F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JAN 5 1999
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
MATTHEW SHANKLE,
Plaintiff-Appellee,
v. No. 97-1130
B-G MAINTENANCE MANAGEMENT OF
COLORADO, INC., a corporation doing business
in the State of Colorado,
Defendant-Appellant.
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 96-N-2932)
Elisa Julie Moran (John Mosby with her on the brief), Denver, Colorado, for
Plaintiff-Appellee.
William C. Berger (Robert R. Miller with him on the briefs) of Stettner, Miller &
Cohn, P.C., Denver, Colorado, for Defendant-Appellant.
Jennifer S. Goldstein (C. Gregory Stewart, General Counsel; J. Ray Terry, Jr.,
Deputy General Counsel; Gwendolyn Young Reams, Associate General Counsel;
and Robert J. Gregory, with her on the brief), Equal Employment Opportunity
Commission, Washington, D.C, for amicus curiae Equal Employment Opportunity
Commission.
Before TACHA, BRORBY and KELLY, Circuit Judges.
BRORBY, Circuit Judge.
Defendant-Appellant B-G Maintenance Management, Inc. (“B-G
Maintenance”) appeals the district court’s order refusing to compel arbitration of
Mr. Shankle’s employment discrimination suit. Mr. Shankle alleges B-G
Maintenance violated federal anti-discrimination laws when it terminated his
employment because of his race, age, and disability. B-G Maintenance moved to
compel arbitration based on an agreement to arbitrate signed by Mr. Shankle
during his employment. The district court denied that motion and B-G
Maintenance’s motion for reconsideration. We exercise jurisdiction pursuant to 9
U.S.C. § 16(a)(1) and 28 U.S.C. § 1291, and we affirm.
I. Background
B-G Maintenance, a private janitorial company, hired Mr. Shankle in 1987
as a janitor and later promoted him to shift manager. In 1995, B-G Maintenance
distributed an Arbitration Agreement (“the Agreement”) to its non-union
employees, including Mr. Shankle. Mr. Shankle initially refused to sign the
Agreement, but later acquiesced. The Agreement is broad in scope and covers all
claims between the parties, including federal discrimination claims under Title
VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e to e-17, as amended by the
Civil Rights Act of 1991, 42 U.S.C. § 1981(a); the Americans with Disabilities
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Act, 42 U.S.C. §§ 12101 to 12213; and the Age Discrimination in Employment
Act, 29 U.S.C. §§ 621-634. 1
In signing the Agreement, Mr. Shankle agreed that
1
The Agreement, in part, states:
1. If I decide to file any claim (except for workers compensation or
unemployment compensation benefits) against the company ...
whether such claim could be filed in any court or governmental
agency, I will use the process set forth in this Arbitration Agreement
for resolving my claim for relief....
2. Arbitration is mandatory and will be final and binding.
3. Arbitration is the exclusive procedure for asserting any claim of
any nature, whether arising out of common law, statute,
governmental rule or regulation, public policy, or any other authority.
I WAIVE ALL OTHER PROCEDURES WHICH MIGHT OTHERWISE BE ,
OR BECOME , AVAILABLE TO ME .
I WAIVE ANY RIGHT TO HAVE ANY CLAIM I MIGHT BRING
AGAINST THE COMPANY TRIED BY A JURY , COURT ,
ADMINISTRATIVE BODY , OR ANY OTHER AUTHORITY OTHER THAN
AN ARBITRATOR AS PROVIDED FOR IN THIS AGREEMENT .
I WAIVE ANY OF THE RIGHTS AND PROCEDURES WHICH MAY BE
AVAILABLE TO ME UNDER THE COMMON LAW ( BY EXPRESS OR
IMPLIED CONTRACT , TORT , OR OTHER SOURCE ), STATUTE (T ITLE
V II OF THE C IVIL R IGHTS A CT OF 1964; THE A GE
D ISCRIMINATION IN E MPLOYMENT A CT ; 42 U.S.C. 1981; E QUAL
P AY A CT ; F AIR L ABOR S TANDARDS A CT ; O LDER W ORKERS
B ENEFITS P ROTECTION A CT ; W ORKER A DJUSTMENT AND
R ETRAINING N OTIFICATION A CT ; F EDERAL V ETERANS AND
M ILITARY L EAVE AND R EEMPLOYMENT S TATUTES ; F AMILY AND
M EDICAL L EAVE A CT ; A MERICANS WITH D ISABILITIES A CT ;
ANY PROVISION OF T ITLE 8 OF THE C OLORADO R EVISED
S TATUTES OTHER THAN CLAIMS FOR WORKERS COMPENSATION
OR UNEMPLOYMENT COMPENSATION B ENEFITS ; OR ANY OTHER
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“I will be responsible for one-half of the arbitrator’s fees, and the company is
responsible for the remaining one-half. If I am unable to pay my share, the
company will advance the entirety of the arbitrator’s fees; however, I will remain
liable for my one-half.”
