Wisconsin Court of Appeals Issues Reminder of Power of Federal Arbitration Act

29 July 2016 Wisconsin Appellate Law Blog
Authors: Ryan N. Parsons

In the last generation, the U.S. Supreme Court has repeatedly promoted the policy under federal law in favor of arbitrating claims, including in the area of employment law. Among other issues, the Court has held on multiple occasions that employers can require employees to submit statutory employment claims to arbitration, whether via mandatory arbitration agreements (Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991)) or in collective bargaining agreements (14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009)). Likewise, the Court has held that the Federal Arbitration Act (“FAA”) allows contracting parties to agree to submit their disputes to arbitration even when state law requires those disputes to be resolved by an administrative agency (as is the case with employment discrimination claims under Wisconsin law). Preston v. Ferrer, 552 U.S. 346 (2008).

Earlier this week, the Wisconsin Court of Appeals issued another decision bolstering employers’ ability to mandate arbitration of employment claims.

In Menard, Inc. v. Dep’t of Workforce Development, No. 2015AP587 (July 26, 2016), an employee was fired after ten months on the job, when her employer learned that she had a criminal record. Because discrimination on the basis of a prior conviction can be unlawful in Wisconsin under certain circumstances, the employee filed a discrimination claim with the Wisconsin Department of Workforce Development (“DWD”), alleging that her termination violated the Wisconsin Fair Employment Act.

However, when the employee began her employment, she signed an employment agreement that provided in part, “you agree to submit your disputes [defined to include a variety of legal claims under state and federal law] to binding arbitration.” When the DWD refused to stop processing the claim in response to a request from the employer, the employer filed suit in circuit court seeking a writ of prohibition ordering the DWD to halt procedures.

The circuit court granted the writ, and the Wisconsin Court of Appeals affirmed earlier this week. The court held that the FAA preempts the WFEA and that the arbitration agreement unambiguously referred the discrimination claim to arbitration. Given the federal policy in favor of allowing parties to voluntarily submit claims to arbitration, the effect of the employment agreement was to deprive the DWD of jurisdiction to bring the matter to a hearing.

Despite the strong pro-arbitration stance taken by the courts in the last 25 years, relatively few employers mandate that statutory employment discrimination claims be referred to arbitration. This week’s case is another reminder that such agreements can be an effective method of avoiding costly employment litigation with disgruntled workers.

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