Alternative Dispute
Resolution: Is Arbitration in YOUR Small
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Nan Knight
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You've
had about all you can stand of your boss's remarks
about your hair, clothes, accent, and even your
car. You go in for a confrontation and come out
demoted. "I'm getting a lawyer and suing
you and this company for every penny you have!"
you shout. "No, you're not," says your
boss with equal heat. "You signed away that
right. All you'll get is arbitration!"
What's arbitration? And how did you become legally
committed to go through this process instead of
through the courts? You may be about to learn
the answers the hard way.
In March 2001, the U.S. Supreme Court delivered
a ruling that could have a substantial impact
on your employment rights-and experts say that
chances are you may not even know whether the
decision affects you. In ruling on Circuit
City v. Saint Clair Adams, the court held
that employers could both require and enforce
binding arbitration agreements in the workplace.
If you thought terms like "binding arbitration"
and "dispute resolution" were restricted
to labor unions and employees negotiating as large
groups, you're wrong. Most employers currently
adding arbitration clauses to their standard pre-employment
agreements are aiming squarely at the individual
employee. You'll be better prepared to decide
whether to agree to arbitration-and ultimately
use it to your own advantage-if you understand
the process, its appeal to employers, and how
it works.
Arbitration: The Alternative
Dispute Resolution Process in Action
Arbitration is the most popular of a number of
workplace strategies designed to end employment
disputes before they reach the court system. Known
collectively as "alternative dispute resolution"
(ADR), these strategies emphasize the use of impartial
or neutral third parties, confidentiality, and
an agreement by all sides to work together in
a professional manner to end the dispute. ADR
can be as simple and informal as calling in a
"neutral fact finder" or referee, who
investigates the issues in the dispute and then
reports back to both the employer and the employee
on the results, or as complex as a mini-trial,
staged in the offices of a neutral third party
who acts as a judge.
The key in every type of ADR is that both parties,
the employee and the employer, must agree beforehand
that the results will be recognized as binding.
Getting an employee to sign such an agreement
once he or she believes a court case may prove
more lucrative (and perhaps satisfying) can be
extremely difficult. For this reason, many companies
now require that new workers sign agreements to
arbitrate disputes as part of their initial employment
paperwork-and sometimes even as part of their
job applications. As a result of the recent favorable
Supreme Court ruling, other companies have responded
to legal advice and distributed such agreements
as a "must-sign" to current employees.
What to Look for in Your
Agreement
If your employment agreement or pre-employment
paperwork requires that you sign an arbitration
clause, you may want to have your lawyer look
over the wording carefully before you sign. Look
for:
Wording. The terms and conditions of
the arbitration should be carefully spelled
out. Most agreements state explicitly that you're
waiving your right to go to court with employment
disputes. In any arbitration you should have
the right to your own counsel, the expectation
of a neutral and fair arbitrator, and access
to the information you need to pursue your complaint--make
sure that none of these basic elements are contraindicated
in the document you sign.
Who, What, Where, When. As part of the
specifics, you'll want to know how the arbitrator
will be chosen, where the arbitration will take
place (at your company or elsewhere), and whether
or not you are limiting yourself to a certain
time period during which disputes must be resolved.
Make special note of any "red flag"
clauses that limit the amount your employer
may have to pay in a dispute, eliminate the
possibility of punitive damages, or give your
employer the right to name the arbitration panel.
Form. If your arbitration agreement
is a clause within your larger employment agreement
and not a separate document, your lawyer may
advise that you have leverage not to sign. Integrating
such agreements into the larger employment package
may sometimes be construed by the courts as
exerting undue influence on prospective employees.
What to Expect from Arbitration
If you have a complaint that cannot be resolved
through normal workplace resolution channels, then
your company should notify you that it will be turning
the matter over to arbitration. Arbitration professionals
should be called in from a nationally known mediation
specialty organization or company. The two most
prominent sources for arbitrators are the American
Arbitration Association (AAA), which resolves
more than 14,500 labor-management disputes annually,
and JAMS/Endispute,
an employee-owned mediation specialist with more
than 20 offices nationwide. You may reasonably expect
the following to happen in arbitration:
Expect due process. AAA and JAMS have
issued standardized guidelines and protocols
for the conduct of arbitration proceedings.
Your lawyer should be familiar with Resolving
Employment Disputes by AAA and JAMS' Policy
on Employment Arbitration: Minimum Standards
of Procedural Fairness. Both are based on
doctrines of due process in arbitration as prescribed
by studies from the Departments of Labor and
Commerce in the 1990s. You may not be in a court,
but rules still prevail.
Be prepared with facts. You need to
be just as prepared with facts, potential witnesses,
and other documentation as you would for a court
appearance. A good arbitrator will want to hear
all sides of the story and view any supporting
evidence. The evidence collection period may
last as little as a couple of days or, in rare
instances, as long as several months. Sometimes
evidence is given in a formal setting, with
all parties present, and other times it is collected
on a more ad hoc basis.
Remember what "neutrality" means.
The arbitrator may be a perfectly nice person,
but he or she is not your friend. Don't cross
the line by trying to be too charming or sociable-and,
if possible, avoid meeting with any member of
the arbitration panel without your lawyer. But
do make sure that the arbitrators hear and understand
everything you have to say.