B-G Maintenance terminated Mr. Shankle’s employment in September
1995. Shortly thereafter, Mr. Shankle filed a charge of discrimination with the
Equal Employment Opportunity Commission, which commenced an investigation.
During the pendency of that investigation, the parties submitted Mr. Shankle’s
claims to the Judicial Arbiter Group, Inc. and selected an arbitrator as required by
the Agreement. The Judicial Arbiter Group wrote to the parties, detailing the
arrangements for the proposed arbitration including cost: “[t]he arbiter charges
$250.00 per each hour of arbiter time and travel time at $125.00 per hour, and
where appropriate, $45.00 for each hour of paralegal support time.” The letter
also required the parties to pay a $6,000.00 deposit. Several months later, Mr.
Shankle filed another charge with the Equal Employment Opportunity
Commission, voicing his objections to the upcoming arbitration. Mr. Shankle
FEDERAL , STATE OR LOCAL STATUTE ); OR ANY OTHER FEDERAL ,
STATE OR LOCAL LEGAL AUTHORITY , WHETHER RELATED TO
EMPLOYMENT OR NOT .
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then canceled the arbitration, and filed the instant suit in federal court alleging his
termination violated Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§
2000e to e-17, as amended by 42 U.S.C. § 1981; the Americans With Disabilities
Act, 42 U.S.C. §§ 12101 to 12213; and the Age Discrimination in Employment
Act, 29 U.S.C. §§ 621-634. B-G Maintenance thereafter filed its motion to
compel arbitration.
In denying B-G Maintenance’s motion, the district court recognized, in
general, agreements to arbitrate employment discrimination claims are
enforceable. However, the court found the Agreement’s fee-splitting provision
operated as “a disincentive to ... submitting a discrimination claim to arbitration.”
Therefore, the Agreement failed to provide a “reasonable substitute for a judicial
forum” or “an effective means of vindicating” Mr. Shankle’s federal rights and
was therefore unenforceable. “We review a district court’s ... denial of a motion
to compel arbitration de novo, applying the same legal standard employed by the
district court.” Armijo v. Prudential Ins. Co. , 72 F.3d 793, 796 (10th Cir. 1995).
II. Federal Arbitration Act Applicability
As a preliminary matter, we must determine if the Federal Arbitration Act
(“the Arbitration Act”) governs our consideration of the arbitration agreement at
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issue in this case. 9 U.S.C. §§ 1-16. The provisions of the Arbitration Act
represent a “liberal federal policy favoring arbitration.” Gilmer v.
Interstate/Johnson Lane Corp . 500 U.S. 20, 25 (1991) (internal quotation marks
and citation omitted). In substance, the Arbitration Act mandates that arbitration
agreements contained in contracts involving commerce 2
“shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity
for the revocation of any contract,” 9 U.S.C. § 2, and provides for orders
compelling arbitration when one party fails to comply with a valid arbitration
agreement, 9 U.S.C. § 4. The Arbitration Act thus creates a presumption in favor
of arbitrability and courts must resolve all doubts concerning the scope of
arbitrable issues in favor of arbitration. Armijo , 72 F.3d at 797-98.
However, the Arbitration Act does not apply to arbitration agreements
contained in “contracts of employment of seamen, railroad employees, or any
other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1.
Mr. Shankle argues the Agreement falls within the § 1 exemption because he is a
member of a class of workers engaged in interstate commerce. This court rejected
a similar argument in McWilliams v. Logicon, Inc. , 143 F.3d 573 (10th Cir. 1998).
It is undisputed that the contract at issue in this case involves interstate
2
commerce.
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In McWilliams , we held that § 1 is to be construed narrowly to apply only to
“employees actually engaged in the channels of interstate commerce.” Id. at 576.
Accordingly, we concluded that even though the defendant employer’s products
and services affected interstate commerce, § 1 did not apply because defendant’s
employees, including plaintiff, did not directly engage in the channels of
interstate commerce. Id. Likewise, even though B-G Maintenance’s services
affect interstate commerce at some level, Mr. Shankle’s positions as janitor and
shift manager did not directly affect the channels of commerce. Therefore, Mr.
Shankle’s claims are not insulated from Federal Arbitration Act coverage and we
must apply the “federal substantive law of arbitrability, applicable to any
arbitration agreement within coverage of the Act.” Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc. , 473 U.S. 614, 626 (1985) (internal quotation
marks and citation omitted).
