim); Hill v Hilliard, 945 SW2d 948 (Ky App, 1996) (sexual
harassment and retaliation claims arose from employment and were
subject to compulsory arbitration in employment contract, but
related common law tort claims did not arise from employment and
could therefore be litigated); Johnson v Piper Jaffray, Inc, 530
NW2d 790 (1995) (FAA preempts state civil rights statute to the
extent that state law voids arbitration agreement); and Fletcher
v Kidder, Peabody & Co, 81 NY2d 623; 619 NE2d 998, (1993),
(Gilmer required plaintiffs to arbitrate race and sex
discrimination claims under state law in accordance with
arbitration agreement in securities registration).24 Only a
minority of courts have resisted this trend toward upholding the
validity of arbitration agreements.25
Of all these post-Gilmer decisions, we believe Cole to be
the most instructive and the most significant because of its
comprehensive analysis of the conditions for an enforceable
arbitration agreement.26 Cole reviewed a trial court’s decision
to dismiss the plaintiff’s Title VII claims pursuant to the FAA
and the arbitration agreement in the plaintiff’s employment
contract. In Cole, the D.C. Circuit, like the Gilmer Court,
addressed and thoughtfully rejected the major objections to
arbitration as a method of adjudicating statutory employment
discrimination claims. The Cole court also emphasized the
features of the arbitration agreement in question, in order to
address the plaintiff’s contention that statutory rights would be
compromised by arbitration.
After carefully reviewing the important objections to
arbitration, id., 144-146, Chief Judge Edwards concluded that
“the Supreme Court now has made it clear that, as a general rule,
statutory claims are fully subject to binding arbitration . . .
.” Id., 146. The court then reviewed the arbitration agreement
in question and reiterated the rationale of Mitsubishi and Gilmer
in support of arbitration. Like Gilmer, Judge Edward’s opinion
carefully and thoroughly rejects the charge that arbitration is
inferior to litigation for the resolution of statutory employment
discrimination claims.
Further, Cole squarely answered the plaintiff’s contention
that an agreement may be so procedurally unfair that it
eviscerates the very rights guaranteed by the statute. The Cole
court emphasized—correctly in our view—that Gilmer “cannot be
read as holding that an arbitration agreement is enforceable no
matter what rights it waives or what burden it imposes.” Id. at
150. The reason is clear: if the arbitration agreement is
drafted in a way that effectively waives the plaintiff's
substantive rights or remedies or so structures the procedures as
to make it impossible for the plaintiff to “effectively vindicate
his statutory cause of action”, then the agreement would violate
the rationale and mandates of Mitsubishi, Gilmer, and, we
believe, Renny. Cole, 150. Reviewing the agreement in question,
the court held:
We believe that all of the factors addressed in
Gilmer are satisfied here. In particular, we note that
the arbitration arrangement (1) provides for neutral
arbitrators, (2) provides for more than minimal
discovery, (3) requires a written award, (4) provides
for all of the types of relief that would otherwise be
available in court, and (5) does not require employees
to pay either unreasonable costs or any arbitrators’
fees or expenses as a condition of access to the
arbitration forum. Thus, an employee who is made to
use arbitration as a condition of employment,
“effectively may vindicate [his or her] statutory cause
of action in the arbitral forum.” [Id., 150 (quoting
Gilmer, 500 US at 28.)]
The Cole court not only answered effectively the objections
to arbitration, it also emphasized the positive aspects of
arbitration. In concluding that arbitration can effectively
vindicate employees' statutory rights, the court in Cole quoted
the Dunlop Commission’s27 assessment of the comparative advantages
of arbitration over litigation:
[L]itigation has become a less-than-ideal method of
resolving employees' public law claims. As spelled out
in the Fact Finding Report, employees bringing public
law claims in court must endure long waiting periods as
governing agencies and the overburdened court system
struggle to find time to properly investigate and hear
the complaint. Moreover, the average profile of
employee litigants ... indicates that lower-wage
workers may not fare as well as higher-wage
professionals in the litigation system; lower-wage
workers are less able to afford the time required to
pursue a court complaint, and are less likely to
receive large monetary relief from juries. Finally,
the litigation model of dispute resolution seems to be
dominated by “ex-employee” complainants, indicating
that the litigation system is less useful to employees
who need redress for legitimate complaints, but also
wish to remain in their current jobs. [Id. at 156,
(quoting Commission on the Future of Worker-Management
Relations, Report and Recommendations, 30, emphasis
supplied.)]
