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Significant decisions in labor cases.

Does an employee give up the right to sue his or her employer for age discrimination by agreeing to arbitrate all employment-related claims? According to a divided Court of Appeals for the Fourth Circuit in Gilmer v. Interstate/ Johnson Lane Corp.,' the answer to this question is yes because Federal policy, as expressed by the Federal Arbitration Act,2 favors arbitration.

When Richard Gilmer was hired as a manager of financial services by the Interstate/Johnson Lane Corporation, he was required to register as a securities representative with the New York Stock Exchange. At the time he registered, Gilmer agreed that any employment-related dispute between himself and his employer would be subject to the stock exchange's arbitration procedures. Six years after entering into this agreement, Gilmer's job was terminated. Believing that his former employer had fired him because of his age, Gilmer chose to file suit in Federal court under the Age Discrimination in Employment Act, rather than submit his dispute to arbitration. The employer objected, claiming that the Federal Arbitration Act required Gilmer to abide by his agreement to arbitrate.

Writing for a 2-1 majority of the Fourth Circuit panel, Judge J. Harvie Wilkinson agreed that arbitration, not Federal court litigation, was required. Arbitration agreements, he wrote, should be enforced unless the party opposing arbitration can show that Congress, by enacting specific legislation, intended to limit or prohibit parties from waiving a statutory right to judicial determination. Judge Wilkinson examined the text, legislative history, and purposes of the Age Discrimination in Employment Act and concluded that in enacting this law Congress had not provided the type of "affirmative guidance" that is needed to override the Federal Arbitration Act requirement that arbitration agreements ordinarily should be honored.

Courts of appeals that addressed this issue before the decision in Gilmer was issued all had held that employees can file age discrimination suits despite the existence of an agreement to arbitrate. In the most recent of these decisions, Nicholson v. CPC International Inc., the Court of Appeals for the Third Circuit held that arbitration agreements are inherently inconsistent with the Age Discrimination in Employment Act's enforcement scheme and should therefore not be enforced.1 The Third Circuit noted that primary enforcement authority under the Age Discrimination in Employment Act lies with the Equal Employment Opportunity Commission and that an individual's right to sue is subordinate to this authority. Thus, in the court's view, enforcing arbitration agreements would diminish the Commission's statutory role9 and encourage employers to prepare similar employment contracts so as to avoid that agency's scrutiny.

The Nicholson court also was persuaded by the legislative history of the Age Discrimination in Employment Act, which showed that Congress had deliberately opted for Federal court enforcement rather than a less formal administrative scheme." In the court's words, "[t]his suggests that Congress intended that extrajudicial methods of seeking resolution of age discrimination claims should not impede ultimate resolution of those claims in a judicial forum when extra judicial methods proved inadequate."

Finally, the Nicholson. court emphasized that an arbitrator's power to address workplace discrimination may be more limited than that of a Federal district court. As an example, the court noted that arbitrators are limited to resolving the disputes of particular grievants, whereas Federal court judges may address company wide discrimination by enjoining employers from committing future acts of discrimination.

The Supreme Court has not addressed the issue raised by the courts' decisions in Gilmer and Nicholson. Because the Gilmer decision creates a conflict between circuit courts, the High Court may now be more likely to consider this important issue.

Discrimination abroad

For the first time, a Federal appeals court has held that Title VII of the Civil Rights Act of 196411 does not protect an American citizen working overseas for an American company against discrimination in employment. The case, Boureslan v. Aramco, came about after Ali Boureslan, a naturalized American citizen, complained to the Equal Employment Opportunity Commission that his American employer, Aramco, had harassed and fired him because of his race, religion, and national origin. Aramco disputed this claim and raised the additional argument that Title VII's protections do not extend to the company's operations in Saudi Arabia, where Boureslan had been employed.

Judge W. Eugene Davis, writing for a 9-5 majority of the Court of Appeals for the Fifth Circuit, agreed with Aramco. Neither the language of Title VII, nor its legislative history, he wrote, supports the notion that Congress intended the law to apply outside the United States. As a result, he found no reason to override what he held to be a presumption that Federal laws apply only within the United States. In reaching this conclusion, he rejected Boureslan's argument that Title VII should be applied extraterritorially through its "alien exemption provision," which exempts employers from coverage "with respect to employment of aliens outside any State." Boureslan had argued that if Congress had intended that all employers in foreign lands be exempt from Title VII, it would not have enacted the alien exemption provision, which exempted only some employers. Thus, he had urged the court to infer that overseas employers not exempted by this provision namely, those that employ American citizens-are covered by Title VII.

Judge Davis, however, refused to draw this inference. The alien exemption provision, he held, has nothing to do with the employment of American citizens overseas. Instead, he said, the provision "reflects a Congressional intent to provide Title VII coverage to aliens employed within the United States."

