By: Cameron Hines
INTRODUCTION
In November 2018, approximately twenty thousand Google employees participated in a company-wide walkout to oppose the tech firm’s use of mandatory arbitration for sexual misconduct allegations. One of American history's most noteworthy protests against forced arbitration, this event was more significant than employees merely disagreeing with a company policy—it marked the peak of a decades-long battle between labor and management regarding disgruntled workers’ right to take their complaints to court.
Three months after the walkout occurred, Google shredded its mandatory arbitration clause for its full-time employees. The employees’ victory represents an anomaly in recent trends, however, with corporations’ use of arbitration in employment disputes rising 66% between 2018 and 2020 alone. Corporate executives typically endorse the inclusion of mandatory arbitration clauses in employment contracts and workers advocate against them, making it common for individuals to pick sides in the debate over arbitration’s growing use. Nevertheless, this article argues against choosing from these two maximalist stances and instead advocates for an entirely new solution. By first understanding the history of arbitration and its problems, readers will appreciate why greater court oversight of arbitration can reduce judicial backlog, increase transparency and impartiality in employment cases, and ensure plaintiffs can appeal arbitrators’ decisions.
A BRIEF HISTORY OF ARBITRATION
Alternative dispute resolution (ADR), the process in which a neutral party makes legally-binding decisions outside of court when other parties have conflicting views on a subject, is at least as old as Greek mythology. According to legend, Zeus appointed the respected shepherd Paris to decide which of several goddesses was the most beautiful when they could not reach an agreement. In the United States, legal scholars have recognized ADR as a legitimate substitute for taking one’s complaint to court since the New York State Legislature passed a law in 1920 permitting parties to settle current and future disputes through binding arbitration. Since then, ADR has become a mainstay in deciding civil cases. Chief Justice Warren Burger of the U.S. Supreme Court played a particularly crucial role in this system by publicly supporting its growth. Today, dispute resolution practitioners handle over ten thousand cases and award nearly $15 billion in the United States each year.
Though several forms of ADR exist, the most frequently practiced types include mediation and arbitration. Mediation entails a neutral party aiding opposing sides in negotiating with each other without making any judgment calls. Arbitration, in contrast, centers around an umpire hearing each party’s argument and deciding which side will prevail.
After decades of using arbitration to resolve worker disputes, corporations began including mandatory arbitration clauses in their contracts with both employees and consumers. While the specific language of binding arbitration agreements can vary by firm, ADR services provider National Arbitration and Mediation provides employers with a template for writing binding arbitration clauses:
“In the event that Employer and Employee are unable to resolve their dispute, and should either desire to pursue a claim against the other party, both Employer and Employee agree to have the dispute resolved by final and binding Arbitration. The Employee and Employer agree that the Arbitration shall be held in the county and state where Employee currently works for Employer or most recently worked for Employer.”
Such clauses prevent workers from taking their employers to court and have grown from impacting just 2% of the workforce in 1991 to affecting most U.S. employees in 2018.
This rapid development of mandatory arbitration has led to a spirited debate over the current system’s effectiveness. Defenders of forced arbitration cite the speed, privacy, and reduced legal fees this system affords to all parties involved as reasoning for maintaining the status quo. Critics of mandatory ADR, though, point to potential bias among arbitrators, secrecy, and the unequal bargaining power involved in this process to argue for reform.
CURRENT PROBLEMS WITH THE DISPUTE RESOLUTION SYSTEM
Once individuals understand the general uses and history of alternative dispute resolution, they are ready to grasp why this system is so flawed when corporations order it. While proponents of mandatory arbitration make valid points for keeping the process’s framework as-is, the goal of ADR—to help solve employment disputes in a timely and fair manner—has failed to materialize under the current system. While several problems persist with mandatory arbitration, this article will focus on two issues: (i) umpires’ skewed decision-making ability and (ii) lack of court oversight. These complications inhibit the execution of justice for all parties.