III. Enforceability
The parties and amicus curiae raise numerous arguments as to why the
arbitration agreement should or should not be enforced in this case. However, we
find one issue to be controlling: Is a mandatory arbitration agreement, which is
entered into as a condition of continued of employment, and which requires an
employee to pay a portion of the arbitrator’s fees, unenforceable under the
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Federal Arbitration Act? The district court, relying principally on Cole v. Burns
Int’l Sec. Serv. , 105 F.3d 1465 (D.C. Cir. 1997), held that such an agreement is
not enforceable and we agree. Accordingly, we need not address the parties’
other arguments regarding enforceability.
Our analysis begins with a review of the Supreme Court’s decision in
Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20 (1991). In that case, the
Court held that agreements which require arbitration of statutory claims are
enforceable under the Federal Arbitration Act. Gilmer , 500 U.S. at 26 (holding
that ADEA claims may be subjected to compulsory arbitration); see also Metz v.
Merrill Lynch, Pierce, Fenner & Smith, Inc. , 39 F.3d 1482 (10th Cir. 1994)
(concluding that Title VII claims are subject to compulsory arbitration). The
Court reasoned that by submitting statutory claims to arbitration, an individual
does not forgo substantive rights provided by the statute, but merely submits their
resolution to an alternate forum. Gilmer , 500 U.S. at 26. Moreover, the arbitral
forum, like the judicial forum, provides an adequate mechanism for furthering
public policy goals advanced by the statute. Gilmer , 500 U.S. at 27-28;
Mitsubishi Motors , 473 U.S. at 635-37. The Court noted “‘[s]o long as the
prospective litigant effectively may vindicate [his or her] statutory cause of action
in the arbitral forum, the statute will continue to serve both its remedial and
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deterrent function.’” Gilmer , 500 U.S. at 28 (quoting Mitsubishi Motors , 473
U.S. at 637).
Thus, Gilmer reaffirmed the Arbitration Act’s presumption in favor of
enforcing agreements to arbitrate – even where those agreements cover statutory
claims. While we recognize this presumption, Metz, 39 F.3d at 1487, we conclude
that it is not without limits. As Gilmer emphasized, arbitration of statutory claims
works because potential litigants have an adequate forum in which to resolve their
statutory claims and because the broader social purposes behind the statute are
adhered to. Gilmer , 500 U.S. at 28. This supposition, falls apart, however, if the
terms of an arbitration agreement actually prevent an individual from effectively
vindicating his or her statutory rights. See Cole , 105 F.3d at 1482-85 (concluding
an arbitration agreement cannot force an employee to waive substantive rights
provided by statute nor access to a neutral forum in which to enforce those
rights); Paladino v. Avnet Computer Tech., Inc. , 134 F.3d 1054, 1060 (11th Cir.
1998) (holding that arbitration agreement which proscribed award of Title VII
damages was unenforceable because it was fundamentally at odds with the
purposes of Title VII); Graham Oil Co. v. ARCO Prod. Co. , 43 F.3d 1244, 1248-
49 (9th Cir. 1994) (striking arbitration clause that compelled parties to surrender
important statutorily mandated rights in contravention of the statute), cert. denied ,
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516 U.S. 907 (1995). Accordingly, an arbitration agreement that prohibits use of
the judicial forum as a means of resolving statutory claims must also provide for
an effective and accessible alternative forum. 3
In this case, Mr. Shankle signed the Agreement as a condition of continued
employment. The Agreement requires Mr. Shankle to arbitrate all disputes arising
between he and his former employer. In order to invoke the procedure mandated
by his employer, however, Mr. Shankle had to pay for one-half of the arbitrator’s
fees. 4 Assuming Mr. Shankle’s arbitration would have lasted an average length of
time, he would have had to pay an arbitrator between $1,875 and $5,000 to
3
The arbitral forum, in most cases, is such an alternative. Gilmer, 500
U.S. at 26-33; Metz, 39 F.3d at 1487. However, when an arbitration agreement is
accompanied by a fee-splitting provision like the one at issue in this case,
enforceability is called into question for the reasons discussed below.
4
B-G Maintenance argues we should enforce the Agreement because it
allows “fee-shifting” if an employee is unable to pay his share of arbitrator fees.
We disagree. While the Agreement states B-G Maintenance will advance the
employee’s share of fees if he or she is unable to pay, the employee “remain[s]
liable” for his or her one-half. We fail to see how this language lessens the
financial burden placed on the employee. Appellant also argues an arbitrator
could “shift” fees by awarding them as costs if the employee is successful on the
merits. However, it is unlikely that an employee in Mr. Shankle’s position, faced
with the mere possibility of being reimbursed for arbitrator fees in the future,
would risk advancing those fees in order to access the arbitral forum. Because
the Agreement does not actually shift responsibility for payment of fees based on
ability to pay, fee shifting does not affect our analysis in this case.
