Although they share some similarities, employment arbitration and labor arbitration are significantly different processes. Below, Barry Winograd, an arbitrator and mediator and member of the NAA answers several important questions about employment arbitration.
- What is employment arbitration?
- What is mandatory employment arbitration?
- How does an employment arbitration begin?
- How is an employment arbitration conducted?
- Who pays for the arbitration?
- How long does it take to complete an arbitration?
- Can an arbitration decision be appealed?
- Has the Supreme Court considered employment arbitration?
What is employment arbitration?
“Employment arbitration” refers to the resolution of workplace legal disputes by a person other than a judge or jury in court. In essence, employment arbitration is a substitute for civil litigation. Employment arbitration is in contrast to arbitration for unionized employees under a collective bargaining agreement. A separate “labor arbitration” procedure applies to those employees. In the union context, arbitration is designed to resolve disputes as a substitute for economic pressure in the form of strikes or lockouts.
Employment arbitration can be required by the terms of an agreement that coves arbitration only or by an agreement that also spells out other terms of employment, such as pay and benefits. An agreement requiring arbitration may apply to executive level employees and to those at other levels of the workplace, particularly managers, supervisors, and administrative staff.
An employment arbitration proceeding covers disputes about an underlying employment agreement; for example, the issue may involve whether a termination is appropriate or whether pay or a commission is owed. Unless the employment agreement states that an employee only can be dismissed for actual cause, employees in the United States are considered to be “at will” and can be dismissed for any reason, except for an unlawful reason such as race or gender discrimination. The same general rule applies in employment arbitration cases. In contrast to the “at will” doctrine, most collective bargaining agreements between employers and unions require proof of actual cause for discipline, often referred to as “just cause.”
Typically, an employment arbitration will consider any claims related to employment even if not expressly mentioned in an agreement, including alleged violations of federal and state statutes that prohibit discrimination. However, some claims may be excluded from an arbitration agreement, such as state unemployment and workers’ compensation claims and charges filed with the National Labor Relations Board or the Equal Employment Opportunity Commission.
What is mandatory employment arbitration?
“Mandatory” employment arbitration involves an arbitration procedure that is required as a condition of employment. In this situation an employee does not have a choice; the employee must either accept the job with arbitration or find another job. Mandatory employment arbitration is similar to arbitration obligations required of consumers as a condition for credit card, cell phone, health insurance, and other kinds of common commercial arrangements.
Mandatory arbitration agreements are enforced by courts because employees (and consumers) enter into the relationship while knowing that there is an agreement to arbitrate, or because the employee could have known that arbitration was required based on a written document presented to the employee. In this context, mandatory arbitration applies even if an employee claims that the agreement was not voluntary.
Employment cases that arise under mandatory agreements can be challenged if the terms are deemed too one-sided or unfair. In the eyes of the law, such an agreement is considered unconscionable. For example, if an employer selects the arbitrator but an employee has no say in the selection, a court can decline to enforce the agreement because it is unconscionable. In addition, a court may find that a mandatory agreement is unconscionable if it states that an employee is not entitled to recover remedies that would apply if the case were in court.
Mandatory agreements also have been challenged in the past because they often contain waivers of an employee’s option to initiate or participate in a class action. The U.S. Supreme Court has ruled in cases brought by consumers and small businesses that such “class action waivers” are permitted. As a result, individual arbitrations are required for each claim, even if the claims are relatively small and involve many people. These decisions have been applied in federal and state courts to preclude class actions in employment disputes in court or in arbitration.
Opponents of mandatory employment arbitration and other compulsory arbitration agreements, argue that it deprives individuals of a right to have civil claims presented in a jury trial. They also argue that mandatory arbitration often involves relatively small claims and, by requiring time-consuming and expensive individual arbitration proceedings instead of class actions, few cases are initiated. As a consequence, according to opponents, employers are effectively immunized from liability and effective remedies.
Those favoring mandatory employment arbitration urge that it provides access to resolve claims for employees who otherwise would have difficulty finding attorneys to bring their claims in court. They also maintain that arbitration is, in most cases, a speedier and less expensive way to resolve disputes. Proponents believe that arbitrators will not be as unpredictable as juries, and when a plaintiff prevails, that arbitrators will award more reasonable amounts as damages. With respect to class actions, the proponents argue that such cases in court or in arbitration cannot deal with the factual variety of individual claims.
How does an employment arbitration begin?
Employment arbitration cases, including mandatory cases, often are initiated with organizations that administer the proceeding for the parties. Two of the organizations serving in this role are the American Arbitration Association (AAA) and the Judicial Arbitration and Mediation Service (JAMS). In handling a case, the AAA and JAMS will provide each side with a list of possible arbitrators, oversee the selection process, and coordinate hearing arrangements. These organizations have rules that govern how the proceeding goes forward. In some instances parties will agree on an arbitrator independently of the AAA or JAMS or another group and ask the arbitrator to administer the proceeding.
