Employment discrimination action dismissed in favor of arbitration under employment agreement

In Ratliff v. Costar Realty Information, Inc., No. 11-0813 (D. Md. July 7, 2011), the U.S. District Court for the District of Maryland granted a motion to compel arbitration of an employment discrimination action. At the time she was hired, the plaintiff signed an employment agreement with Costar, which included an arbitration clause. The arbitration clause expressly included that obligation to arbitrate employment disputes concerning claims for discrimination or harassment.

Nine months after she was hired, the plaintiff was terminated. He later filed suit, alleging racial discrimination and retaliation in violation of federal and state laws. After removing the action to federal court, Costar filed an answer and then three days later, filed its motion to compel arbitration.

The plaintiff opposed the motion to compel arbitration on the grounds that (1) the arbitration agreement was illusory; (2) the arbitration agreement was unsconsionable; and (3) Costar waived its right to arbitrate due to delay in demanding arbitration. The district court rejected all three arguments.

The district court ruled that the arbitration agreement was not illusory, notwithstanding that the employee handbook stated that the employer had the right to change any of its guidelines, policies, practices, working conditions, or benefits at any time, because the arbitration agreement was a separate document from the employee handbook. The agreement to arbitrate was not a policy or benefit contained in the employee handbook. Further, the arbitration agreement contained mutual promises, so it was supported by consideration.

The court rejected the argument that the arbitration agreement was unconscionable, because the agreement did not deprive plaintiff of the right to raise any of the substantive claims she brought in her civil complaint. Further, not only did the arbitration agreement impose the same obligations on Costar, it provided that Costar would pay all costs of commencing arbitration and the remainder of the arbitration fees.

Finally, the court rejected the waiver argument, since Costar moved to arbitration just three days after it filed its answer.

Since all the issues presented in the lawsuit were arbitrable, the court dismissed the lawsuit, rather than stay the proceedings.

This opinion illustrates how an employer can draft an arbitration agreement for employment disputes that will pass muster with the courts.