Landmark Supreme Court Ruling Favors Arbitration of Employment Disputes

What church leaders need to know.

By a 5-4 vote, the United States Supreme Court ruled that a clause in an employment application requiring disputes to be settled through binding arbitration was legally enforceable. As a result, the Court threw out a lawsuit brought by an employee for alleged violations of a state nondiscrimination law and ordered the dispute to be resolved through arbitration. The Court did not address whether arbitration clauses in employment applications and contracts can preempt the EEOC of jurisdiction to process discrimination claims under federal laws. That issue will be addressed by the Supreme Court in another case later this year. However, the Court's conclusion that employers can compel employees to resolve their disputes under state law through binding arbitration is a significant victory for employers. Unlike federal law, most state nondiscrimination laws contain no limit on money damages and so the biggest exposure to liability is for state law violations. This article reviews the Court's historic ruling, describes the many advantages of arbitration, and provides church leaders with information that will help them evaluate whether or not they should implement an arbitration policy for employees.

Key point Negligence as a Basis for Liability Churches have various defenses available to them if they are sued as a result of a personal injury. One such defense is an arbitration policy. By adopting an arbitration policy, a church can compel members to arbitrate specified disputes with their church rather than pursue their claim in the civil courts.

The arbitration of disputes has many advantages over litigation in the civil courts. Consider the following:

(1) a much faster resolution of disputes

(2) lower attorneys' fees

(3) arbitration awards are often less than civil court judgments

(4) little if any risk of punitive damages, or astronomical verdicts out of proportion to the alleged wrong

(5) disputes are resolved privately, with little or no media attention

(6) the spectacle of plaintiffs' attorneys appealing to the emotions of juries through courtroom theatrics is eliminated

(7) arbitration can reconcile the parties to a dispute unlike civil litigation in which the parties almost always enter and leave court as enemies

(8) no threatening letters from attorneys demanding exorbitant payoffs in order to avoid litigation

(9) parties to a dispute can select one or more arbitrators having specialized knowledge concerning the issues involved (unlike civil court judges who often have limited familiarity with applicable law)

(10) arbitration awards are final (no time-consuming appeals)

With these numerous advantages, arbitration is becoming an increasingly common way of resolving disputes. A recent decision by the United States Supreme Court will make arbitration of disputes even more common, especially for employment disputes. This article will review the facts of the Supreme Court's landmark ruling, summarize the court's ruling, and assess the significance of the case to churches.


In 1995 a man ("Brian") applied for a job at a local Circuit City store in California. Brian signed an employment application which included the following provision:

I agree that I will settle any and all previously unasserted claims, disputes or controversies arising out of or relating to my application or candidacy for employment, employment and/or cessation of employment with Circuit City, exclusively by final and binding arbitration before a neutral Arbitrator. By way of example only, such claims include claims under federal, state, and local statutory or common law, such as the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, including the amendments of the Civil Rights Act of 1991, the Americans with Disabilities Act, the law of contract and the law of tort.

Brian was hired as a sales counselor by the store. Two years later, Brian filed an employment discrimination lawsuit against Circuit City in state court, asserting claims under California's Fair Employment Act and other claims under California law. Circuit City asked a federal court to throw out Brian's lawsuit and compel arbitration of his claims pursuant to the arbitration provision in the employment application. The court granted Circuit City's requests. It concluded that Brian was obligated by the arbitration agreement to submit his claims against his employer to binding arbitration. Brian appealed. A federal appeals court ruled that the Federal Arbitration Act excluded all employment contracts from mandatory arbitration, and on that basis ruled that the arbitration provision in the Circuit City employment application was unenforceable. Circuit City appealed to the Supreme Court.

