Arbitration of workplace disputes, increasingly common in recent years, offers benefits to employees and employers alike, provided that private arbitration programs implement safeguards to ensure impartial and fair dispute resolution processes. Arbitration of employment discrimination claims raises serious issues concerning waiver of civil rights and due process protections, limits on discovery and evidence, and potentially biased fact finders. Employees not protected by collective bargaining agreements are particularly vulnerable to accepting one-sided terms. Practitioners in the employment field and ADR providers are working diligently to implement safeguards to make arbitration attractive to all in the workplace.
This article focuses on the problems attending pre-dispute agreements for binding arbitration of disputes involving statutory rights and efforts to address these problems. It builds on the excellent overview of the use of ADR in the employment arena, described by Christine Godsil Cooper in the February, 1997, issue of DCBA Brief. Cooper describes the consensual approaches to dispute resolution, including mediation, that are alternatives to binding mandatory arbitration.
Arbitration involves submission of a dispute to a third party for a decision. Although arbitration decisions can be binding or non-binding, this article will address only binding arbitration decisions. In theory, parties make a deliberate choice to forego litigation and use arbitration to resolve their disputes. Having made this choice, parties are bound by the arbitrator’s decision, with court review limited to very narrow grounds for vacating an award.
Employers and employees alike find arbitration attractive primarily for its potential savings in cost, time, and other resources. While it is now common experience that employment discrimination disputes take five or more years to be resolved through the administrative agencies and courts, arbitrations can be scheduled within weeks of the demand and resolved within months. The less time spent litigating, the more the employer saves in defense costs. Cost-savings is a major advantage for employers. Because employers often pay the claimant’s attorneys fees as well as their own, employees welcome the shorter time to resolution if they are without a job or left in limbo with the very employer they are challenging. The reduction in time spent litigating, especially regarding discovery, permits company personnel to engage in their usual duties, rather than litigation obligations. Employers and employees value the potential privacy and closure which arbitration affords. Finally, employers desire to avoid the unpredictability associated with jury awards.
The U. S. Supreme Court Endorses Arbitration
Until this decade, employers desiring to arbitrate employment disputes found little support from the courts. This situation changed in 1991, in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). The United States Supreme Court required a discharged stock broker to arbitrate his age discrimination claim because he had agreed to use arbitration for any employment dispute when he signed an application required to be a stock broker.1 The implications of Gilmer continue to be much debated.2 Nevertheless, employers began using arbitration for these types of suits. Despite the obvious advantages of arbitration, very serious issues have arisen.
Serious Issues Must Be Faced
Two major points of contention are the timing of the decision to use arbitration and the terms of the arbitration program. Some employers wait until they are faced with a claim or dispute from an employee to offer the employee the option of binding arbitration. However, many employers require employees to sign an agreement to arbitrate any employment dispute as a condition of being hired or of continued employment. These are called pre-dispute agreements to arbitrate.
Critics cite the tremendous imbalance of power when employees sign agreements to arbitrate. First, less sophisticated employees may not understand that they are waiving rights to jury trial for race, gender or similar discrimination claims that may arise years down the road. Second, the civil rights community and workers’ advocates bristle at the lack of equal bargaining power in reaching the agreement to arbitrate and the unilaterally (employer) imposed terms of arbitration programs. Indeed, one reason arbitration has worked so well for so many decades in the labor field is the presumed equality of bargaining power and the shared knowledge of arbitration procedures and arbitrators.
Furthermore, some arbitration programs were designed to deny employees access to the very procedures that were critical to the successful prosecution of employment discrimination claims. Concerns were raised about shortened filing periods; limits on discovery, evidence, and remedies; and the lack of justification for decisions. Non-lawyer arbitrators with no expertise in civil rights law or the procedural or evidentiary rules could render decisions inconsistent with the law. Finally, the civil rights community was concerned that the rosters of some arbitration agencies lacked persons of color and women who might be more sympathetic to such claims as sexual harassment or the disparate impact of racially neutral practices. Employers, it was feared, could establish their own arbitration programs with a biased roster of arbitrators.