The court also commented that arbitration “offers employees a
guarantee that there will be a hearing on the merits of their
claims,” a guarantee not found in litigation, “where relatively
few employees survive the procedural hurdles necessary to take a
case to trial in the federal courts.” Id, 156. The court
concluded that “it is perhaps misguided to mourn the Supreme
Court's endorsement of the arbitration of complex and important
public law claims.” Id.
Having found these advantages to arbitration, the Cole court
called upon arbitrators, as we do, to “step up to the challenges
presented by the resolution of statutory issues” and “be vigilant
to protect the important rights embodied in the laws entrusted to
their care.” Id. It also exhorted arbitrators, as we do, to
“actively ensure that the record is adequately developed and that
procedural fairness is provided.” The Cole opinion ended with a
warning, which we echo, that the courts will not permit
arbitration to degenerate into inadequate justice:
[A]ppointing agencies like AAA must be certain that
only persons who are able to satisfy these criteria are
added to arbitrator-panel lists. For if arbitrators
and agencies do not meet these obligations, the courts
will have no choice but to intercede. [Id. at 156
(emphasis supplied).]
In light of this history of Michigan and federal statutes and
case law which strongly favors arbitration, we return to the
three prerequisites to a valid agreement to arbitrate civil
rights claims under Michigan law.
B.
Conditions for Enforceable Arbitration Agreement
We conclude, from the state and federal authorities reviewed
thus far, that predispute agreements to arbitrate statutory
employment discrimination claims are valid if: (1) the parties
have agreed to arbitrate the claims (there must be a valid,
binding, contract covering the civil rights claims); (2) the
statute itself does not prohibit such agreements; and (3) the
arbitration agreement does not waive the substantive rights and
remedies of the statute and the arbitration procedures are fair
so that the employee may effectively vindicate his statutory
rights.
(1) Requirement of Valid Contract
Plaintiff and amici argue incorrectly that the contract in
question is an unenforceable adhesion contract as a matter of
law. Courts will not invalidate contracts as adhesion contracts
where the challenged provision is reasonable. Rehmann, Robson v
McMahan, 187 Mich App 36, 43-44; 466 NW2d 325 (1991); Ryoti v
Paine, Webber, Jackson & Curtis, Incorporated, 142 Mich App 805;
371 NW2d 454 (1985). Our decision requires arbitration
agreements to be reasonable by holding that the agreement must
not waive statutory rights and must be procedurally fair.
Therefore, if the arbitration agreement here satisfies these
conditions, it is reasonable as a matter of law and, therefore,
not an unenforceable adhesion contract. Accordingly, we remand
to the circuit court for findings as to the validity of the
contract consistent with our opinion. 28
(2) Neither the ELCRA nor the PWDCRA inhibit arbitration of
claims.
As we have seen in our discussion of the Mitsubishi Trilogy,
Gilmer, and Scanlon, 182 Mich App 347, the courts will not
preclude arbitration absent an express statutory prohibition.
Neither ELCRA nor PWDCRA contains such a provision. Section
803 of ELCRA, MCL 37.2803; MSA 3.548(803), which provides that
ELCRA “shall not be construed to diminish the right of a person
to direct or immediate legal or equitable remedies in the courts
of this state”, does not preclude arbitration agreements—a
conclusion erroneously reached in Rushton. Id., 164-165. We
agree with Justice Taylor’s dissent in Rushton that Section 803
merely provides that claimants under ELCRA, unlike Title VII, are
not obliged to exhaust administrative remedies with the MDCR, but
may proceed directly to court. Id., 173-174 Section 803 is no
more a constraint against enforcement of an arbitration agreement
than was the contested provisions of the securities statutes in
McMahon and Rodriguez. This is also true of the parallel
provision in PWDCRA, MCL 37.1607; MSA 3.550(607). Of course,
our legislature could have drafted these statutes to preclude
predispute agreements to arbitrate civil rights employment
claims, just as it may amend these statutes to preclude
arbitration agreements. Because the legislature has not done so,
we will not infer that this was its intent.
Furthermore, the MAA gives broad approval to arbitration
agreements of all sorts, making express exceptions only for
collective labor contracts and certain real estate disputes.29 By
expressly including these two categories of contract, the MAA
implicitly excludes all other categories. We recognize the maxim
expression unius est exclusion alterius, i.e., “the express
mention in a statute of one thing implies the exclusion of other
similar things.” Bradley v Saranac Board of Education, 455 Mich
285, 298; 565 NW2d 650 (1997).
We therefore turn to the issue of fair arbitration
procedures.