The Court's Ruling

Congress enacted the Federal Arbitration Act ("FAA") in 1925 as a response to the hostility of American courts to the enforcement of arbitration agreements. To give effect to this purpose, the FAA compels judicial enforcement of a wide range of written arbitration agreements. The FAA specifies that

[a] written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

The FAA excludes from coverage "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." As a result, arbitration cannot be mandated in employment contracts for these workers. But, does this exemption apply only to employment contracts of seamen, railroad employees, and other "transportation" employees, or does it apply to the employment contracts of all employees regardless of their occupation? Prior to the Supreme Court's ruling, most courts had interpreted this exemption to extend to employment contracts of transportation workers only, but not other employment contracts. The Supreme Court agreed with this interpretation. Since Brian was not engaged in the transportation industry, the arbitration provision in his employment application was enforceable pursuant to the FAA. The Court observed,

The exemption clause provides the Act shall not apply "to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." Most Courts of Appeals conclude the exclusion provision is limited to transportation workers, defined, for instance, as those workers "actually engaged in the movement of goods in interstate commerce" …. [The federal appeals court in this case] takes a different view and interprets the exception to exclude all contracts of employment from the reach of the FAA …. [T]he words "any other class of workers engaged in … commerce" constitute a residual phrase, following, in the same sentence, explicit reference to "seamen" and "railroad employees." Construing the residual phrase to exclude all employment contracts fails to give independent effect to the statute's enumeration of the specific categories of workers which precedes it; there would be no need for Congress to use the phrases "seamen" and "railroad employees" if those same classes of workers were subsumed within the meaning of the "engaged in … commerce" residual clause. The wording calls for the application of the maxim ejusdem generis, the statutory canon that "[w]here general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words." Under this rule of construction the residual clause should be read to give effect to the terms "seamen" and "railroad employees," and should itself be controlled and defined by reference to the enumerated categories of workers which are recited just before it; the interpretation of the clause pressed by respondent fails to produce these results …. [T]he FAA [exempts] only contracts of employment of transportation workers.

The Court noted that attorneys general of 22 states had filed briefs supporting the exemption of all employment contracts from mandatory arbitration under the FAA. They argued that, by requiring arbitration agreements in most employment contracts to be covered by the FAA, the Act in effect "pre-empts" those state employment laws which restrict or limit the ability of employees and employers to enter into arbitration agreements. They claimed that states should be permitted, pursuant to their traditional role in regulating employment relationships, to prohibit employees like Brian from contracting away their right to pursue state law discrimination claims in court. The Supreme Court simply noted that it had ruled in a previous case that Congress intended the FAA to apply in state courts, and to pre-empt state "anti-arbitration" laws to the contrary. Southland Corp. v. Keating, 465 U.S. 1 (1984).

The Court stressed the advantages of arbitration agreements:

There are real benefits to the enforcement of arbitration provisions. We have been clear in rejecting the supposition that the advantages of the arbitration process somehow disappear when transferred to the employment context. Arbitration agreements allow parties to avoid the costs of litigation, a benefit that may be of particular importance in employment litigation, which often involves smaller sums of money than disputes concerning commercial contracts. These litigation costs to parties (and the accompanying burden to the courts) would be compounded by the difficult choice-of-law questions that are often presented in disputes arising from the employment relationship and the necessity of bifurcation of proceedings in those cases where state law precludes arbitration of certain types of employment claims but not others.

The Court noted that expanding the FAA's exemption provision to include all employment contracts, as Brian urged, "would call into doubt the efficacy of alternative dispute resolution procedures adopted by many of the nation's employers, in the process undermining the FAA's pro-arbitration purposes and 'breeding litigation from a statute that seeks to avoid it.'"

The Court also noted that in prior rulings it had been "quite specific in holding that arbitration agreements can be enforced under the FAA without contravening the policies of congressional enactments giving employees specific protection against discrimination prohibited by federal law … [and that] by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum."

Relevance To Church Leaders

Our research reveals that churches are increasingly being sued for employment-related claims. To illustrate, in 1999 (the most recent year we have examined) employment-related claims were the number one cause of church litigation. Employment-related claims include wrongful dismissal, unemployment benefits, workers compensation, the selection of ministers, and various kinds of discrimination claims (including race, national origin, sex, religion, age, and disability).

Key point. According to Forbes magazine, employment disputes now represent one-third of all cases pending in federal court, and one-fifth of all cases pending in state court.

