THE NEW HAMPSHIRE federal court has issued a decision compelling an employee to arbitrate, and staying the employee's discrimination suit alleging violations of Title VII and the Age Discrimination in Employment Act (ADEA), on the basis of an arbitration clause contained in the employee's employment agreement. The case, Klinedinst v. Tiger Drylac, represents the first time that the New Hampshire federal court has addressed this issue since the United States Supreme Court's landmark 2001 opinion in Circuit City v. Adams, in which the high court held that the Federal Arbitration Act applies to employment contracts, except those of transportation workers.

In Klinedinst, the employee advanced five arguments in support of his efforts to avoid arbitration, all of which the court rejected under the circumstances of the case. The decision indicates, however, that certain arguments the employee raised would apply to void arbitration clauses in different circumstances, thereby suggesting actions that employers should and should not take to ensure that arbitration clauses are enforced.

First of all, the court refused to conclude that statements in an employee handbook acknowledging that employees could file harassment claims with appropriate agencies abrogated the arbitration provision, which had appeared in an employment agreement predating the employee handbook. The court stated that the employee handbook had abrogated the arbitration clause with respect to discrimination claims alleging harassment. Since the employee had not alleged harassment, however, the court found that the arbitration provision still applied to the employee's claims. Thus, one lesson to take from Klinedinst is that employers seeking to have their arbitration clauses enforced should never include any language in any employee handbook or other document distributed to employees that suggests agencies or courts as an alternative to arbitration.

Second, the court rejected the employee's contention that the employer had waived the arbitration clause by virtue of its seven-month delay in moving to compel arbitration following the employee's filing of the lawsuit. The court acknowledged that waiver presented a "close question" in the case, but ultimately found that waiver did not apply based on four factors: (1) discovery had not been completed; (2) the employer had moved to compel arbitration nine months before the trial date; (3) the employer had filed no dispositive motions; and (4) the employment agreement stipulated that failure to insist on strict compliance with any particular term of the agreement did not constitute a waiver of that term. However, the court's suggestion that the employer came close to waiving its right to insist on arbitration indicates that employers seeking to enforce an arbitration clause should move to compel arbitration sooner rather than later.

Third, the court disposed of the employee's relatively weak claim that the arbitration clause was invalid because it did not provide sufficient notice that the employee was waiving his right to a jury trial of any federal statutory claims that might arise in the course of his employment. The court noted that the employment agreement had informed the employee that all disputes arising from his employment were subject to arbitration.

Fourth, the court found no merit to the employee's argument that the employment agreement's provision designating California law as governing rendered the arbitration clause invalid. This argument was based on the theory that the "governing law" provision deprived the employee of statutory remedies provided by Title VII and the ADEA. The court observed that for this argument to have any merit, the employee "would have to maintain that there is some aspect of California law that operates to bar [him] from maintaining his claims under Title VII and the ADEA," an argument the employee did not make.

Finally, the court rejected the employee's claim that the arbitration clause was unenforceable because the arbitral fo rum was inaccessible to him because of high administrative fees, high costs of the arbitrator, and the requirement set forth in the employment agreement that arbitration occur in California. The court stated that the employee's ability to pay his share of arbitration costs and fees was itself a question subject to arbitration, noting that the employer "may end up paying the lion's share of the costs and fees associated with arbitration," a risk that the employer had assumed by including an arbitration clause in the employment agreement. The court further observed that proceeding to arbitration presented the employee with no risk with respect to costs, stating that the arbitrator could not lawfully impose costs or fees upon the employee that exceeded the costs of litigation. Notably, however, the court took pains to clarify that the employee would have to absorb the costs of transportation to California, since he knew at the time he entered the employment agreement that California would be the arbitration site.

Klinedinst confirms that employers wishing to resolve employment disputes outside the courtroom, in the more economical and arguably more expedient forum of arbitration, can certainly do so. However, in order to be certain that employees cannot circumvent an arbitration clause contained in an employment agreement, employers should take care to do nothing to suggest to employees that there are alternatives to arbitration, and should move swiftly to compel arbitration once an employee takes her case to court.

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