Employment Arbitration: Controversy Unleashed




It is no secret that arbitration has in general become a controversial alternative dispute resolution (ADR) process.  In recent years there have been many challenges to the validity and fairness of arbitration awards by litigants aggrieved by unfavorable arbitration results. Forced employment arbitration in particular has received heated criticism from employees and their attorneys.

From the data discussed below, it is clear that arbitration forums favor employers over employees the vast majority of the time.  Courts, especially federal courts, including the Supreme Court of the United States, have consistently endorsed the right of employers to compel arbitration in employment settings, often to the exclusion of other applicable law.  As a society, is there any equitable justification for such an imbalanced rights preference?  And, can employment arbitration be changed to become more even-handed?

Criticism of forced employment arbitration will be amplified by the very recent U.S. Supreme Court decision in Epic Systems Corp. v. Lewis, No. 16-285, Decided May 21, 2018.  There, the issue was whether employment contracts containing forced individual arbitration clauses waiving class action rights of employees violated applicable federal labor law.  A majority of the court validated forced individual arbitration contracts as authorized by the Federal Arbitration Act (FAA), 9 U.S.C. Sec. 1, et al., even though the National Labor Relations Act (NLRA), 29 U.S.C. Sec. 7 appeared to guarantee the right of employees to engage in “concerted activities” beyond collective bargaining.

In a 5-4 decision the majority continued its broad application of the FAA to employment contracts and consumer disputes that is reflected by its earlier decision in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).  However, in a strong dissenting opinion Justice Ginsburg articulated the underlying policy of the NLRA: “ … employees must have the capacity to act collectively in order to match their employers’ clout in setting terms and conditions of employment.”  She also pointed out that the majority simply ignored NLRA Sec. 7’s right of employees to “engage in other concerted activities for the purpose of mutual aid and protection” beyond those defined by collective bargaining.

The Epic Systems court’s use of the FAA to thwart employee concerted activity protections of the NLRA is certain to fuel the already heated controversy regarding employment arbitration.  The study discussed below supports employees’ cynical views of forced arbitration.  Is there any way to further level the employment arbitration playing field?  If so, will those efforts withstand a Supreme Court that has become highly politicized in the employment arena?

Why is theresuch profound antagonism toward employment arbitration? The short answer is that employees fare much worse when litigating against employers in arbitration than they do when bringing their claims in court.  A detailed 2011 survey of employment arbitration awards versus civil trial employment litigation results revealed that employee win rates and amounts won in arbitration were significantly lower than those achieved in court. See Colvin, A.J.S. ,2011, An Empirical Study Of Employment Arbitration: Case Outcomes And Processes, http:// digital commons.ilr.cornell.edu/articles/577.)

A primary reason for adverse employee outcomes in forced arbitration is the so called “repeat employer effect.” According to the Colvin article, statistics demonstrate that employers who were repeatedly involved in employment arbitration disputes enjoyed far greater success than employers who were only occasional arbitration participants. Concurrently, repeat employer-arbitrator pairings resulted in fewer employee wins and lower damage awards when employees did win.  This last conclusion is particularly damaging to representations of arbitrator impartiality promoted by most arbitration service providers.

Notably, the arbitration data underpinning Professor Colvin’s study were furnished by arbitration results in arbitrations administered by the American Arbitration Association (AAA) between 2003-2007 and reported as required by California law (Cal.Civ.Proc.Code Sec.1281.96).  Even though not required to do so, the AAA reported all employment arbitration results that it administered nationally during this time period.

The dismal arbitration results for employees also trumps some oft touted virtues of arbitration over civil trials.Notable among these are (1) faster arbitration hearing times versus civil trial dates, and (2) the practice among most ADR service providers of insisting that employers pay 100% of the arbitration expenses in employment arbitration (the latter policy does not include payment of the employee’s attorney’s fees.)  However, the Colvin study posited only modestly faster arbitration hearing dates over trial dates.  And, employment arbitrators certainly know when an employer is paying 100% of their fee.

Can forced employer arbitration be made fairer?  If so, how? Obviously, arbitration service providers could discourage or even forbid repeat employer-arbitrator pairings. These repeat engagements coupled with, for example, the arbitrator’s knowledge that per AAA employment arbitration rules the employer is paying 100% of the arbitrator’s fee create at least the appearance of bias.  Further, many employment arbitrations occur ad hoc without established ADR service provider administration.  Although such arbitration results are not easily collated, one suspects that absent ADR provider administration, ad hoc arbitrations and arbitrators tend to favor employers’ rights even more in this less transparent environment.

Other possible mitigating modifications to forced employer arbitration could involve making the process non-binding but with a limited internal appellate process at least in ADR provider administered arbitrations.  In addition, it could be required that employment arbitration awards must be in the form of reasoned awards and that summary awards be prohibited. For these suggestions to be required in all employment arbitrations would likely necessitate appropriate legislation. However, there is no reason to believe that employers are eager to agree to any changes to a litigation process that so obviously favors them.  However, unless and until employment arbitration becomes a more equitable forum, critics will continue to oppose its very existence.

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