Employment-related claims are significant not only because of their number, but also because they represent an uninsured risk for most churches. Most church general liability insurance policies contain no coverage for such claims. This means that a church that is sued for such a claim will be compelled to hire and pay its own attorney, and pay any settlement or court judgment. The costs associated with even a single claim can be substantial, and this can force a church to divert funds budgeted for ministry to the payment of attorneys and possibly a settlement or judgment.

Further, if a discrimination complaint is filed by a current or former employee with the Equal Employment Opportunity Commission (EEOC) or its state or local counterparts, this can lead time-consuming and often unpleasant interaction with government investigators that many church leaders have found to be condescending if not hostile toward religion.

Clearly, it is in the best interests of every church to consider alternatives to civil litigation. The Supreme Court case addressed in this article demonstrates that arbitration is a legally valid alternative.

Here are some points for church leaders to consider:

1. the arbitration of employment claims under state law

In the past, some courts and state legislatures attempted to impose limits on the enforceability of arbitration provisions in employment contracts under state law. The Supreme Court's decision in the Circuit City case addressed the enforceability of arbitration provisions in the context of state employment or civil rights claims. The Court concluded that (1) arbitration provisions are enforceable, and are not barred by the Federal Arbitration Act (for employees not directly engaged in transportation); and (2) the FAA preempts states laws that seek to impose limits on the enforceability of arbitration provisions in employment contracts. It is now clear that employers can compel employees to arbitrate wrongful dismissal and discrimination claims under state law by inserting valid arbitration provisions in employment contracts and applications.

2. the arbitration of employment claims under federal law

Can a clause in an employment application or contract calling for binding arbitration of employment disputes pre-empt the jurisdiction of the EEOC under federal employment and civil rights laws? Consider the following example.

Example. A church employs Barb as an office secretary. After working for the church for two years, Barb is dismissed because of extramarital sexual relations in violation of the church's religious and moral teachings. Barb files a complaint with the EEOC claiming that her dismissal constituted unlawful sex discrimination in violation of Title VII of the federal Civil Rights Act of 1964 since the church had not dismissed a male youth pastor who was guilty of the same kind of misconduct a year earlier. The church insists that the EEOC must drop its investigation since Barb signed an employment application prior to being hired in which she agreed to resolve all legal disputes with the church, including discrimination claims under Title VII, through binding arbitration.

Is the EEOC deprived of jurisdiction over this claim by virtue of the arbitration clause in the church's employment application? This issue was not addressed directly by the Supreme Court in the Circuit City case. The Court's decision contains language suggesting that arbitration clauses can compel employees to resolve disputes alleging violations of federal employment laws through arbitration. The Court has agreed to resolve this important issue, and a ruling is expected by the end of the year in the "Waffle House" case. EEOC v. Waffle House, Inc., 193 F.3d 805 (4th Cir. 1999). In the Waffle House case an applicant for employment (Eric) signed an employment application with a local Waffle House restaurant that required him to submit to binding arbitration "any dispute or claim concerning [his] employment with Waffle House, Inc., or any subsidiary or Franchisee of Waffle House, Inc., or the terms, conditions or benefits of such employment." Eric was hired, and a few weeks later he suffered a seizure while at work. Waffle House dismissed Eric, stating in the separation notice that "We decided that for [his] benefit and safety, and Waffle House, it would be best he not work here any more." Chris filed a charge of discrimination with the EEOC, complaining that his discharge violated the federal Americans With Disabilities Act of 1990 ("ADA"). The EEOC later sued Waffle House and sought (1) a court order prohibiting Waffle House from discriminating on the basis of disability in any employment decision; and (2) a court order requiring Waffle House to institute an anti-discrimination policy; (3) backpay for Chris and reinstatement in his job; and (4) compensatory and punitive damages for Chris. Waffle House insisted that the arbitration provision in the employment contract required the court to dismiss the ADA suit and refer the matter to arbitration.