(3) Procedural Fairness
As we have said, to be valid, predispute agreements to
arbitrate must not waive rights under the statute and the
procedures must be fair. Accordingly, because the validity and
enforceability of predispute arbitration agreements in the
employment discrimination context depends upon the employee’s
opportunity for “fair adjudication”, prudent employers should
give careful thought to the terms and procedures of their
arbitration agreements. Given the wide range of employment
situations, and the narrow scope of the question before this
conflicts panel, it would not be prudent for us to attempt to
exhaustively catalog all the circumstances in which arbitration
agreements will or will not satisfy our ruling.30 However, a
review of those cases which have approved arbitration of
statutory claims and a review of the authorities on arbitration
suggest basic elements that careful employers should include as
part of the arbitral process to ensure non-waiver and fairness.31
Generally, we note that the Renny and Cole courts, as well
as the Dunlop Commission, American Arbitration Association
(“AAA”) and other leading ADR organizations, suggest certain
baseline fundamentals to ensure fairness in an arbitral process
for discrimination claims.32 Furthermore, MCR 3.602 imposes
several fairness-related requirements on arbitrators.33
Accordingly, we hold that to satisfy Renny’s requirement of
fairness, and, where applicable, to satisfy MCR 3.602,
arbitration procedures must include the following:
(1) Clear notice to the employee that he is waiving the
right to adjudicate discrimination claims in a judicial forum and
opting instead to arbitrate these claims. Renny, 437.34
(2) The right to representation by counsel, MCR 3.602(G).
(3) A neutral arbitrator. MCR 3.602(J)(1)(b) provides that
arbitration awards shall be vacated if there was “evident
partiality by an arbitrator appointed as a neutral.”
Additionally, MCR 3.602(E)(1) requires that the arbitrator “be
sworn to hear and fairly consider the matters submitted and to
make a just award according to his or her best understanding.”
(4) Reasonable discovery. MCR 3.602(F)(2) contemplates
discovery by providing that the arbitrator may permit the taking
of depositions for use of evidence. Arbitrators also have
subpoena power pursuant to MCR 2.506. MCR 3.602(F)(1).
(5) A fair arbitral hearing. As stated above, MCR
3.602(E)(1) requires arbitrators to swear to hear and decide the
matter fairly. MCR 3.602(F) affords the arbitrator subpoena
powers, so that parties will be able to summon witnesses.
Unlike the Cole court, we will not include, among the
fairness requirements, a rule that the employer must pay the fees
of the arbitrator and arbitration service. Id., 151-154.
However, as a practical matter, claimants will have the
opportunity to shift these fees to the employer. MCR 3.602(M)
provides that “[t]he costs of the [arbitration] proceedings may
be taxed as in civil actions and, if provision for the fees and
expenses of the arbitrator has not been made in the award, the
court may allow compensation for the arbitrator’s services as it
deems just. The arbitrator’s compensation is a taxable cost in
the action.” Furthermore, both ELCRA and the MHCRA provide that
the court may award complainants reasonable attorney fees. MCL
37.2802; 37.1606(3); MSA 3.548(802); 3.550(606). Because under
our ruling arbitration agreements may not waive an employee’s
right or remedy under the statute, this statutory provision will
apply in full force to arbitration proceedings.
Just as employers should model their arbitration procedures
to survive challenges based on fairness, employers must also
anticipate that judicial review of arbitral awards will ensure
that statutory rights are not waived and procedures are fair. To
do this, it follows that judicial review here will be less
deferential to the arbitrator’s judgment than in the collective
bargaining context.35 Rather, we must look to our Supreme Court
rules and appellate decisions for the appropriate scope of
judicial review of arbitral awards of employment discrimination
claims.
As to judicial review of arbitral awards in general, our
Supreme Court has promulgated court rules for approving or
vacating awards. MCR 3.602(J)(1) provides that the reviewing
court is required to vacate an arbitration award if:
(a) the award was procured by corruption, fraud,
or other undue means;
(b) there was evident partiality by an arbitrator
appointed as a neutral, corruption of an arbitrator, or
misconduct prejudicing a party’s rights;
(c) the arbitrator exceeded his or her powers; or
(d) the arbitrator refused to postpone the hearing
on a showing of sufficient cause, refused to hear
evidence material to the controversy, or otherwise
conducted the hearing to prejudice substantially a
party’s rights. [Emphasis supplied.]