Judge Davis noted two other reasons why Title VII should be limited to cases involving allegations of employment discrimination that occurred within the United States. First, he said that Title VII is "curiously silent in a number of areas where Congress ordinarily speaks if it wants to extend its legislation beyond our borders." For example, he suggested that if Congress had intended extraterritorial coverage, it most likely would have addressed the issue of whether foreign-but not American-companies employing American workers outside of the United States must comply with Title VII.

Next, he indicated that when it desires to do so, Congress knows how to give extraterritorial effect to one of its statutes." As an example, he cited a 1984 amendment to the Age Discrimination in Employment Act in which Congress modified that act's definition of "employee" to include "a citizen of the United States employed by an employer in a workplace in a foreign country." Because Congress failed to include similar language in Title VII, Judge Davis concluded that it did not intend to give this statute such broad coverage.

The decision by the court in Boureslan is contrary to the position taken by the Equal Employment Opportunity Commission, which is the Federal agency charged with enforcing Title VII. Moreover, the dissenting judge in Boureslan noted that the majority's decision conflicts with the decisions of all Federal district courts that have addressed the issue." Thus, this case will be watched closely to see whether other courts will follow it and whether the Supreme Court will agree to review it if an appeal is filed.

Severance payments

The Supreme Court recently held, in Crandon v. United States," that lump-sum severance payments to five employees who intended to leave private employment for Government service did not run afoul of Federal criminal conflict-of-interest laws, even though the payments were an attempt to soften the expected financial losses occasioned by these employees' acceptance of less lucrative Federal employment. In this case, the departing employees were Boeing Company executives who left their jobs for high-level positions with the Defense Department and the North Atlantic Treaty Organization. They received a total of $485,000 in severance pay, with individual payments ranging from $40,000 to 183,000.24

The Government claimed that the severance payments were improper under 18 U.S.C. * 209, a Federal criminal law that prohibits Government employees from receiving, and others from paying, supplemental compensation for the official services of those employees. It argued that even though Boeing's payments had been made before the five executives began their Government service, the payments had been intended to supplement Government salaries and therefore were improper.

Justice John Paul Stevens, writing for six members of the Court, examined the language and legislative history of section 209 and concluded that payments to prospective Government employees are not prohibited. In his opinion, "[d]espite ... awkward drafting ... [t]he text of * 209(a) ... indicates that employment status is an element of the offense." Although he conceded that the payments might give rise to an appearance of impropriety, a concern addressed by section 209, Justice Stevens said that this concern was mitigated because Boeing's payments were unconditional and had been made on a lump-sum, rather than periodic, basis. In addition, he noted a policy "that counsel[ed] against reading [section 209] too broadly." This policy of encouraging qualified employees to make their special skills available to the Government, he said, is a policy that President Kennedy identified when he sought to overhaul Federal conflict-of-interest laws in 1961. Justice Stevens concluded that his literal interpretation of section 209 was appropriate because it was consistent with that policy and because he was construing a criminal, not a civil, statutory provision.


1. 895 F.2d 195 (4th Cir. 1990).

2. 9 U.S.C. * 1 (1988). This policy is expressed in section 2 of the Federal Arbitration Act, which provides that a "written provision in .. a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 3 U.S.C. * 2 (1988).

3. 29 U.S.C. * 621 (1982 & Supp. V 1987).

4. This standard has been articulated by the Supreme Court in Rodriguez de Quijas v. Shearson/Am. Express, Inc., 109 S. Ct. 1917, 1921 (1989); Shearsonlam. Express, Inc. v. McMahon, 482 U.S. 21-0. 226 (1987); and Mitsubishi Motors Corp. . Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985).

5. 895 F.2d at 203.

6 See Nicholson v. CPC Int'l Inc., 877 F.2d 221 (3d Cir. 1989); Cooper v. Aspludh Tree Expert Co., 836 F.2d 1544 (10th Cir. 1988); Criswell v. Western Airlines, Inc., 709 F.2d 544 (9th Cir. 1983), aff'd on other grounds, 472 U.S. 400 (1985).

7. 877 F.2d 221 (3d Cir. 1989). The panel in Nicholson, like the panel in Gilmer, was divided 2-1.

8. Enforcement under the Age Discrimination in Employment Act is begun when the person claiming to be a victim of discrimination files a charge," or complaint, with the Equal Employment Opportunity Commission. 29 U.S.C. * 626(d) (1982). The Commission investigates this charge and attempts to eliminate any alleged unlawful practice through conciliation and persuasion. Id. Sixty days after the charge is filed, the alleged victim of discrimination may file suit, but only if the Commission has not already done so. 29 U.S.C. * 626(c) (1), (d) (1982).

9 The Gilmer court disagreed on this point. In its view, the Equal Employment Opportunity Commission's role has never been to resolve all Age Discrimination in Employment Act claims. 895 F.2d at 197. Individuals, the court said, have always been free to enter into voluntary, nonsupervised settlements. Id.