A federal appeals court ruled that the arbitration provision was valid and enforceable, and was binding not only on Chris but also on the EEOC with respect to claims it brought on Chris's behalf. This meant that the claims for backpay, reinstatement, and compensatory and punitive damages had to be dismissed and referred to arbitration. On the other hand, the EEOC's requests for court orders compelling Waffle House to cease any further discrimination on the basis of disability, and to implement an anti-discrimination policy, could be resolved by the court because these claims were brought by the EEOC in its own right rather than as a representative of Chris. The court concluded,

[T]he EEOC, acting in its public role, is not bound by private arbitration agreements. Although a private arbitration agreement does bar an individual claimant from asserting claims in court, it does not prevent him from filing a charge with the EEOC. This rule demonstrates … that the EEOC's suit can accomplish aims-namely, combating discrimination on a societal level-that an individual's suit is not equipped, nor perhaps intended, to accomplish …. While we have thus observed that the important role of the EEOC in vindicating the public interest in preventing and eradicating workplace discrimination is not to be restricted by arbitration agreements to which it is not a party, its role in vindicating in federal court the individual interests of the charging party implicates the competing federal policy favoring the enforcement of arbitration agreements. When an individual and an employer agree to submit employment disputes to arbitration, it is the federal policy to give that contract effect in order to favor the arbitration mechanism for dispute resolution. To permit the EEOC to prosecute in court [Eric's] individual claim-the resolution of which he had earlier committed by contract to the arbitral forum-would significantly trample this strong policy favoring arbitration. Because [Eric's] own suit in court to enforce his ADA claim would be barred by his contract and by the federal policy embodied in the FAA, only a stronger, competing policy could justify allowing the EEOC to do for Eric what he could not have done himself. The EEOC's public mission to eradicate and to prevent discrimination may be such a policy in certain contexts, but, as we conclude herein, it cannot outweigh the policy favoring arbitration when the EEOC seeks relief specific to the charging party who assented to arbitrate his claims.

In summary, while the EEOC "may seek injunctive relief in the federal forum for employees even when those employees have entered into binding arbitration agreements," it may not pursue relief in court [such as money damages] specific to individuals who have waived their right to a judicial forum by signing an arbitration agreement." When the EEOC seeks reinstatement and monetary damages for an employee who claims to have been the victim of unlawful employment discrimination under federal law, "the federal policy favoring enforcement of private arbitration agreements outweighs the EEOC's right to proceed in federal court because in that circumstance, the EEOC's public interest is minimal, as the EEOC seeks primarily to vindicate private, rather than public, interests. On the other hand, when the EEOC is pursuing large-scale injunctive relief, the balance tips in favor of EEOC enforcement efforts in federal court because the public interest dominates the EEOC's action."

Key point. If the Supreme Court affirms the federal appeals court's decision in the Waffle House case, this will be good news for employers since it will mean that they can compel employees to resolve their demands for money damages resulting from alleged violations of federal employment laws through binding arbitration. All of the advantages associated with arbitration (summarized at the beginning of this article) will be realized.

Key point. If the Supreme Court reverses the federal appeals court's decision in the Waffle House case, this will mean that arbitration clauses in employment applications and contracts do not deprive the EEOC of jurisdiction to process discrimination complaints under federal law (including both injunctive relief and money damages for individual victims of discrimination). However, note that if the Supreme Court overturns the Waffle House case there is still a significant advantage to using arbitration clauses in employment applications and contracts. The Supreme Court concluded in the Circuit City case that arbitration clauses prevent employees from pursuing discrimination or wrongful dismissal claims under state law. And, it is these state law claims that expose employers to the greatest amount of money damages since there are limits on employer liability under Title VII of the federal Civil Rights Act of 1964. The Civil Rights Act of 1991 limits the amount of compensatory and punitive damages that are available to most discrimination victims. For example, employers with fewer than 101 employees (the vast majority of churches) cannot be liable for more than $50,000 to any one person. Because of these limits, plaintiffs' attorneys who represent current and former employees routinely file claims under state law. It is these state law claims that expose employers to substantial jury verdicts, and it is these that the Supreme Court has said may be pre-empted by arbitration provisions.