Furthermore, our courts have interpreted this court rule to mean
that certain errors of law by the arbitrator will invalidate the
arbitral award. For example, in Detroit Automobile Inter-
Insurance Exchange v Gavin, 416 Mich 407; 331 NW2d 416 (1982),
our Supreme Court held that an arbitrator exceeds her authority
if she makes a clear error of law:
If the appellate judiciary has any proper function
at all, it is to correct material error. In
determining whether to reduce to judgment the awards of
statutory arbitrators, one of the court’s functions,
perhaps its most important, is to determine whether the
award rests upon an error of law of such materiality
that it can be said that the arbitrators “exceeded
their powers”. Thus, in statutory arbitration, the
arbitrators are not free to ignore controlling
principles of law, either intentionally or
unintentionally, even with the consent of the parties,
and expect an ultimate judicial imprimatur as well.
Thus, in discharging their duty, arbitrators can
fairly be said to exceed their power whenever they act
beyond the material terms of the contract from which
they primarily draw their authority, or in
contravention of controlling principles of law. [Id.
at 433-434.]
After articulating its rationale, the Court set forth the
standard of review which we adopt here:
The character or seriousness of an error of law
which will invite judicial action to vacate an
arbitration award under the formula we announce today
must be error so material or so substantial as to have
governed the award, and but for which the award would
have been substantially otherwise. [Id., 443 (emphasis
supplied).]
This Court recently held that the Gavin standard of judicial
review applies to review of an arbitral award in a statutory
discrimination suit. In Collins v Blue Cross Blue Shield of
Michigan, 228 Mich App 560, 567; 579 Mich App 435 (1998), the
arbitrator determined that an employee who expressed homicidal
ideation regarding her supervisor was entitled to the protection
of disability discrimination statutes. This Court held that the
arbitration award should be vacated because the arbitrator
“committed an error of law” when he ruled that plaintiff was
disabled within the meaning of the statute instead of recognizing
that her homicidal ideation made her unqualified for the
position.36 Id. at 568.
Accordingly, we hold that a predispute agreement to
arbitrate a statutory employment discrimination claim will be
reviewed under the standard enunciated by our Supreme Court in
Gavin.37 Specifically, courts shall vacate arbitration awards in
statutory employment discrimination disputes when the
arbitrator’s legal error is “so material or so substantial as to
have governed the award, and but for which the award would have
been substantially otherwise.” Gavin, 443.
Finally, as a necessary corollary to our holding regarding
the standard of judicial review, we also hold that arbitral
awards must be in writing and contain findings of fact and
conclusions of law. Without such a written opinion, courts would
be unable to meaningfully apply the appropriate standard of
review.38
IV
CONCLUSION
We summarize our holding.
(1) Predispute agreements to arbitrate statutory employment
discrimination claims are valid so long as the employee does not
waive any rights or remedies under the statute39 and the arbitral
process is fair;
(2) to ensure that employees have a fair opportunity to
effectively vindicate statutory rights, the arbitration
procedures must include: (1) clear notice; (2) right to counsel;
(3) reasonable discovery; (4) a fair hearing; and (5) a neutral
arbitrator;
(3) if arbitral awards are challenged, the standard of
judicial review will be the standard articulated in Gavin, supra;
and
(4) to allow for sufficient review, arbitral awards must be
in writing and contain findings of fact and conclusions of law.
We therefore remand to the trial court to determine whether
plaintiff’s agreement is enforceable in light of our opinion.
Remanded. We do not retain jurisdiction.
/s/ Henry William Saad
/s/ Michael J. Kelly
/s/ Peter D. O'Connell
/s/ Hilda R. Gage
_______________________________
1 We use the term “predispute” arbitration agreement to
distinguish this type from an arbitration agreement that the
parties enter into after the dispute arises.
2 MCL 37.2101 et seq.; MSA 3.548(101) et seq..
3 MCL 37.1101 et seq.; MSA 3.550(101 et seq.
4 MCL 600.5001 et seq.; MSA 27A.5001 et seq.
5 In Section III.B.2. of this opinion, we discuss how neither the
ELCRA nor the PWDCRA prohibit predispute agreements to arbitrate
claims arising under these statutes.
6 For example, in Sands Appliance Services v Wilson, 231 Mich App
405; 587 NW2d 814 (1998), this Court recognized the “parties’
rights to make and enforce contracts specific to their needs and
circumstances”, specifically a contract in which the employee
agreed to reimburse his employer for job training.
7 On appeal, plaintiff raised issues relating to his allegation
of incompetence. We do not address these issues, as they are
beyond the scope of this special conflicts panel.
