Outsourcing Justice

Class Action Killer – Second Circuit decision

In Parisi v. Goldman, Sachs & Co., 710 F.3d 483 (2d Cir. 2013), the Second Circuit recently reversed a district court’s denial of a motion to compel arbitration.  The plaintiff, a former managing director at Goldman, Sachs, brought a class action against her former employer for engaging in a “pattern and practice” of gender discrimination.  Relying on the Federal Arbitration Act, the employer asked the court to enforce an arbitration clause in the plaintiff’s managing director agreement.  The district court refused to enforce the arbitration clause because compelling an individual arbitration would prohibit the plaintiff from vindicating a statutory right to bring a “pattern or practice” claim.  However, the Second Circuit disagreed and reversed the district court because there was no right to bring a substantive “pattern or practice” claim under civil rights law.  The Second Circuit explained that a “pattern or practice” theory was merely a method of proof and not a substantive claim, and thus the plaintiff’s vindication of rights argument failed.

This vindication of rights argument is currently before the Supreme Court this term in the American Express v. Italian Colors Restaurant case.

The effect of the Second Circuit’s decision is that the plaintiff will have to pursue her claim individually before an arbitrator, instead of bringing a class action in court.  This inability to pursue a class action is problematic, but there is a more fundamental reason why the Second Circuit’s decision is wrong.  As demonstrated in my book, although the drafters of the Federal Arbitration Act desired the law to cover arbitration agreements in the employment context, the drafters reluctantly agreed to exempt employment contracts from the coverage of the statute.  The Federal Arbitration Act was intended to cover simple contract disputes between merchants, such as disputes regarding the quality of goods, not complex statutory claims in the employment context.