ARBITRATION: EMPLOYMENT A. Defined: Generally analogous to binding arbitration of grievances in procedure, but in the absence of a labor union. Employee may be represented by private counsel, or represent self. Employer generally is represented by private counsel. B. Why do it? Employers are imposing this process in personnel handbooks and manuals because it may protect them from perceived excessive and unpredictable jury awards when they fire an employee and the employee alleges dismissal violated some law, e.g. Americans with Disabilities Act, Title VII. Employees may also agree to it in a written employment contract. C. HOW THE COURTS TREAT EMPLOYMENT ARBITRATION: GILMER V. INTERSTATE/JOHNSON LANE CORPORATION, 111 S. Ct. 1647 (1991). Registered Securities representative sued his employer, alleging age discrimination in violation of the ADEA. The employer tried to compel arbitration pursuant to the arbitration agreement in the securities registration application. HELD: Parties may agree to determine statutory claims in an enforceable arbitration agreement under the Federal Arbitration Act (governing all arbitration of disputes affecting interstate commerce). Employee had burden of proving that the Congress intended to forbid employees from waiving their rights to a court trial for claims under the ADEA. Plaintiff was concerned about bias in the arbitration panel under the New York Stock Exchange arbitration rules, and about the lack of a written award, precluding effective judicial review. D. REPEAT PLAYER EFFECT: 1. Theory: Marc Galanter: Why the "Haves" Come Out Ahead: Speculations on the Limits of Legal Change, 9 Law & Society Review 95 (1974) a) Repeat player advantages: 1) experience leading to changes in how the repeat player structures the next similar transaction; 2) expertise, economies of scale, and access to specialist advocates; 3) informal continuing relationships with institutional incumbents; 4) bargaining reputation and credibility;
5) longterm strategies facilitating risktaking in appropriate cases; 6) influencing rules through lobbying and other use of resources; 7) playing for precedent and favorable future rules; 8) distinguishing between symbolic and actual defeats; 9) investing resources in getting rules favorable to them implemented. b) Oneshotters disadvantages: they generally 1) have more at stake in a given case; 2) are more risk averse; 3) are more interested in immediate over longterm gain; 4) are less interested in precedent and favorable rules; 5) are not able to form continuing relationships with courts or institutional representatives; 6) cannot use the experience to structure future similar transactions; and 7) have limited access to specialist advocates. 2. Most litigation is brought by repeat player plaintiffs against oneshotter defendants (e.g. landlordtenant, creditordebtor, prosecutoraccused criminal, and IRStaxpayer). 3. The oneshotter plaintiff against the repeat player defendant is comparatively infrequent (and includes personal injury, for example).
4. The Evidence: Summary of Prior Empirical Research on Repeat Player Employers and Employment Arbitration Award Total Case Employee win rate on Study Year AAA Arbitration Rules Sample their own claims Bingham (1995) 1992 AAA Commercial 171 74% Bingham (1996) 1993 AAA Commercial 186 71% AAA Employment 28 40% Bingham (1997) 199394 AAA Commercial 186 AAA Employment 84 Repeat Player Employer 16% Nonrepeat Player Employer 71% Bingham (1998) 199395 AAA Employment 203 Dispute Resolution Repeat Player Employer 23% Nonrepeat Player Employer 67%
Employers will be repeat players in employment arbitration, while employees will generally be onetime players. If the arbitrators expect repeat business, they may try to please the employer with the award. E. CONCERNS REGARDING EROSION OF STATUTORY PROTECTION FOR EMPLOYEES: Under Gilmer, an agreement to arbitrate is enforceable even if there is a statutory remedy available, and the arbitrator is unfamiliar with the law. Federal Courts of Appeals have split as to enforceability of predispute, adhesive arbitration agreements for Title VII discrimination claims. 1. FEDERAL ARBITRATION ACT PREEMPTS CONTRARY STATE LAW. N.B., Judicial review of labor arbitration is conducted under LMRA, not FAA. However, favorable attitudes to arbitration the same, as is scope of review of arbitration awards. 2. STATE UNIFORM ARBITRATION ACTS MUST BE INTERPRETED SO AS TO BE CONSISTENT WITH FAA. 3. STATE LEGISLATURES CANNOT ADOPT NEW LAWS FOR EXPANDED NOTICE OF ARBITRATION CLAUSES UNLESS THEY APPLY THEM TO ALL CONTRACTS, NOT JUST ARBITRATION AGREEMENTS. E. g., Doctors' Associates Casarotto v. (U.S. Supreme Court 1996) struck down Montana statute requiring that arbitration clauses appear on first page of contract in at least 12 point font. 4. SUPREME COURT WANTS TO KEEP AS MUCH LITIGATION IN ARBITRATION AND OUT OF THE COURTS AS POSSIBLE. 