10. This consequence would be particularly troublesome in the age discrimination context, the Nicholson court held, given the "realities of the workplace," wherein "[o]lder employees who have invested many years of their careers with a particular employer may lack any realistic option to refuse to sign a standard-form arbitration agreement presented to them by their employers. New employees who need a job may be in a similar position." 877 F.2d at 229.

The employer in Nicholson, though, claimed that arbitration agreements in the age discrimination context do not merit heightened scrutiny, because persons with age discrimination claims are usually professional and managerial employees who are capable of making well-informed and voluntary decisions to arbitrate employment disputes. The court indicated, however, that employees like Mr. Nicholson, who was a highly paid attorney and vice-president of corporate financial services, are particularly vulnerable" because "employers ... have a greater incentive to seek to replace them with younger employees earning lower salaries." Id. at 230.

11. Id. at 226. The court in Gilmer was not persuaded by this analysis. 895 F.2d at 199. According to the Gilmer court, simply because Congress chose to allow suits to be filed in Federal district court does not mean that they may not be resolved in some other, mutually agreed-upon forum. Id.

12 877 F.2d at 226. Important to the court in reaching this conclusion was a case decided under the Fair Labor Standards Act, 29 U.S.C. * 201 (1982 & Supp. V 1987), Barrentine v. Arkansas-best Freight Sys., Inc., 450 U.S. 728 (1981). The Supreme Court held in Barrentine that an employee cannot waive the right to file suit under the Fair Labor Standards Act by signing an agreement to arbitrate employment disputes. The Nicholson court attached importance to this case not only because the Age Discrimination in Employment Act incorporates certain Fair Labor Standards Act enforcement provisions, but also because both of these statutes are concerned with situations in which the "disparity in bargaining power between an employer and an individual employee is well known." 877 F.2d at 229. Such situations, the court said, are different from commercial situations, in which arbitration agreements often have been given effect.

13. 42 U.S.C. * 2000e (1982).

14. 892 F.2d 1271 (5th Cir. 1990).

15. Ordinarily, cases in the Federal courts of appeals are heard and decided by three-judge panels. However, a majority of the circuit judges in regular active service may order an appeal to be heard by the entire court sitting en banc. Fed. R. App. P. 35. This order for a hearing or rehearing en banc may occur when consideration by the full court is thought to be necessary in order to secure or maintain uniformity of a circuit court's decisions or when the case presents an issue of exceptional importance. Id.

In Boureslan, a three-judge panel first heard and decided the case. Boureslan v. Aramco, 857 F.2d 1014 (5th Cir. 1988). The Fifth Circuit then decided that the case merited rehearing en banc, so it ordered the parties to prepare additional briefs and to reargue the case before the full court. Judge Davis wrote both the panel and the en banc majority opinions.

16. 42 U.S.C. * 2000e-1 (1982).

17. 892 F.2d at 1273. Judge Carolyn D. King, writing in dissent, strongly disagreed. Id. at 1274 (Judge King, dissenting). Aliens employed within the United States, she said, already fit within the statutory definition of employee," meaning that they are already covered by Title VII. See 42 U.S.C. * 2000e(b), (e) (1982). Thus, in Judge King's opinion, providing coverage to these people through the alien exemption provision would have been unnecessary.

18. 892 F.2d at 1274.

19. Id.

20. The Older Americans Act Amendments of 1984, Pub. L. 98-459, * 802(a), 98 Stat. 1767, 1792 codified as amended at 29 U.S.C. * 630(f) (1982 & Supp. V 1987)).

21. See Boureslan v. Aramco, 892 F.2d 1274, 1277 n. 4 (5th Cir. 19%) (Judge King, dissenting).

22. Id. at 1281.

23. 1 10 S. Ct. 997 (1990), reversing 845 F.2d 476 (4th Cir. 1988).

24. Id. at 1000 n. 5.

25. Section 209(a) states that:

Whoever receives any salary, or any contribution to or supplementation of salary, as compensation for his services as an officer or employee of the executive branch of the United States Government from any source other than the Government of the United States ... or [wlhoever... makes [al contribution to, or in any way supplements the salary of, any such officer or employee ... [s]hall be fined not more than $5,000 or imprisoned not more than one year, or both. 18 U.S.C. * 209(a) (1988).

Although section 209 is a criminal provision, the Government did not seek to impose criminal penalties. Instead, it sought to recover the severance payments under the civil law theory that the employees, by violating section 209(a), had breached a fiduciary duty of undivided loyalty and should not profit from their actions.

26. The three remaining justices agreed with the result, but for different reasons. 58 U.S.L.W. at 1007 (Justice Scalia, concurring).

27. 58 U.S.L.W. at 1002.

28. Id. at 1005.
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Author:Hukill, Craig
Publication:Monthly Labor Review
Date:Jun 1, 1990
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