The Attraction of Arbitration
Most employers find that pre-employment arbitration
agreements ultimately work to their benefit. The
advantages are numerous:
The issue is almost always resolved more
quickly. Many employment disputes can take
as long as five years to resolve in the court
system. Arbitration is scheduled more quickly
and is often complete within months.
The details of the dispute remain private.
With none of the contested issues on court records
and with a settlement agreement to keep negotiations
quiet, no company secrets or organizational
"dirty laundry" are aired.
Costs are minimized. Arbitration fees
are only a fraction of court costs, and settlement
fees, if any, paid to the employee are often
lower (and in some cases lower by hundreds of
thousands of dollars) than a sympathetic jury
might have awarded.
Meeting disputes head-on. If arbitration
is begun early enough, some disputes may be
resolved before they become more complex, involve
additional employees, impair organizational
function, or become public knowledge.
The room for appeal of decisions is limited.
Although this is a two-edged prospect, more
often than not the employer profits from previously
agreed-upon limits on appeals of the arbitration
decision.
Companies that adopt arbitration agreements face
a few disadvantages:
More claims, more red tape. Some observers
believe that the existence of an arbitration
program, when it is explained consistently and
clearly, may encourage the filing of spurious
or frequent claims by employees. Documenting
the chain of administrative action and reaction
to such claims can be costly and time consuming.
In addition, employers usually pay the cost
of the arbitration process, including, in many
cases, the fees for the employee's representation.
The result is an open door to new claims and
counterclaims.
Employee dissatisfaction. Some price
in ill will may have to be paid for instituting
these agreements. Some employees come to resent
both the process and the employer and believe
that they've given away a valuable right to
legal recourse.
What's In It for You?
Some of the same advantages that arbitration
brings to employers may benefit you as an employee:
Speed: You won't find yourself in court
again and again over several years as you wait
for the issue to be resolved.
Privacy. The details of your claim will
be protected from public scrutiny, of special
incentive to employees whose claims focus on
sexual harassment, personal activities, or private
information.
Economic predictability. Your employer
will probably pay for the arbitration and may
pay for your representation. Unlike a possibly
prolonged court battle, you'll know from the
start approximately how much the claim will
cost you, win or lose.
Benefits of early and amicable resolution.
If your claim is resolved quickly, without lengthy
and acrimonious legal proceedings, it's less
likely to escalate to the point where you are
no longer comfortable working in the company
or industry.
What Do You Give Up?
Many advisors would say that, although you should
think carefully about signing away your right
to due process within the court systems, most
arbitrations are conducted equitably, with timely
and efficient resolutions. However, a number of
observers have voiced strong opposition to arbitration
clauses, calling them deliberate attempts to rob
employees of Constitutional rights and civil liberty
guarantees. Moreover, the Equal Opportunity Employment
Commission (EEOC), groups supporting women and
minorities, and a growing number of voices in
Congress and in state legislatures around the
country opposed the recent Supreme Court ruling.
In a strongly worded statement issued on June
20, 2001, then National Organization of Women
(NOW) president Patricia Ireland stated, "mandatory
arbitration systems are often stacked against
the employee." After several studies by NOW,
EEOC, and others, she concluded that such agreements
lend themselves to abuse because:
Some do not allow employees to have their
own attorneys at the arbitration proceedings;
others give employers the sole right to choose
the arbitrators. Many companies disallow discovery,
the ability of the employee to subpoena relevant
documents and other evidence prior to the hearing.
Employees may face a panel of arbitrators with
no experience, interest or expertise in equal
employment or other laws that cover workers
on the job. They are less likely to be fully
compensated for the damage they have suffered
or the attorneys' fees and costs of the arbitration;
indeed, they often face arbitration fees that
are many times what a court's filing fees would
be, sometimes paying even more than the damages
they are awarded. Except in cases of extreme
legal error, the employees have no ability to
appeal the outcome of the arbitration.
Most compelling in the arguments Ireland made
against mandatory arbitration is the following
statement: "If proponents of arbitration
are correct in their argument that it is faster,
cheaper, and better than the judicial system,
then surely employees and their attorneys will
opt for arbitration in a voluntary system."
That is, if arbitration is so wonderful for employees,
then why does it need to be mandatory?
Other advisors see arbitration as problematic
even for employers. When asked if employers should
routinely use such agreements, Aaron P. Morris,
who heads the Morris Law Firm in Costa Mesa, CA,
says, "In my opinion, no." In his extensive
practice, the advantages of arbitration rarely
outweigh the disadvantages, for employers or employees.
Cost? "The cost of litigating a matter is
not so much higher than the cost of arbitration,"
he says, noting that the difference in cost is
certainly not great enough to warrant giving up
the greater protections of the court. Time? In
many cases, summary judgments can be obtained
from courts early on in a proceeding, but arbitrations
must be carried out to completion.
Stay Informed
Morris and others caution that the legal status
of mandatory arbitration agreements and other
forms of ADR are likely to change frequently.
Before signing any arbitration agreement-whether
as part of an application, an employment sign-on
package, or when you're already on the job-you
should consult a lawyer. The right to recourse
to the judicial system is one of your basic rights:
don't sign it away without being fully informed
about the consequences.
Sidebar Update:
New Ruling on Arbitration
Nan Knight is a freelance science writer and
editor whose credits include Smithsonian exhibits,
Discovery Channel Web sites, and a wide range
of publications on radiation in medicine.
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