Can umpires decide a case impartially when one party hires them? Individuals must ask this question first when assessing mandatory arbitration’s fairness. The evidence overwhelmingly suggests umpires are biased in favor of the party paying their fees. Through experiments in multiple nations, experts have found “that professional arbitrators suffer from affiliation effects—a cognitive predisposition to favor the appointing party.” As a result of this bias, for example, arbitrators are 18 percentage points more likely—by conservative estimates—to make the losing party reimburse the winning party for legal fees when the arbitrators are appointed by the winner, indicating evidence of “pro-winner” bias. Corporations may hide this partiality by advertising that their employees typically can choose which arbitrator will handle each case. Such an argument is flawed, however, as employees usually must name an umpire from a preselected list that the firm has provided. Sustaining bias’s existence in arbitration is the fact that the American Arbitration Association—the profession’s governing body—does not even require its umpires to write opinions explaining why they ruled the way they did.
Once individuals consider the bias in the U.S.’ current mandatory arbitration system, they must also question the role of judicial oversight in the arbitration process. The Federal Arbitration Act (FAA) makes it notably challenging for parties to appeal the umpire’s decision, giving courts almost no authority to overturn faulty judgments. The Supreme Court’s March 2022 ruling in Badgerow v. Walters has made it even more challenging for federal courts to overturn bad arbitral decisions, practically rendering state courts the sole set of ears that can intervene when parties disagree with an umpire’s stance. Even then, “arbitrators’ legal rulings are rarely given de novo [a fresh] review by courts considering a motion to vacate an arbitration award,” with judges typically overturning arbitral awards only when they are blatantly erroneous. This practice of courts letting arbitral decisions stand—no matter how inconsistent with the law—has produced a culture of arbitrators “prone to make mistakes,” such as issuing decisions inconsistent with current law. Given that federal courts overturned 14.2% of private civil cases on appeal in 2015, potentially thousands of ADR-related complainants could receive redress each year but do not because of the rules of a game they have no choice but to play.
The lack of judicial oversight of arbitration partially stems from the fact that many mandatory arbitration hearings are confidential. In such scenarios, plaintiffs are strictly limited regarding how much information they can publicly disclose about their case. As ADR expert Amy Schmitz writes, “In arbitration, lack of public exposure may allow companies to hide improprieties and prevent the public from learning about safety and fairness concerns.” Schmitz continues by reporting that the frequency at which many companies take cases to arbitration allows them to refine their winning capabilities against plaintiffs who may be appearing before an arbitrator for the first time. Corporate America’s quest for secrecy, coupled with private firms’ legal acumen, blocks courts from exercising their ability to get involved in correcting improper arbitral awards.
REFORMING THE SYSTEM: AN IDEA FOR IMPROVING DISPUTE RESOLUTION
With some of the mandatory arbitration system’s problems defined, finding a solution is now in order. While the practice of firms preventing their employees from taking them to court is problematic, the spirit of arbitration—lightening the judicial system’s caseload for more efficient judgments—can be fruitful. By removing corporations’ ability to select arbitrators and transferring this power to the courts, transparency and more substantive court oversight can mix themselves into the current ADR equation, helping give arbitration the makeover it needs.
The initial step in correcting arbitration is acknowledging its importance in the U.S. legal system. Factors such as budget constraints and relatively limited numbers of judges have created a backlog in courtrooms across the United States, with courts taking over twice as long as arbitrators (24.2 months vs. 11.6 months) to finish legal proceedings. In a nation that arguably built its global influence because of its efficiency, it is imperative that the U.S. government affords plaintiffs the right to bring their cases forward as quickly as possible. Limiting arbitration altogether—a stance several camps have taken in the past—would eliminate the ability of the country’s 8,900 certified arbitrators and mediators to assist in easing the judiciary’s caseload and giving parties the right to a fair and efficient hearing process.