3. should our church compel employees to arbitrate employment claims?

This is a question that every church should consider. In answering this question, there are a number of points that should be considered:

(1) The advantages to arbitration, listed at the beginning of this article, should be reviewed.

(2) Remember that employment claims currently represent the most likely basis for lawsuits involving churches.

(3) Is your church subject to state or federal civil rights laws protecting employees against various forms of discrimination? What about other kinds of employment claims, such as wrongful dismissal?

(4) Employment lawsuits generally are not covered under church general liability insurance policies. This means that if your church is sued for such a claim, you may be required to hire and pay your own attorney, and pay any settlement or court judgment. The costs associated with a single claim can be substantial.

(5) Check with your insurance agent to see if your church has insurance to cover employment claims. Remember that such coverage may be available under a directors and officers insurance policy, if you have one, even if it is not provided under your general liability policy.

Key point. If you don't have coverage for employment claims, then arbitration may help your church limit the costs associated with such claims. But remember, the costs associated with a single claim may be substantial. As a result, church leaders should discuss with their insurance agent or broker the availability of employment practices insurance coverage. And, they should take steps to minimize or manage the risk of employment-related legal claims. We publish three resources that can help: (1) Pastor, Church & Law (3rd ed. 2000) by Richard Hammar; (2) The Church Guide to Employment Law by Julie Bloss; and (3) Risk Management For Churches and Schools by Richard Hammar and James Cobble. All of these resources can be obtained by calling Christian Ministry Resources (1-800-222-1840), or by visiting the bookstore on our web site,

(6) If you have insurance to cover employment claims, then check with your insurance company to be sure that an arbitration award would be honored under your insurance policy up to your coverage limits.

(7) Be sure to consult with an attorney concerning the advantages and disadvantages of an arbitration policy. You may want to have an attorney meet with your board or congregation concerning this issue. If possible, use an attorney who specializes in employment law.

(8) Many cite 1 Corinthians 6:1-8 as scriptural support for the arbitration of internal church disputes. This passage is quoted below:

if any of you has a dispute with another, dare he take it before the ungodly for judgment instead of before the saints? Do you not know that the saints will judge the world? And if you are to judge the world, are you not competent to judge trivial cases? Do you not know that we will judge angels? How much more the things of this life! Therefore, if you have disputes about such matters, appoint as judges even men of little account in the church! I say this to shame you. Is it possible that there is nobody among you wise enough to judge a dispute between believers? But instead, one brother goes to law against another-and this in front of unbelievers! The very fact that you have lawsuits among you means you have been completely defeated already. Why not rather be wronged? Why not rather be cheated? Instead, you yourselves cheat and do wrong, and you do this to your brothers.

4. how do we implement a policy for the arbitration of employment disputes?

If your church decides to implement an arbitration policy for the resolution of disputes with employees, how do you do so? Given the importance of having a policy that complies with local law, we recommend that any church wanting to adopt an arbitration policy retain the services of a local attorney who specializes in employment law. The last thing you want is a false sense of security based on a home-made and unenforceable arbitration policy. Here are some recommendations you may want to share with your attorney:

(1) Check with other churches in your state and find some that have adopted arbitration policies. Ask if you can see their policies.

(2) Ask your insurance company if it has sample arbitration policies for churches.

(3) Be sure that the arbitration policy covers claims under federal, state, and local civil rights and employment laws. Ideally, you will want to refer to applicable laws by name. If you don't, then employees may be able to avoid arbitration by saying that they did not understand what they were agreeing to arbitrate because the arbitration clause was not specific enough.

(4) Be sure the arbitration policy contains a "severability" clause. Such a clause states that if any provision of the policy is determined to be invalid by a court of law, the remaining provisions will remain valid. To illustrate, if the Supreme Court reverses the Waffle House case, then employees cannot be compelled to arbitrate claims under federal civil rights laws. A church arbitration clause that covers both federal and state claims will likely remain valid as to state claims, and this conclusion will be reinforced by the presence of a savings clause.