5. CONGRESS LACKS POLITICAL WILL TO AMEND FEDERAL ARBITRATION ACT. 6. WHY IS THIS A PROBLEM? Bickner et al. (1997) found that some employers were: not allowing employees to have legal counsel at the arbitration not allowing employees to participate in selection of the arbitrator not allowing the kind of legal damages employees could recover if they were in court not allowing discovery of evidence necessary to prove a case imposing attorneys fees on employees if the employee lost, something not permitted under the American rule as to attorneys fees using arbitrations (particularly in the securities industry) with no legal background or expertise in Title VII. 7. A TEMPORARY ANSWER: SELFREGULATION, I.e. The Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising out of the Employment Relationship. a) It was signed by representatives of the National Academy of Arbitrators (NAA), the American Bar Association, AAA, National Employment Lawyers Association, American Civil Liberties Union, and others (see generally, Dunlop and Zack 1997). The provisions were incorporated into the AAA's National Rules for the Resolution of Employment Disputes (AAA 1996b). b) Unlike the previous arbitration rules, the Protocol attempts to address how the employer may structure the dispute resolution process. c) The Protocol recommends freedom of choice of representative, adequate but limited prehearing discovery, providing the parties with references from the arbitrator's most recent six cases, arbitrator training in employment law, an enhanced duty for the arbitrator to disclose any relationship that might reasonably constitute or be perceived as a conflict of interest, an arbitration award setting forth a summary of the issues, including the type of dispute and damages or other relief requested and/or awarded,
5.
a statement of the issues and the statutory claims, and joint selection and shared compensation of the arbitrator. d) The participants were unable to reach consensus on the enforceability of predispute agreements to arbitrate, giving rise to what has been termed `mandatory arbitration.' Table 5. Frequency of relief of any kind awarded to employees on their own claims. PreProtocol (n=187) PostProtocol (n=52) Repeat Player Employer 27%1 29% Not Repeat Player Employer 70%1 51% Repeat Arbitrator 25%2 50% Not Repeat Arbitrator 58%2 44% Personnel Handbook Arbitration Clause 25%3 40% Other than Personnel Handbook 72%3 46% 1. Pearson chi square 30.06, p<.0001, see also Bingham 1997, Bingham 1998. 2. Pearson chi square 7.777, p<.005, see also Bingham 1998. 3. Pearson chi square 35.603, p<.0001, see also Bingham 1998. Hybrid Processes I. Varieties of Arbitration: All of these are the product of an agreement between the parties to use the process, and they are not mandated by law. A. HighLow Contract: The parties agree to the outside limits of an arbitration award, i.e., the highest amount the arbitrator can award, and the lowest amount. This can also occur in the context of a trial or adjudication on the issue of liability. If the jury finds liability, the parties stipulate to the damages. Advantages: It reduces the amount of risk to both parties, and the costs of trying the damage issue to the jury. B. MedArb: The parties empower the neutral first to act as a mediator in an effort to resolve the dispute. If mediation fails, the neutral is then empowered to conduct an arbitration and issue a final and binding award. Advantages: Ensures finality in the absence of settlement, saves time acquainting two different people with the facts of the case, and gives the mediator clout as a potential decisionmaker that would be absent otherwise. Disadvantages: Parties are reluctant totally to confide in the neutral as mediator, on the theory he or she might use the information against them later in an award. The neutral may have trouble ignoring information about offers of settlement when later writing an arbitration award. Parties may feel settlement is less than voluntary, because of the power of the neutral, even where they settle in mediation. C. Factfinding: The parties present evidence to the arbitrator, who conducts a standard, adjudicatory arbitration hearing. The arbitrator, however, is not empowered to issue a binding award with a remedy, but instead is only empowered to issue an award making findings of fact for the parties to use in some other proceeding or for settlement. This may be binding or nonbinding.