RICHMOND, Va. (AP) _ Hooters' process for resolving worker disputes is so biased in the restaurant chain's favor that it makes fair arbitration of employee complaints impossible, a federal appeals court ruled Thursday.

The unanimous decision by a three-judge panel of the 4th U.S. Circuit Court of Appeals clears the way for a sexual harassment lawsuit by Annette R. Phillips, a former Myrtle Beach, S.C., waitress and bartender.

Businesses can ask employees to resolve disputes through arbitration to avoid costly lawsuits. But U.S. District Judge Cameron Currie of Florence, S.C., ruled last March that Hooters' system ``fails miserably to satisfy even the most basic requirements of a commercially reasonable arbitration scheme.''

Hooters appealed to the 4th Circuit, which also found the Georgia-based company's arbitration procedure flawed.

``By promulgating this system of warped rules, Hooters so skewed the process in its favor that Phillips has been denied arbitration in any meaningful sense of the word,'' Judge J. Harvie Wilkinson III wrote.

The court said Hooters' arbitration rules require the complaining employee, but not the company, to provide a list of witnesses. They also give the company control of the selection of the three-person arbitration panel and allow Hooters, but not the employee, to expand the scope of the hearing.

``The Hooters rules when taken as a whole ... are so one-sided that their only possible purpose is to undermine the neutrality of the proceeding,'' Wilkinson wrote.

Ms. Phillips alleges a former manager exposed himself, flashed his underwear and made waitresses play ``degrading games'' to determine which tables they would serve.

She quit after a relative of a Hooters executive slapped and grabbed her buttocks, then threatened her in front of customers, the January 1997 suit alleges.

Hooters went to federal court to force her into arbitration, which she had agreed to in writing, but the court ruled that the objectionable rules negated the agreement.

Ms. Phillips' lawsuit seeks unspecified back pay, benefits, reinstatement and compensatory and punitive damages.