Your attorney will assist you in deciding whether to place the arbitration policy in your employment application, in an employee handbook, or both.

A sample arbitration agreement drafted by the National Arbitration Forum is reproduced in this article. NAF is a nationwide network of retired judges, litigators, and law professors who share the Forum principle that disputes should be decided according to established legal principles. NAF is the only national arbitration provider whose arbitrators take an oath promising to render legal decisions according to the law, rather than undefined "equity." To meet NAF standards, each arbitrator has more than 15 years legal experience and has arbitrated commercial, financial, and business disputes. Each is qualified under local rules in their community and jurisdiction. As arbitrators, each understands that judgment must be made on the basis of applicable law rather than what "seems fair" to one person. Forum arbitrators and mediators are located in the federal judicial district of every state in the nation. Service is nationwide, no matter where the dispute arises. NAF can be reached at, or by mail at P.O. Box 50191, Minneapolis, MN 55405, or by calling 1-800-474-2371.

Key point. The NAF sample arbitration policy should not be used by churches without appropriate modifications and the assistance of a local attorney to ensure compliance with local law.

5. what about employment disputes regarding ministers?

There is no reason to exclude ministers from a church's arbitration policy. However, note the following unique rules:

(1) Most courts have ruled that ministers are not protected by federal and state civil rights laws since the first amendment religious clauses prevent the civil courts from deciding "who will preach from the pulpit." Therefore, you may want to exclude ministers, or those serving in positions that would be deemed "ministerial," from your arbitration policy. In other words, why submit claims to arbitration that the civil courts would not accept? On the other hand, some churches may prefer to arbitrate all employee claims, including those brought by ministers.

(2) Many churches have governing documents (such as bylaws) that prescribe how ministers are selected and removed. If a congregation acts to remove a minister in accordance with its governing document and the minister threatens to challenge the church's decision, you need to decide if this is the kind of claim you want to submit to arbitration. That is, if the church acts consistently with its bylaws in removing the pastor, should the pastor be able to use the church's arbitration policy to challenge the church's decision? Once again, the courts generally have not been willing to resolve such claims.

(3) In some churches, ministers are selected and removed only through action of a parent denominational agency. Employment claims involving ministers may be resolved within the denomination using existing procedures. Arbitrating such claims may conflict with denominational rules. This issue must be clarified with denominational officers before adopting an arbitration policy.

6. what about the arbitration of other claims?

This article is addressing only the arbitration of disputes involving employees. Church leaders may want to consider adopting a separate policy to resolve disputes involving members and the church, or disputes between members.

7. civil court review of arbitration awards

Note that the Federal Arbitration Act cautions that "an agreement in writing to submit to arbitration an existing controversy … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." In other words, an agreement to arbitrate is a contract, and like any contract, is subject to challenge on the basis of a number of legal theories. This is why it is so important for churches to have arbitration policies drafted by an attorney who specializes in employment law.

8. what about current employees who have not signed an arbitration agreement?

Let's say that your church has 7 employees, and that you decide to adopt an arbitration policy this year. Will your policy be binding on existing employees, or only on new employees hired after implementation of the policy? The courts have reached conflicting answers to this question. Ask your attorney how to best ensure that your policy covers both current and future employees. The basic idea here is that new employment conditions, such as the arbitration of disputes, are not legally enforceable unless employees receive something of value (other then compensation or benefits to which they are already entitled). For example, some courts have ruled that an agreement to arbitrate future employment claims is enforceable if incorporated into current employees' annual performance reviews. Miller v. Public Storage Management, Inc., 121 F.3d 215 (5th Cir. 1997). Other courts have allowed an arbitration policy to apply to current employees so long as they agree in writing to be bound by the policy at the time they receive a pay raise.

Sample Agreement to Arbitrate Claims

[This document should not be construed as legal advice. If you need legal advice, consult an attorney in your area.]

