Tesla’s Bid to Arbitrate Race Bias Claims Gets 9th Cir. Test

Posted April 16, 2019, 6:38 AM Bloomberg Law

Ninth Circuit to hear oral argument April 16

Trial court sent claims to arbitration based on circuit precedent

A former Tesla Inc. employee will try to convince a federal appeals court that his racial discrimination lawsuit should be litigated in an open courtroom and not forced into private arbitration.

The U.S. Court of Appeals for the Ninth Circuit is set to hear oral argument April 16 to consider whether workers who bring race bias claims under a 150-year-old civil rights law are bound by mandatory arbitration agreements. A federal judge in San Francisco ruled in 2018 that DeWitt Lambert’s discrimination lawsuit against Tesla belongs in arbitration.

The debate over arbitration agreements in recent years has often focused on the use of waivers that require workers to relinquish their rights to pursue claims on a class basis, which the U.S. Supreme Court blessed in a landmark 2018 ruling. But the Tesla case casts a spotlight on another feature of arbitration: it takes place outside of the public’s view.

Arbitration is a private process. Members of the public are barred from hearings, and the arbitrator can’t disclose information about the proceedings. Some companies also include confidentiality agreements in their arbitration pacts. A National Labor Relations Board judge invalidated Pfizer Inc.’s imposition of confidentiality over arbitration proceedings last month, although the full board hasn’t taken up the issue under its latest case law for workplace rules.

Employer efforts to keep what happens at the workplace away from public view, meanwhile, are getting renewed scrutiny in the wake of the #MeToo movement. 

Alleged Verbal and Physical Abuse

Lambert, who is black, claims he was subjected to months of harassment and discrimination while working as an electrician at Tesla’s manufacturing facility in Fremont, Calif. He alleges coworkers and supervisors insulted him, frequently using the N-word, and physically assaulted him.

A few days before Lambert sued Tesla in 2017, the electric car maker sent his lawyers an email signaling its concern about the public relations issues related to his accusations. Lambert’s lawyers showed Bloomberg Law that message.

“In terms of settlement, we are willing to pay Mr. Lambert $[redacted], but only if we are to resolve this matter before there is media attention, preferably within the next few hours,” a Tesla lawyer wrote. The attorney said that “there will be no deal” if there was media attention first.

Tesla has denied Lambert’s allegations. The company and its attorneys in the case didn’t respond to requests for comment. 

Resolving Disputes in Private

Moving discrimination lawsuits into private arbitration removes transparency and undermines the deterrent effect of civil rights litigation, according to one of Lambert’s attorneys, Navruz Avloni of California Civil Rights Law Group.

Resolving disputes in arbitration prevents the creation of an accessible record, which denies the public—and other plaintiffs—a view into a company’s conduct, Avloni said.

Yet the Supreme Court rejected those types of policy arguments en route to approving arbitration as a valid means to resolve workplace disputes, said Rae Vann of the management-side law firm NT Lakis. Those arguments have also “been proven false as a practical matter time and time again,” said Vann, who isn’t involved in the Tesla case. 

Precedent Cited in Moving Claims to Arbitration

Lambert filed a race discrimination lawsuit against Tesla in California state court in 2017, but a judge moved the case out of court based on Lambert’s arbitration agreement.

About six months later, Lambert sued Tesla in federal court under Section 1981 of the 1866 Civil Rights Act, which prohibits discrimination on the basis of race, color, and ethnicity when making and enforcing contracts. U.S. District Judge Vince Chhabria sent that case to arbitration, citing Ninth Circuit precedent.

The Ninth Circuit in 2003 ruled that discrimination claims brought under Title VII of the 1964 Civil Rights claims can be forced into arbitration due to a section of the 1991 Civil Rights Act that encourages alternative dispute resolution for those claims. Title VII and Section 1981 are similar enough so that the same rule must apply, Chhabria said.

Disagreement Over the Gilmer Test

Lambert said in his appellate brief that Chhabria ignored language in the 1991 law that limits the encouragement to send cases to arbitration to when it’s “appropriate and to the extent authorized by law.”

That limitation means that the trial judge should have applied the test from the Supreme Court’s 1991 ruling in Gilmer v. Interstate/Johnson Lane, which allows for mandatory arbitration of a statutory claim unless the law intends to keep disputes in the courtroom, or there’s a conflict between arbitration and the purpose of the law, he said.

Section 1981 claims aren’t subject to forced arbitration under Gilmer, Lambert said. The law, designed to give former slaves access to federal court, was enacted when arbitration was rare and courts were hostile to it, he said.

Tesla, however, said in its brief that Ninth Circuit precedent requires the arbitration of Lambert’s claim.

Moreover, Section 1981 claims pass the Gilmer test, Tesla said. There’s no evidence Congress meant to preclude them from arbitration, nor is the purpose of outlawing discrimination at odds with private arbitration, the company said.

Several federal court have sent Section 1981 claims to arbitration, including the Second and Eighth circuits, Tesla said.

Lambert’s bid is a longshot in light of the Gilmer test’s exceedingly low bar, said Imre Szalai, a Loyola University New Orleans law professor who has written extensively about arbitration. Szalai filed a brief supporting Lambert when the case was at the trial court level.

“Nothing has failed the Gilmer test,” Szalai said. “But if there’s one candidate for failing that test, it’s Section 1981.”

The case is Lambert v. Tesla, 9th Cir., No. 18-15203, oral argument 4/16/19.

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