8 Defendants suggest that we resolve this issue by holding that
the arbitration contract is enforceable under the FAA, and that
the FAA preempts state law prohibiting arbitration. The United
States Supreme Court held in Southland Corp v Keating, 465 US 1;
104 S Ct 852; 79 L Ed 2d 1 (1984), that the FAA preempts state
law, and that state courts cannot apply state statutes that
invalidate arbitration agreements. We see no need to resolve
this question on the basis of FAA preemption. We find nothing in
the MAA, ELCRA, PWDCRA, or any other Michigan authority that
voids the arbitration agreement; hence there is nothing contrary
for the FAA to preempt.
9 National public policy has strongly evinced a long-standing
endorsement of arbitration in the employment context. The
Steelworkers trilogy established arbitration as the key means to
resolving collective bargaining agreements. United Steelworkers
v Enterprise Wheel & Car Corp, 363 US 593; 80 S Ct 1358; 4 L Ed
2d 1424 (1960); United Steelworkers v Warrior & Gulf Navigation
Co, 363 US 574; 80 S Ct 1347; 4 L Ed 2d 1409 (1960); United
Steelworkers v American Mfg Co, 363 US 564; 80 S Ct 1343; 4 L Ed
2d 1403 (1960). This trilogy of cases recognized that labor
arbitrators are uniquely positioned and qualified to resolve
disputes according to the parties’ particular needs (especially
the need to continue a productive working relationship), and that
arbitration is ideally suited to resolving disputes which arise
from workers’ collective labor contracts. Because arbitration of
individual civil rights claims may involve different arbitral
skills and analytical framework from those in the collective
bargaining context, we do not cite the Steelworkers Trilogy as a
model for arbitrating ELCRA and PWDCRA claims. However, we do
note that arbitration in the area of traditional labor law has
been a singular success.
10 Mitsubishi Motors v Soler Chrysler-Plymouth, 473 US 614; 105 S
Ct 3346; 87 L Ed 2d 444 (1985), Shearson/American Express, Inc. v
McMahon, 482 US 220, 107 S Ct. 2332, 96 L Ed 2d 185 (1987), and
Rodriguez de Quijas v Shearson/American Express, Inc, 490 US 477,
109 S Ct 1917, 104 L Ed 2d 526 (1989).
11 15 USC 77a et seq.
12 The pertinent statutes were as follows: in Mitsubishi, the
Sherman Antitrust Act, 15 USC 1 et seq.; in McMahon, the
Securities Act of 1933, supra and the Racketeer Influenced
Corrupt Organizations Act, 18 USC 19961 et seq; in Rodriguez, the
Securities Exchange Act of 1934, 15 USC 78j(b).
13 15 USC 77n; 15 USC 78cc(a).
14 In addition to the concerns discussed in this opinion, the
Mitsubishi cases involved concerns which are not relevant to the
instant case. In Mitsubishi, the Sherman claim was to be
submitted to an international arbitration panel, hence, the Court
had to consider whether the integrity of American law could be
upheld in an international forum. In McMahon and Rodriguez, the
Court considered whether arbitration would undermine the criminal
enforcement provisions of RICO and the securities statutes. The
Court’s decision to uphold arbitration even over these
considerations underscores the favored position of arbitration.
15 Judicial review of civil rights arbitration will be discussed
in greater detail, infra.
16 MCL 445.1501 et seq.; MSA 19.854(1) et seq.
17 The Gilmer Court’s position that arbitration need not curtail a
claimant’s substantive rights represents a complete reversal of
the Court's statement in Alexander v Gardner-Denver, 415 US 36;
94 S Ct 1011; 39 L Ed 2d 147 (1974) that “we have long
recognized that the choice of forum inevitably affects the scope
of the substantive right to be vindicated.” Id., 56 (1974)
(quoting United States Bulk Carriers, Inc v Arguelles, 400 US
351, 359-60; 91 S Ct 409; 27 L Ed 2d 456 (1971). For those who
believe juries are the key to huge awards, for better or worse,
the statement quoting from Arguelles remains at the heart of the
debate!
18 Similarly, in Betty v Brooks & Perkins, 446 Mich 270; 521 NW2d
518 (1994), our Supreme Court held that statutory civil rights,
even when incorporated into a collective bargaining agreement,
are not subject to preemption under § 301 of the Labor Management
Relations Act, 29 USC 185(a) (which preempts state court
jurisdiction over actions for breach of collective bargaining
agreements).