Questionable Programs Are Implemented
The fears of the civil rights community were exacerbated when a few employers put into place particularly questionable arbitration programs. In one case in which the Equal Employment Opportunity Commission (EEOC) sought injunctive relief, a Texas employer already under investigation for discrimination implemented an arbitration program. The employer required employees to sign an agreement to arbitrate future disputes as a condition of continued employment. United States Equal Employment Opportunity Commission v. River Oaks Imaging and Diagnostic, No. H-95-755 (S.S. Tex. 1995). In granting the preliminary injunction, the court found that the ADR policy "might constitute retaliation against employees" who had complained to the EEOC.
In Minnesota, the EEOC supported a motion for a preliminary injunction to prevent a company from enforcing an agreement to arbitrate. Johnson v. Hubbard Broadcasting, 940 F. Supp. 1447 (D. Minn. 1996) That agreement called for a shortened filing period, limited the damages recoverable, and negated the recovery of attorneys’ fees from the employer.
The EEOC Opposed Pre-dispute Mandated Arbitration
The EEOC has now issued a guideline opposing the use of unilaterally imposed agreements mandating binding arbitration of employment disputes as a condition of employment. United States Equal Employment Opportunity Commission Notice, 915-002 (July 10, 1997) The EEOC objects to a procedure by which employers can exempt themselves from a federal enforcement scheme when they are the subjects of the regulation. Private arbitration does not deter discriminatory conduct, offer guidance as to appropriate conduct, offer public accountability of arbitrators, expose repeat offenders, or allow courts and Congress to correct erroneous arbitration decisions, according to the EEOC.
Thus, the issue is how to avoid throwing out arbitration with the bathwater. Is arbitration of employment discrimination claims inherently a bad idea? Few believe that, and the EEOC itself supports post-dispute voluntary agreements to arbitrate. Are all pre-dispute agreements to arbitrate flawed? Some argue that the key element is not the timing of the agreement but its terms. Thus, numerous groups have defined protocols for binding arbitration of employment disputes.
The Dunlop Commission Provides Direction
The Commission on the Future of Worker-Management Relations, more commonly called the Dunlop Commission, was convened by the secretaries of the United States Departments of Labor and Commerce. The Commission endorsed the use of arbitration for employment discrimination and set out protections for employers and employees. Commission on the Future of Worker-Management Relations, Report and Recommendations (Dunlop Report) (1994). Composed of representatives of employers, unions, and academia, the Commission encouraged the use of ADR by government agencies and by private employers so long as the ADR systems meet high quality standards for fairness. The Dunlop Commission cautioned, however, that the standards were not intended to create a second court system. The Commission opposed making agreements to arbitrate a condition of employment, but suggested reevaluating this issue after there is more experience with private systems. The Commission called for an amendment, if necessary, to the Federal Arbitration Act, to ensure that individual employees have the right to choose among the methods available under the law for enforcing statutory employment rights. Quality standards endorsed by the Dunlop Commission included: a neutral arbitrator, familiar with the laws and concerns at issue; a fair and simple method to secure information necessary to present the claim; a fair method of cost-sharing to ensure affordable access to the system; the right to independent representation; remedies equivalent to those available through litigation; a written opinion by the arbitrator with a rationale, for the result; sufficient court review to ensure that the result is consistent with governing laws.
Standards of Exemplary Due Process Drafted
The Task Force on Alternative Dispute Resolution in Employment formulated a Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising out of the Employment Relationship. The Task Force did not arrive at consensus concerning when agreements to arbitrate should be reached, but did agree to "standards of exemplary due process." The Protocol calls for employees to have the right to representation. Arbitrators are to be skilled in the conduct of hearings, knowledgeable about statutory issues, and familiar with the workplace and employment environment. Employees should have a stake in the selection of the arbitrator who has the authority to award whatever relief would be available in court under the applicable law. Finally, the Protocol provides that the arbitrator’s award should be final and binding with limited review.
ADR Providers Adopt Standards and Rules
In the past several years, two private ADR providers have issued due process guidelines. The American Arbitration Association (AAA) issued Resolving Employment Disputes, a guide that draws on the Due Process Protocol. The guide encourages the use of a wide range of options for resolving workplace disputes, including external mediation with private arbitration as the final step. AAA expresses the belief that ADR works best when employees knowingly and voluntarily agree on the process and have confidence in the arbitrator and the procedures. AAA will administer binding arbitration programs required as a condition of employment, but only if they are consistent with the Due Process Protocol and AAA’s rules for employment disputes.