In recognition of the fact that differences may arise between the Company, as defined below, and the undersigned ("Employee") during or after Employee's employment which may or may not be related to Employee's employment, and in recognition of the fact that resolution of any differences in the courts is rarely time or cost effective for either party, the Company and the Employee have entered into this Mutual Agreement to Arbitrate Claims ("Agreement") in order to establish and gain the benefits of a speedy, impartial and cost-effective dispute resolution procedure.

1. Agreement to Arbitrate; Designated Claims. The parties agree that all references to the "Company" in this Agreement shall include all of its subsidiary and affiliated entities, including all former, current and future officers, directors and employees of all such entities, in their capacity as such or otherwise; all benefit plans and their sponsors, fiduciaries, administrators, affiliates and agents, in their capacity as such and otherwise; and all successors and assigns of any of them. Except as otherwise provided in this Agreement, the Company and the Employee hereby consent to the resolution by arbitration of all claims or controversies for which a federal or state court or other dispute resolution body otherwise would be authorized to grant relief, whether or not arising out of, relating to or associated with the Employee's employment with the Company, or its termination, including, but not limited to, any claims or controversies arising out of, relating to or associated with the Employee's application for employment and the Company's hiring of the Employee, that the Employee may have against the Company or that the Company may have against the Employee. The Claims covered by this Agreement include, but are not limited to, claims for wages or other compensation due; claims for breach of any contract or covenant, express or implied; tort claims; claims for discrimination or harassment on bases which include but are not limited to race, sex, sexual orientation, religion, national origin, age, marital status, disability or medical condition; claims for benefits, except as excluded in paragraph 4; and claims for violation of any federal, state or other governmental constitution, statute, ordinance, regulation, or public policy. The purpose and effect of this Agreement is to substitute arbitration as the forum for resolution of the Claims; all responsibilities of the parties under the statutes applicable to the Claims shall be enforced.

2. Governing Law. The parties agree that the Company is engaged in transactions involving interstate commerce. Except as provided in this Agreement, the Federal Arbitration Act shall govern the interpretation, enforcement and all proceedings pursuant to this Agreement; and all arbitrations covered by this Agreement shall be adjudicated in accordance with the state or federal law which would be applied by a United States District Court sitting at the place of the hearing, including applicable statutes of limitations.

3. Waiver of Right to Jury. By entering into this Agreement, the Company and Employee each knowingly and voluntarily waive any and all rights they have under law to a trial before a jury.

4. Claims Not Covered by This Agreement. This Agreement does not apply to or cover claims for workers' compensation or unemployment compensation benefits; claims resulting from the default of any obligation of the Company or the Employee under a mortgage loan which was granted and/or serviced by the Company; claims for injunctive and/or other equitable relief for intellectual property violations, unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information; or claims based upon an employee pension or benefit plan that either (1) contains an arbitration or other non-judicial resolution procedure, in which case the provisions of such plan shall apply, or (2) is underwritten by a commercial insurer which decides claims. If either the Company or the Employee has more than one claim against the other, one or more of which is not covered by this Agreement, such claims shall be determined separately in the appropriate forum for resolution of those claims. Nothing in this Agreement shall preclude the parties from agreeing to resolve claims other than Claims covered by this Agreement pursuant to the provisions of this Agreement.

5. Initiation of the Arbitration Process. To initiate the arbitration process, the aggrieved party must file a written Claim. Claims can be filed with any office of the National Arbitration Forum ("NAF"), electronically at www. or by mail at Post Office Box 50191, Minneapolis, MN 55405. Service of the Claim upon the responding party shall be made in accordance with the NAF Code of Procedure ("Code"). Copies of the Code are available upon request from the Human Resources Department in each of the Company's major facilities and from each of the Regional Offices, as well as from the NAF at each of its offices, its web site or by calling (800)474-2371.

6. Arbitration Procedures. Arbitrations pursuant to this Agreement shall be conducted by the NAF in accordance with the procedures set forth in the Code, except where the Code conflicts with this Agreement, in which case the terms of this Agreement shall govern. Arbitration hearings covered by this Agreement are to be held within the Federal Judicial District in which Employee was last employed with the Company. In the event NAF is unable or unwilling to administer the arbitration, then JAMS/Endispute, Inc. will administer any arbitration required under the Agreement pursuant to its Arbitration Rules and Procedures for Employment Disputes, as modified by this Agreement.