Arbitrators hearing employment cases often are professionals who serve as arbitrators on a full-time basis with many years or decades of experience in the field. At times, the parties also will select those who practice employment law but only arbitrate periodically. Employment arbitrators need not be attorneys, although most are. This differs from the field of labor arbitration where many non-attorneys who previously worked for employers and unions serve as arbitrators.
Who pays for the arbitration?
In regular, non-mandatory employment arbitrations it is assumed the parties will share equally the expense of the arbitrator. This is why in arbitrations of this type an arbitrator often will request advance deposits from each side.
In traditional arbitration cases it also is presumed the parties will pay for their own attorneys and related costs, such as the expenses of discovery. However, many agreements provide that the prevailing party in a case is entitled to recover all attorney fees and costs associated with the proceeding. Another exception to the usual presumption applies if the case involves a statutory discrimination claim. Under most federal and state anti-discrimination laws, a prevailing plaintiff is entitled to recover fees and costs. This will include the arbitrator’s fees if a one-half share was prepaid in advance of the hearing.
In contrast to the practice just described, under many mandatory arbitration agreements (or pursuant to the rules of the AAA and JAMS and some state court decisions, the cost of the arbitrator’s fees is placed on the employer, since it is the employer that has raised arbitration as a condition of employment. In those cases an employee-plaintiff may be required to pay the equivalent of a court filing fee and perhaps share the expense of a reporter to transcribe the case. Generally, the plaintiff (or plaintiff’s counsel) will pay for any discovery that the plaintiff requires. Shifting of fees and recovery of costs are allowed in a discrimination case in which the plaintiff prevails and in other cases under a variety of theories.
In both types of employment arbitrations the fees for the arbitrator can add up quickly, especially for experienced arbitrators who are in demand. It is not unusual for arbitrators to charge $300 to $400 per hour, or more, especially in major metropolitan areas. These costs should be considered in deciding if and how to move forward with a case.
How is an employment arbitration conducted?
Employment arbitration proceedings, including mandatory cases, usually involve a hearing that resembles a trial in a civil dispute, although arbitration hearing are not conducted in a courtroom. As in a civil case, the parties to an arbitration will prepare by engaging in discovery activity, such as depositions and the production of documents. The parties also may file motions such as motions for summary judgment to resolve the case without a hearing.
Eventually, at the hearing witnesses provide testimony on direct and cross-examination, exhibits are offered, and arguments are presented to the arbitrator. In many instances, but not all, verbatim transcripts are made of the hearing. After the evidence is presented, the advocates frequently provide post-hearing briefs to summarize the facts and any relevant law for the arbitrator’s consideration.
How long does it take to complete an arbitration?
The length of time for the arbitration process from start to finish varies widely. For the simpler case, including mandatory arbitration proceedings, the time from filing a claim to a hearing might be in a range of four to eight months, depending on the extent of pre-hearing discovery and motions. The time for a decision after the hearing can take another two or three months, especially if a transcript is prepared and advocates submit post-hearing briefs. More complex cases will take longer to get to hearing and the final decision.
Can an arbitration decision be appealed?
A party who loses an arbitration decision is permitted to pursue an action in court to “vacate” or reverse the decision. However, under both federal and state law the grounds for challenging an arbitration decision are few. The most common grounds concern fraud or corruption in the process or an egregious error by the arbitrator, such as failing to disclose a conflict of interest. The reason for a rule strictly limiting appeals is that the parties have contractually agreed to arbitration to provide a final and binding resolution. Broad review would undermine such commitments. Hence, even if the arbitrator is in error on the facts or the law, this in most instances is not sufficient to reverse the decision. If the parties have agreed to an expanded scope of judicial review, however, appeals may be allowed as permitted by state law (but not the federal system). Stated simply, it is generally easier to appeal the decision of a trial judge in a public court. For this reason alone, some employers (and plaintiffs) dislike going to arbitration.
Has the Supreme Court considered employment arbitration?
There are four important decisions of the U.S. Supreme Court in the past 30 years that deal with employment arbitration (Perry v. Thomas, 482 U.S. 483 (1987); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991);; Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001); 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009)).
In the first of these decisions, the court in Perry held that an employee’s claim for unpaid commissions based on a California statute was preempted by the superceding arbitration requirement under the Federal Arbitration Act (FAA). In the Gilmer case, the court ruled that arbitration applied to an employee’s age discrimination claim because an industry rule requiring arbitration governed workplace disputes with his employer. In Circuit City, which involved a claim of sexual orientation discrimination at a retail workplace, the court held that the case was subject to the FAA because only cases involving transportation workers were excluded under the specific terms of the statute. The court’s decision in Pyett concluded that arbitration of an age discrimination case could be compelled based on a union’s waiver in a collective bargaining agreement of an individual’s right to file a lawsuit.
As noted above, in other decisions dealing with class actions initiated by consumers and small businesses, the Supreme Court has issued decisions that affect employment cases by determining that an arbitration agreement can include a waiver of class action proceedings See, e.g., AT&T Mobility LLC v. Conception, 563 U.S. 321 (2011); American Express Co. v. Italian Colors, 570 U.S. _____(2013)).