Annette Phillips began working as a bartender at a Hooters restaurant in South Carolina in 1989. Five years later, Hooters initiated an alternative dispute resolution program among its employees. As part of that program, the company conditioned eligibility for raises, transfers, and promotions upon an employee’s signing an agreement to arbitrate employment-related disputes including, among other issues, discrimination or sexual harassment claims. The agreement provided for binding arbitration in accordance with a standard set of rules that were created and administered by Hooters. In 1994 and again in 1995, Phillips signed the agreement but did not obtain a copy of the rules. In 1996, Phillips quit her job and refused to arbitrate based on the unfairness of the Hooters arbitration rules. Among the provisions she found to be unfair were:

The requirement that arbitrators be selected exclusively from a list provided by Hooters.

Hooters’s rights to expand the scope of the arbitration, to move for summary dismissal, and to record the proceeding without any similar rights for the employee.

Hooters’s unilateral authority to bring an arbitration award to court in order to vacate or modify the award if the company could show that the panel had exceeded its authority.

After Phillips notified Hooters that she intended to file suit for sexual harassment and employment discrimination, Hooters filed suit to compel arbitration. The district court ruled in favor of Phillips and held that the arbitration clause was unenforceable and void because it was not a true meeting of the minds required for an enforceable agreement between the parties and that the clause was void as a matter of public policy. Hooters appealed.

CASE QUESTIONS

1. Who prevails and why?

2. Why do you think that Hooters chose to include a mandatory arbitration clause in its employment contracts?

3. Had Phillips been provided a copy of the rules when she signed the employment contract, would this change your analysis? Why or why not?