7. Representation. Each party may be represented by an attorney at any arbitration covered by this Agreement.

8. Fees and Costs. The party requesting the arbitration shall pay to NAF its filing fee up to a minimum of $125. 00 when the Claim is filed. The Company shall pay for the remainder of the NAF filing fee. The Company shall pay for the first hearing day. All other arbitration costs shall be shared equally by the Company and the Employee. Each party shall pay for each party's own costs and attorneys' fees, if any. However, the arbitrator may, in his or her discretion, permit the prevailing party to recover fees and cost only to the extent permitted by applicable law.

9. Discovery. The parties shall be entitled to engage in discovery in the form of requests for documents, interrogatories, requests for admission, physical and/or mental examinations and depositions; however, each side shall be limited to three depositions and an aggregate of 30 discovery requests of any kind, including sub-parts, except as mutually agreed to by the parties. Physical and/or mental examinations must be justified under the standards set forth by the Federal Rules of Civil Procedure. A deposition of a corporate representative shall be limited to no more than four designated subjects. At a mutually agreeable date, the parties will exchange lists of experts who will testify at arbitration. Each side may depose the other side's experts, and obtain the documents they reviewed and relied upon, and these depositions will not be charged to the parties' aggregate limit on discovery requests or the three deposition limit. Any disputes concerning discovery shall be resolved by the arbitrator, with a presumption against increasing the aggregate limit of requests; additional discovery requests shall be granted only upon a showing of good cause.

10. Motions. The arbitrator will have the authority to grant motions dispositive of all or part of any Claim.

11. Exclusive Remedy. For Claims covered by this Agreement, arbitration is the parties' exclusive remedy. The arbitrator has exclusive authority to resolve any dispute relating to the applicability or enforceability of this Agreement. The decision of an arbitrator on any Claims submitted to arbitration as provided by this Agreement shall be in writing setting forth the findings of fact and law and the reasons supporting the decision and shall be final and binding upon the parties, except that both parties shall have the right to appeal to the appropriate court any errors of law in the decision rendered by the arbitrator.

12. Consideration. In addition to any other consideration, each party's promise to resolve Claims by arbitration in accordance with the provisions of this Agreement, rather than through the courts or other bodies, is consideration for the other party's like promise.

13. Not an Employment Agreement. This Agreement is not, and shall not be construed to create, any contract of employment, express or implied, nor shall this Agreement be construed in any way to change the status of the Employee from at-will.

14. Term, Modification, and Revocation. This Agreement shall survive the employer-employee relationship between the Company and the Employee and shall apply to any covered Claim whether it arises or is asserted during or after termination of the Employee's employment with the Company or the expiration of any benefit plan. This Agreement can be modified or revoked only by a writing signed by the Employee and an executive officer of the Company that references this Agreement and specifically states an intent to modify or revoke this Agreement.

15. Severability. If any provision of this Agreement or the Code is adjudged to be void or otherwise unenforceable, in whole or in part, such adjudication shall not affect the validity of the remainder of the Agreement or the Code.

16. Sole and Entire Agreement. This is the complete agreement of the parties on the subject of arbitration of disputes, except for any arbitration provision contained in any pension or benefit plan. This Agreement supersedes any prior or contemporaneous oral or written agreement or understanding on the subject. In executing this Agreement, neither party is relying on any representation, oral or written, on the subject of the effect, enforceability or meaning of this Agreement except as specifically set forth in this Agreement.

Each party to this agreement acknowledges carefully reading this agreement, understanding its terms, and entering into this agreement voluntarily and not in reliance on any promises or representations other than those contained in this agreement itself.

Each party further acknowledges having the opportunity to discuss this agreement with personal legal counsel and has used that opportunity to the extent desired.

Circuit City Stores, Inc. v. Adams,___ U.S. ___ (2001)

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