ARBITRATION CLAUSES

AND PUBLIC POLICY

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?