The restriction on compulsory arbitration of statutory
claims in the collective bargaining context is not absolute. In
Moss v Mental Health Department, 159 Mich App 257; 406 NW2d 203
(1987), this Court held that an arbitrator’s resolution of a
grievant’s claim under the assault pay provision of the Mental
Health Code, MCL 330.113; MSA 14.800(113) barred further judicial
action on the claim. The Court interpreted an earlier case,
Saginaw v Michigan Law Enforcement Union, Teamsters Local 129,
136 Mich App 542; 358 NW2d 356 (1984) (which primarily involved
judicial review of an arbitration award), as “rejecting the idea
that Gardner-Denver allows for the survival of any statutory
cause of action following an arbitration determination.” Id. at
262. Although these cases are not strictly relevant to the
instant case, they are nonetheless indicative of how Michigan’s
pro-arbitration policy can even extend to certain statutory
claims in collective bargaining arbitration.
19 29 USC 621 et seq.
20 The arbitration agreement in this case does not restrict the
employee’s right to seek administrative relief through the MDCR
or EEOC. We agree with Gilmer, however, that arbitration
agreements are not valid if they restrict MDCR enforcement of
ELCRA. We disagree with the decision in EEOC v Frank’s Nursery &
Crafts, Inc, 966 F Supp 500 (ED Mich, 1997) to the extent that it
upholds provisions of an arbitration agreement that prevented a
plaintiff from seeking relief through the EEOC or MDCR.
21 9 USC 10(b).
22 This is true not only for the securities registration
agreements addressed in Gilmer, but also for other categories of
employment-related contracts. We comment on this distinction
only because the Fifth Circuit opined, in Alford v Dean Witter
Reynolds, Inc, 939 F2d 229, 230, n * (CA 5, 1991), that the FAA’s
exclusion for “contracts of employment of seamen, railroad
employees, or any other class of workers engaged in foreign or
interstate commerce” (9 USC 1) might preclude compulsory
arbitration when the agreement is made between the employer and
employee, as opposed to the Gilmer situation where the agreement
was included in the employees’ contract with a securities
exchange. However, in Rojas v TK Communications, Inc, 87 F3d 745,
747-748 (CA 5, 1996), the Fifth Circuit held that the FAA
exclusion was not applicable to an employment contract between a
radio disc jockey and her employer. The Fifth Circuit’s decision
in Rojas brought the Fifth Circuit in line with the majority of
circuits which have held that the FAA exclusion is to be narrowly
construed as applying only to those workers actually involved in
the movement of goods in interstate commerce. McWilliams v
Logicon, Inc, 143 F3d 573, 575-576 (CA 10, 1998); Cole v Burns
International Security Services, 323 US App DC 133; 105 F3d 1465
(1997); Great Western Mortgage Corp v Peacock, 110 F3d 222, 227
(CA, 3 1997); Asplundh Tree Expert Co v Bates, 71 F3d 592, 596-
601 (CA 6, 1995); Miller Brewing Co v Brewery Workers Local Union
No 9, AFL-CIO, 739 F2d 1159, 1162 (CA 7, 1984); Erving v Virginia
Squires Basketball Club, 468 F2d 1064, 1069 (CA 2, 1972);
Dickstein v duPont, 443 F2d 783, 785 (CA 1, 1971). Indeed, one
of the few decisions to the contrary is a 1954 decision which
expressly limited its holding to collective bargaining
agreements. United Elec., Radio & Mach. Workers of Am. v Miller
Metal Prod., 215 F2d 221, 224 (CA 4, 1954). The Ninth Circuit,
however, has recently taken the minority position that the FAA
broadly excludes labor and employment contracts from its
coverage. Craft v Campbell Soup Co, 161 F3d 1199 (CA 9, 1999).
This Court adopted the majority position in DeCaminada v Coopers
& Lybrand, 232 Mich App 492, 498-499; __ NW2d __ (1998). In any
event, the MAA does not contain this exclusion.
23 42 USC 12101 et seq.
24 As discussed above, Gilmer distinguished Gardner-Denver on the
ground that the latter case involved a collective bargaining
agreement rather than an individual contract. Since Gilmer,
parties have raised the issue of whether and to what extent
Gardner-Denver remains viable authority. See Pryner v Tractor
Supply Co, 109 F3d 354 (CA 7, 1997) for a thorough discussion of
Gilmer’s potential impact on the viability of Gardner-Denver.
Some federal courts, including the U.S. District Court for
the Eastern District of Michigan, have maintained that Gardner-
Denver remains an effective bar to compulsory arbitration of
civil rights claims in the collective bargaining context.