Instead of giving employees the right to demand a court trial rather than appearing before an arbitrator, Congress must alter how corporations execute their mandatory arbitration clauses. Under this proposed system, federal and state courts—rather than corporations—would appoint arbitrators to hear cases. This method would eliminate the potential of arbitrators to favor the party hiring them, establishing a fairer system for deciding cases and removing plaintiffs’ fears of bias in the process. Congress is currently not far off from favoring this change, as the House of Representatives passed the FAIR Act in 2019 after Democratic members rallied behind banning mandatory arbitration. The Act failed to garner support from congressional Republicans, however, who expressed interest in reforming, though not wholly abolishing, the U.S. system of forced arbitration. The legislation proposed in this article finds common ground on which both sides of the aisle can agree: mandatory arbitration will remain a legal option for corporations to pursue, and corporations will continue financially supporting this process (as they have done in the past), but courts will be charged with assigning arbitrators to cases.
Improving arbitration cannot stop at merely asking courts to remove bias via selecting arbitrators for cases. The next puzzle the government must solve is ensuring transparency for arbitration to work. Mandatory arbitration clauses frequently require parties to keep case details confidential. While arbitrators’ lack of public disclosure may sometimes be necessary to protect plaintiffs’ identities as well as other sensitive details, such as trade secrets and other employees’ privacy, the arbitrator should make all details of the case public unless the arbitrator finds extenuating circumstances requiring privacy.
Former Fox News Channel host Gretchen Carlson provides a harrowing example of the dangers of keeping arbitration private. Speaking out about facing sexual harassment at Fox, Carlson said in 2022 that her case would never have been publicized if her attorney did not find a loophole in the mandatory arbitration agreement she had signed years prior, potentially hindering much of the #MeToo movement’s momentum. Significant social reforms get halted when the U.S. allows its companies to hide their sins. Opening the curtain to corporate misconduct is essential in restoring the public’s trust in arbitration.
After we achieve transparency in the arbitration system, a third pillar of reform still stands unchecked: oversight. At present, the courts need more authority to overturn arbitration decisions. The U.S. Court of Appeals system exists “to make sure that the [original] proceedings were fair and that the proper law was applied correctly.” If the public is supposed to view arbitration as a legitimate substitute to court action, a supervisory mechanism must exist to correct grievous errors in arbitrators’ decisions. It makes sense for Congress to mandate a system of arbitral review, driven by the Court of Appeals. If backlog and budget constraints constrict circuit courts’ involvement in investigating arbitral decisions, the courts may find it useful to appoint other arbitrators to check each other’s work on a case-by-case basis. Doing so would not only provide a second opportunity for the system to “get it right” on deciding cases; it could open thousands of career opportunities in a market where experts fear for lawyers’ job outlook.
Mandatory arbitration—as flawed as it is—provides an efficient pathway to rectifying plaintiffs’ employment disputes. Instead of scrapping the current framework for this system altogether, as some members of Congress have tried doing in the past, we should keep the system and revise it. In entrusting appellate judges to either review contested arbitral awards themselves or appoint more senior neutrals to perform this task, the ADR process will experience heightened transparency, the diminished frequency of bad awards, and greater respect among American employees once again.
CONCLUSION
In drafting my analysis for this article, I remembered reading the words of Pulitzer Prize-winning writer Phyllis McGinley: “Compromise, if not the spice of life, is its solidity.” Neither the union organizer—hoping to get her workers a fair shake on their day in the hot seat—nor the business leader—looking for a speedy resolution to disputes on terms she has put forward—may be particularly pleased with the solutions proposed in this article. The current picture, however, is rife with problems demanding answers: slow-moving courts, one-sided arbitrators, and workers needing fast resolution to their complaints.
Finding common ground may not be ideal for any party, but it satisfies the most sizable issues hurting every party. Given the state of mandatory arbitration today, this middle-ground solution would be a marked improvement that could preserve arbitration for years to come.
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