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resolve his claims. 5
Mr. Shankle could not afford such a fee, and it is unlikely
other similarly situated employees could either. The Agreement thus placed Mr.
Shankle between the proverbial rock and a hard place – it prohibited use of the
judicial forum, where a litigant is not required to pay for a judge’s services, and
the prohibitive cost substantially limited use of the arbitral forum. See Cole , 105
F.3d at 1484 (concluding employees would be unable to pursue statutory claims if
required to pay for arbitrator fees in addition to the administrative costs and
attorney fees, which accompany both arbitration and litigation). Essentially, B-G
Maintenance required Mr. Shankle to agree to mandatory arbitration as a term of
continued employment, yet failed to provide an accessible forum in which he
could resolve his statutory rights. Such a result clearly undermines the remedial
and deterrent functions of the federal anti-discrimination laws. See Albemarle
Paper Co. v. Moody , 422 U.S. 405, 417-18 (1975) (explaining prophylactic and
“make whole” objectives of Title VII); Dartt v. Shell Oil Co. , 539 F.2d 1256,
1260 (10th Cir. 1976) (noting remedial purposes of the Age Discrimination in
Employment Act), aff’d 434 U.S. 99 (1977). Given this deficiency, we conclude
the Agreement is unenforceable under the Federal Arbitration Act. 6
Gilmer , 500
5
The typical employment case averages between fifteen to forty hours of
arbitrator time. Cole, 105 F.3d at 1480 n.8.
6
Relying on Cole, Appellant argues we should “redline” the fee-splitting
provision and compel arbitration. The arbitration agreement at issue in Cole,
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U.S. at 28; Cole , 105 F.3d at 1484-85.
Appellant argues the fee-splitting provision should be enforced because it
will ensure arbitral neutrality and the appearance of arbitral neutrality. We reject
a presumption that arbitrators will be unable to perform in a competent and
impartial manner if one party pays the bill. See Gilmer , 500 U.S. at 30 (rejecting
a presumption that arbitration panels are biased); Cole , 105 F.3d at 1485 (“It is
doubtful that arbitrators care about who pays them, so long as they are paid for
their services.”). In addition, there are numerous other protections in place that
help to prevent arbitrator bias, such as professional and ethical standards. See
Cole , 105 F.3d at 1485. Moreover, even if we were to agree fee-splitting in some
way promotes neutrality, that benefit is substantially outweighed by the
impediment such a provision places on access to the arbitral forum. 7
however, made no clear allocation of responsibility for payment of arbitrator’s
fees. Cole, 105 F.3d at 1485. Because the contract was unclear on that point, the
court was able to interpret the contract in a way that made it lawful. Id. No such
ambiguity exists in this case. The Agreement clearly makes the employee
responsible for one-half of the arbitrator’s fees and we are not at liberty to
interpret it otherwise. See Awbrey v. Pennzoil Co., 961 F.2d 928, 930 (10th Cir.
1992) (“A court is without authority to alter or amend contract terms and
provisions absent an ambiguity in the contract.”).
7
We note that several of the sources cited in Appellant’s brief emphasize
that a fee-splitting provision should not preclude access to the arbitral forum. See
Michele L. Giovagnoli, Comment, To Be or Not To Be?: Recent Resistance to
Mandatory Arbitration Agreements in the Employment Arena, 64 U.M.K.C. L.
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Appellant also contends enforceability arguments should not be decided by
a court but deferred to the arbitrator. We agree the scope of judicial review of
arbitration agreements is limited. See 9 U.S.C. § 2. However, it is within the
court’s power to consider the arbitrability of a petitioner’s claims,
see Metz, 39 F.3d at 1486-88, and to consider “whether legal constraints external
to the parties’ agreement foreclosed the arbitration of [statutory] claims.”
Mitsubishi Motors , 473 U.S. at 628. Therefore, the district court properly
considered the arbitrability of Mr. Shankle’s claims.
IV. Conclusion
For the reasons set forth above, we conclude the district court properly
declined to compel arbitration of Mr. Shankle’s lawsuit. We therefore AFFIRM
the district court’s order and REMAND this case for further proceedings.
Rev. 547, 579 (1996) (“[D]ivision of fees must not preclude an employee’s access
to the arbitration proceeding or impede the resolution of a claim.”); William B.
Gould & Charles A. Beardsley, Alternative Dispute Resolution and the National
Labor Relations Board: Some Ruminations About Emergency Legal Issues, Jose
Canseco, and Gertrude Stein, available in B.N.A. Daily Labor Report, No. 69, at
E-5 (April 18, 1997) (“In cases where the economic condition of a party does not
permit equal sharing, the parties should make mutually acceptable arrangements
to achieve that goal if at all possible.”), Appellant’s brief at 35.
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