Jackson v Quanex Corporation, 889 F Supp 1007 (ED Mich 1995); see
also Patton v Toshiba America Consumer Products, Inc, 967 F Supp
283 (MD Tenn 1997); Krahel v Owens-Brockaway Glass Container,
Inc, 971 F Supp 440 (D Oregon 1997). On the other hand, the
Fourth Circuit held in Austin v Owens-Brockaway, 78 F3d 875
(1996) that the FAA requires enforcement of these agreements.
The United States Supreme Court declined to resolve this
controversy in Wright v Universal Maritime Service Corp, __ US
__; 119 S Ct 391; 142 L Ed 2d 361 (1998). Our decision does not
turn on the outcome of this controversy, and we express no
opinion as to the proper application of Gilmer to general
arbitration clauses in collective bargaining agreements.
25 For example, in Duffield, 144 F3d 1182, the Ninth Circuit
refused to enforce the arbitration agreement as it applied to the
plaintiff’s Title VII claims. The court held that Gilmer was
distinguishable because there, the plaintiff’s lawsuit arose
under the ADEA. The court then reasoned that Gilmer did not
apply to Title VII claims, because Congressional intent precluded
compulsory arbitration of Title VII claims. Id. at 1189-1190.
The court inferred this “intent” from the legislative history of
the Civil Rights Act of 1991. Id. at 1191. See also Rosenberg v
Merrill Lynch, Pierce, Fenner & Smith, Inc, 995 F Supp 190 (D
Mass 1998) Id. at 200.
We are not persuaded by this reasoning. Instead, we agree
with the reasoning in Frank’s Nurser, 966 F Supp 500, which
concluded that “a prospective, voluntary agreement to proceed to
arbitration” is not the sort of coercive action that the 1991
legislative history cautioned against. The legislative history
cited by the Duffield court warned against arbitration agreements
which precluded claimants from seeking relief under Title VII’s
enforcement provision, and averred that ADR should supplement,
but not replace, judicial procedures. See Duffield, 1195. The
First Circuit recently rejected the Duffield reasoning.
Rosenberg v Merrill, Lynch, Pierce, Fenner & Smith, Inc, __ F3d
__ (CA 1, 1999). Arbitration agreements which meet the Gilmer
prerequisites of appropriate due process and which provide for
full statutory rights and remedies do not implicate the concerns
raised by the legislative history. Furthermore, we note that
Congress has had seven years to act in response to the Gilmer
decision. In any event, Duffield is obviously inapplicable here,
where plaintiff has not raised any claims under Title VII.
Various other cases have refused to enforce arbitration
clauses on grounds of general contract principles, e.g., because
the particular contract provision did not extend to the
plaintiff’s particular cause of action, or because the parties
had not actually entered into a legally binding contract. These
cases are consistent with Gilmer, and we do not regard them as
“resisting this trend.”
26 We note that Cole was written by one of this country's leading
and respected authorities on the subject of arbitration and
employment discrimination, Chief Judge Harry T. Edward of the
United States Court of Appeals for the District of Columbia.
27 For additional information on the Department of Labor
Commission on the Future of Worker-Management Relations (“Dunlop
Commission”), see Cole, supra, 1483, n 11.
28 Furthermore, a contract is an adhesion contract only if the
party agrees to the contract because he has no meaningful choice
to obtain the desired goods or services elsewhere. Morris v
Metriyakool, 418 Mich 423, 440; 344 NW2d 736 (1984). If the
prospective employee (applicant) would be able to obtain work
elsewhere, the contract is not one of adhesion because the
applicant has a meaningful choice in accepting the offer of
employment. Beauchamp, 918 F Supp 1098. Therefore, a predispute
agreement to arbitrate statutory employment discrimination claims
is not a contract of adhesion if either (a) the terms of the
contract are reasonable; or (b) the employee had a meaningful
choice.
As a practical matter, the enforceability of a predispute
agreement to arbitrate statutory civil rights questions will turn
on whether the contract preserves substantive rights and remedies
and is procedurally fair. If it satisfies these conditions, then
it is reasonable, and it will be enforceable even if the employee
did not have meaningful choice in signing it. Rehmann, Robson &
Company v McMahan, 187 Mich App 36, 43-44; 466 NW2d 325 (1991);
Ryoti, 142 Mich App 805. If it does not satisfy these
conditions, but the employee had meaningful choice in signing it,
then it is not an adhesion contract, but it still will not be
enforceable because it will fail the fundamental fairness test
under Renny, supra, and our ruling here.