AAA provides a checklist for evaluating employment arbitration programs. The checklist provides for: a fair method of cost-sharing; use of a neutral ADR provider and fair procedures to govern the arbitration; specification of the qualifications and number of arbitrators, the employees covered, and the nature of the claims covered; clear notice to employees of their right to representation; time frames consistent with applicable statutes of limitations; equivalent remedies and relief; and fair and adequate discovery.
AAA also recommends that the ADR plan be easily understandable and that notice of implementation be given in advance. Finally, the plan should make clear that employees also can file discrimination complaints with governmental agencies.
Jams/Endispute also has issued a Policy on Employment Arbitration: Minimum Standards of Procedural Fairness, which is applicable to mandated arbitration programs. Jams/Endispute’s minimum standards include the requirements that; rights and remedies under arbitration be the same as under applicable law; employees participate in the selection of a neutral arbitrator; employees have the right to representation by counsel; and that there be a minimum of discovery, including document exchange and depositions.
Jams/Endispute permits the employee to depose at least the supervisor or decision-maker, while the employer may depose the employee; further discovery is permitted upon leave of the arbitrator. Additionally, Jams/Endispute provides for the right to present proof through testimony and documentary evidence and to cross-examine employer witnesses.
Jams/Endispute also suggests, but does not require, that companies allocate costs of the arbitration program in such a way that does not preclude access to the procedures. The program also encourages arbitrators to provide some written reason for the arbitration decision.
Both AAA and Jams/Endispute have instituted rules specifically for the arbitration of employment discrimination claims. The rules implement the due process protections each service has adopted. Of particular note is that both services make arbitration confidential, with certain exceptions. Jams/Endispute has instituted an internal appeal procedure, which is optional. A party may appeal employment discrimination arbitration decisions to a Jams/Endispute composed panel of three arbitrators prior to finalization. AAA requires that its arbitrators be familiar with employment law and be drawn from a roster of arbitrators established on a non-discriminatory basis, diverse in gender, ethnicity, background, and qualifications.
The rules of these two services meet most of the Dunlop Commission report recommendations and offer protection for employees whose employers use one of these two established services. Neither the Protocol nor the guidelines of these service providers call for the limited court review recommended by the Dunlop Commission to ensure that arbitration decisions be consistent with federal law. Both fall prey to being abused by attorneys and others intent on creating a biased system. Strong arbitrators are needed to enforce these protections while preventing their abuse.
Suggestions for the Future
There is no requirement that ADR providers follow the report recommendations of the Dunlop Commission or the Due Process Protocols. There is no legal barrier preventing employers from creating their own system or finding other ADR providers who will ignore these recommendations. Perhaps because of fear of abuse, Congress is considering at least one bill which would prevent mandatory arbitration of certain federal employment discrimination claims. S. 63, "Civil Rights Protection Act of 1997." However, such legislation would lose the advantages arbitration offers to both employees and employers.
Those desiring to implement an arbitration program for employment matters will find direction in the Dunlop Commission report recommendations. Legislators, attorneys, employers, ADR advocates, and others are well-advised to follow the Dunlop Commission’s recommendations and the guidelines of the Due Process Protocol. Supporters of ADR must be vigilant to protect the rights of those least powerful as they design new systems.
1. For the context of the Gilmer case, see Cooper’s article.
2. Some guidance may come when the United State Supreme Court rules in Wright v. Universal Maritime Service Corporation, 118 S. Ct. 1162 (1998), a case the court will hear during the 1998-99 term. However, it is unlikely the court will address the policy issues discussed here.
Suzanne J. Schmitz is an Assistant Clinical Professor of Law at Southern Illinois University School of Law. She teaches Alternative Dispute Resolution and supervises students in the law school’s mediation clinical program. She received her Undergraduate Degree in 1969 from St. Xavier University of Chicago and her Law Degree from St. Louis University in 1981.