Cole v. Burns is an important case that was decided by the District of Columbia Circuit Court of Appeals in 1997. In the decision, the court determined that in the event of arbitration, an employer cannot force an employee or former employee to bear the costs of the arbitrator’s fees.
Clinton Cole was working as a security guard for a company called Burns International Security Services. When Cole’s employment was terminated in October of 1993, he filed a discrimination claim with the court. Cole’s complaint alleged that Burns Security subjected him to racial discrimination, race-based harassment, retaliation for exposing sexual harassment, and intentional infliction of mental distress. Burns Security, noting a “Pre-Dispute Resolution Agreement” that had been signed by Cole, argued that Cole was obligated under the Federal Arbitration Act (FAA) to settle the case with a neutral arbitrator out of court. Cole countered that because he was working in security for a company shipping cargo internationally, he falls into a protected class under Article 1 of the FAA.
The United States District Court for the District of Columbia determined that Cole was not a protected class member, as detailed in Article 1 of the FAA, and so was obligated to settle the claim out of court through arbitration.
The case ended up back in court after Cole lost in arbitration. Following the ruling, Burns Security attempted to compel Cole to pay the arbitrator’s fees. In response, Cole filed another motion in court to have the ruling thrown out and to contest the notion that he was responsible for the arbitrator’s fees.
Ultimately, the court upheld the arbitration award but determined that Burns Security was liable to cover the arbitrator’s pay.
What is the Federal Arbitration Act?
The Federal Arbitration Act was passed in 1925 and codified in 1947. Its purpose is to ensure that privately arbitrated case outcomes are legally permissible and binding. The FAA details the laws and regulations of the arbitration process. The FAA allows companies and employees to settle disputes out of court and ensures that the outcomes of cases resolved through arbitration are legally enforceable. Arbitration can decide issues ranging from discrimination to labor law violations to personal injury claims.
Today it is industry-standard to have employees sign a pre-dispute resolution agreement upon starting a new job.
Why do Employers Tend to Favor Arbitration?
On its surface, arbitration seems like a reasonable method for solving workplace disputes. It supposedly saves the parties the time and expense of going through a lengthy court process and is meant to be a neutral. However, studies demonstrate that arbitration leads to better outcomes for the employer than cases tried in court. One possible reason for this is that juries will often sympathize with “the little guy” and award larger verdicts when they feel an employer is in the wrong. On the other hand, professional arbitrators are typically lawyers or former judges and tend to be stingier with their awards.
Additionally, companies favor arbitration because the records are kept sealed. Any bad publicity that might stem from an open court proceeding is avoided.
Finally, because arbitrators’ fees tend to be paid by the employer, the supposed “neutral” arbitrator can feel some pressure to rule in favor of the company in the hopes of receiving future work. In reality, companies often employ the same arbitrator multiple times for different cases. While the arbitrator is meant to be a neutral party, the threat of losing a steady paycheck can result in a loss of objectivity.
Who is Exempt from the FAA?
The original law classified three types of employees who cannot be compelled to settle disputes outside of the courtroom. These protected groups consist of all railway workers, seamen, and anybody involved in transporting goods across state or international lines. The last category, those engaged in interstate and international transport of goods, has been at the core of several court cases wherein plaintiffs claim they should not be legally compelled to settle a dispute through arbitration and instead deserve their day in court.
Cole Argues Exemption
In his initial lawsuit against Burns International Security Services, Clinton Cole argued that in his role as a security guard working for a company involved in international shipping, he was exempt from being compelled into arbitration. Instead, Cole contended that his case should be decided in a courtroom. The District Court where Cole filed his initial suit determined that as a security guard, Cole was not directly involved in transporting goods across state lines and therefore was not a member of a protected class as outlined in the FAA. Cole’s lawsuit was dismissed and eventually settled through arbitration.
Burns Tries to Stick Cole with the Court Fees
Cole eventually lost his case in arbitration, but the case ended up back in court. Burns International Security Services felt Cole should be responsible for paying the arbitrator’s fees. Cole reacted by once again filing a complaint in court, this time attacking the validity of the arbitration agreement and contesting the notion that he should be responsible for paying the arbitrator fees.
The United States Court of Appeals, District of Columbia Circuit, took up the case of Cole v. Burns and issued a decision in February of 1997.
In the past, the Supreme Court had decided that there were limits to a company’s ability to direct employees into arbitration. A settlement reached through arbitration could be vacated if the company was in “manifest disregard of the Law.” An arbitration agreement could be undone if corruption, fraud, impartiality, and incompetency were demonstrated. However, the court ruled in favor of Burns that the agreement signed by Cole was legally binding and valid. Cole was legally compelled to adhere to the arbitrator’s determination.
Regarding whether Cole should be on the hook for the arbitrator’s fees, the court ruled against Burns Security. The decision noted that forcing a plaintiff to pay the arbitrator’s fees would suppress any legal action against a company. If a potential plaintiff knew that, in the case of a loss, they would be on the line for all or part of the arbitrator fees, many would choose not to take the risk. The opinion issued by the D.C. circuit court found that compelling a plaintiff to pay the arbitrator fees would violate statutory rights and curtail justice.
It is the employer mandating the settlement of disputes through arbitration. If the employer did not force the employee to sign a pre-dispute arbitration agreement, the employee (or ex-employee in many cases) would be free to avail themselves of the court. A case heard in a courtroom would not require the employee to pay the judge’s salary in the event of a losing verdict.
Conclusion: Employers Can’t Have Their Cake and Eat it Too
While Cole did not win his lawsuit against Burns Security for racial discrimination, his case was ultimately a victory for workers. In their final ruling, the D.C. Court of Appeals made it clear that if an employer is going to mandate the resolution of disputes through arbitration, they must also bear the responsibility of covering the arbitrator’s fees. Arbitration is widely viewed as beneficial for employers. They enjoy lower costs compared to courtroom litigation, speedier resolution, and secrecy. Companies can’t enjoy the benefits gained through arbitration and then shift the expense to their employees.