29 MCL 600.5001, 600.5005; MSA 27A.5005.
30 The endless variety in the nature of businesses, the
sophistication of employees, and the types of disputes that may
be arbitrated persuade us that we cannot and should not
promulgate a blueprint for all arbitrations. In this connection,
we think it appropriate to paraphrase Judge Irving R. Kaufman:
“When dealing with principles of [fairness], it is apparent that
we cannot paint with broad strokes. The lines are fine and must
be so marked. Guideposts can be established when virgin ground
is being explored, and the conclusion in a particular case can be
reached only after painstaking analysis of the facts and precise
application of precedent.” US v Standard Oil Co, 136 F Supp 345,
367 (SD NY, 1955).
31 For example, Patterson, 113 F3d 832, noted generally that
“[t]his vindication [of rights through arbitration] must be
accomplished through the use of neutral arbitrators, adequate
discovery, adequate types of relief . . .” Also, the Sixth
Circuit in Willis, 948 F2d 310, rejected the plaintiff’s argument
that inadequate procedural safeguards rendered her claim non-
arbitrable because her claim would be arbitrated under the NYSE
procedures found acceptable in Gilmer.
32 The Dunlop Commission has set forth seven conditions, including
a neutral arbitrator with relevant legal knowledge; a fair method
of cost sharing, and a written opinion. See Cole, 1483, n 11 for
additional authorities on this subject. The AAA National Rules
for the Resolution of Employment Disputes provide for appropriate
discovery, a written award, and the full range of remedies
available under the relevant statute. Cole, 148.
33 Though MCR 3.602 is applicable only to statutory arbitration
pursuant to MCL 600.5001(2); MSA 27A.5001(2), we nevertheless
reference MCR 3.602 as illustrative of our legislature’s and
Court’s dedication to procedural due process in arbitral
hearings. The guidelines for procedural fairness we set forth
are accordingly deduced from and are peculiarly applicable to our
common law tradition of arbitration, Renny, Cole, and Gilmer;
additionally some of these guidelines mirror the MCR 3.602
provisions.
34 The enforceability of an arbitration agreement may, in some
circumstances, turn on whether the employee was given adequate
notice and knowingly waived his right to litigate claims in
court. Kummetz v Tech Mold, Inc, 152 F3d 1153 (CA 9, 1998);
Prudential Insurance Co of America v Lai, 42 F3d 1299 (CA 9,
1994). Without adopting the reasoning of Kummetz or Lai, we
would note that employers should be aware that arbitration
agreements may be challenged on principles such as adequate
notice and knowing waiver.
35 Traditionally, judicial review of an arbitral award under a
collective bargaining is very limited. See Steelworkers Trilogy;
Gogebic Medical Care Facility v AFSCME Local 992 AFL-CIO, 209
Mich App 693, 696-697; 531 NW2d 728 (1995).
36 Initially, a federal district court decided that the arbitrator
made no error of law and confirmed the arbitration award.
Collins v Blue Cross Blue Shield of Michigan, 916 F Supp 638 (ED
Mich, 1995). Subsequently, the district’s court judgment was
vacated for want of subject matter jurisdiction. 103 F3d 35 (CA
6, 1996). The Gavin standard has also been applied to a common
law medical malpractice claim, Dohanyos v Detrex Corp (After
Remand), 217 Mich App 171; 550 NW2d 608 (1996).
37 Similarly, the federal courts have recognized a need for
heightened judicial review of arbitration awards when statutory
civil rights are at stake. The Cole Court adopted a “manifest
disregard of the law” standard that is “sufficiently rigorous to
ensure that arbitrators have properly interpreted and applied
statutory law.” Id., 1487. Utilizing the “manifest disregard”
standard, the court in Halligan v Piper Jaffray, Inc, 148 F3d 197
(CA 2, 1998) vacated an arbitration award where the arbitrators
ignored key principles of age discrimination law and found for
the defendant despite “overwhelming evidence” that the adverse
employment actions were motivated by age discrimination.
38 See Halligan, supra at note 36 (arbitrators’ failure to explain
their award was a factor in court’s determination that
arbitrators disregarded the law).
39 Including, for example, a complainant’s right to attorney fees
as provided by MCL 37.2802; 37.1606(3); MSA 3.548(802);
3.550(606). We note further that we have already held, supra at
I(B)(1) that contracts to arbitrate employment discrimination
claims must satisfy general contract rules, and that those
contracts which satisfy our ruling do not constitute
unenforceable adhesion contracts.