Mandatory Arbitration of Employment Disputes

JurisdictionKansas,United States
CitationVol. 67 No. 04 Pg. 18
Publication year1998
Kansas Bar Journals
Volume 67.


Journal of the Kansas Bar Association
April, 1998


The Whats, Whys and Hows

Boyd A. Byers [FNa1]

Copyright (c) 1998 by the Kansas Bar Association; Boyd A. Byers


AMS -- Arbitration/Mediation/Settlement/Other Forms of ADR

"No thoughtful person wants 'fighting each other in the courts' to be the chief business of society." [FN1] Court battles, however, have become a way of life in the American workplace. The number of employment discrimination claims increased by 2,200 percent in the 25 years from 1969 to 1994, [FN2] and employment law cases now account for 20 percent to 25 percent of the federal court docket. [FN3] Employment litigation continues to explode in the late 1990s, fueled by the passage of the Civil Rights Act of 1991, the Americans with Disabilities Act, the Family and Medical Leave Act and a heightened sensitivity to sexual harassment. What, in such an environment, is a "thoughtful person" to do?

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An increasing number of employers are turning to alternative dispute resolution (ADR), including use of mandatory arbitration agreements, as a solution to the problems of employment litigation. This phenomenon is possible because of the U.S. Supreme Court's 1991 decision in Gilmer v. Interstate/Johnson Lane Corp., [FN4] which held that an individual employee who had signed an arbitration agreement as part of his application for registration with the New York Stock Exchange was bound to arbitrate a statutory claim of age discrimination. [FN5] In the seven years since Gilmer, lower federal courts, including those in Kansas, have applied its reasoning to uphold agreements between employers and employees to arbitrate employment disputes of all types.

But are predispute mandatory arbitration agreements the elixir to cure all workplace ills? Five years ago this month, The Journal of the Kansas Bar Association featured an article on this subject, which concluded that "employers would do well to consider [mandatory] arbitration as an appropriate alternative [to litigation]." [FN6] Since that article was published, questions surrounding predispute agreements to arbitrate employment claims have been resolved by the courts in favor of enforcing arbitration. Nevertheless, as the courts say yes, employers in Kansas have remained reluctant to embrace mandatory arbitration.

This article attempts to answer some of the whats, whys and hows regarding mandatory arbitration of employment disputes. More specifically, it compares arbitration to civil litigation, [FN7] explores the advantages and disadvantages of mandatory arbitration, [FN8] discusses the enforceability of mandatory arbitration agreements [FN9] and provides guidance for drafting such agreements. [FN10]

I. What is arbitration? Arbitration vs. litigation in resolving employment disputes

Arbitration is a system of dispute resolution under which the parties agree to submit a controversy to a neutral third party for a binding decision. While arbitration commonly is associated with grievance procedures under collective bargaining agreements, an employer and employee can agree to arbitrate any employment dispute, either in connection with or apart from a collective bargaining agreement.

Arbitration is a matter of contract. The parties may agree before any dispute that disputes which may arise in the future will be resolved by binding arbitration ("predispute" or "mandatory" arbitration agreement), or they may reach such an agreement when a dispute actually arises ("postdispute" agreement). Postdispute arbitration agreements, for the most part, are not controversial. This article addresses the burgeoning, and sometimes controversial, use of individual predispute agreements to arbitrate statutory employment claims.

Arbitration is similar to civil litigation in many respects. The arbitrator, who presides over the arbitration, decides both issues of fact and issues of law, much like a judge in a non-jury trial. The parties, commonly called "claimant" and "respondent," usually are represented by legal counsel. As in civil litigation, the parties initially present their positions through pleadings. The claimant submits a "demand" or "statement of claim." The respondent then files a "response" or "answer." The parties may engage in limited discovery, including depositions, interrogatories, and document requests, subject to the underlying arbitration agreement.

The parties present their case and offer evidence at an arbitration "hearing," which is similar to a civil trial but less formal. The arbitrator hears arguments, both orally and in writing, which may cite applicable law. The hearing is typically recorded, either electronically or stenographically. Following the hearing and any posthearing briefing, the arbitrator issues an "award." The arbitrator may provide a written opinion explaining the reasons for the decision, but is not always required to do so. Arbitration costs, which consist primarily of the arbitrator's fee, usually are shared by the parties in some fashion in accordance with the arbitration agreement. In arbitration of individual employment disputes the employer may be required to pay all costs.

Arbitration differs from civil litigation in a number of important respects. The arbitrator typically arbitrates only on a part-time basis and need not even have a law degree, although most are lawyers or law professors. Prehearing discovery is limited, although some minimum level of discovery is necessary to ensure that the employee receives documents and information necessary for a full and fair hearing.

An arbitration hearing is much less formal than a court proceeding. While evidentiary rules are followed to some extent, arbitrators have discretion to and generally do admit evidence that would be excluded at a civil trial, such as hearsay or documents lacking strict foundation. And unlike civil trials, arbitration hearings are conducted in private. There are no jurors, court personnel or uninvited members of the public present. Pleadings are not public record. The arbitrator's decision, if reduced to a written opinion, may be limited to review by the parties.

Another difference between arbitration and civil litigation is the arbitrator's potentially broad discretion to decide cases without strict application of legal principles and to fashion broader and more flexible remedies than those available in civil court. Also, judicial review of arbitration awards is limited. A reviewing court will vacate an arbitration award only where the award results from a party's corruption, fraud or undue means; where there is evidence of bias, corruption or specified misconduct by the arbitrator; or where the arbitrator exceeded

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his powers. [FN11] A party thus has little means to challenge an award it believes is unjust or not supported by the law.

II. Why arbitration? Advantages (and disadvantages) of mandatory arbitration in the employment setting

Arbitration offers advantages not only to the disputing parties, but to the judicial system as a whole. Just weeks ago, several federal district court judges in Kansas, who were featured presenters at a KBA-sponsored seminar in Wichita, commented that it seems employment law cases are over-whelming their dockets. Increased use of private ADR, including arbitration, to resolve employment disputes would help clear the logjam of employment cases in the federal courts.

For the parties themselves, arbitration promises time and money savings. A case typically can be fully resolved in arbitration in less than six months, which in most instances is considerably less time than it takes to get to court. Arbitration's speediness is a product of its informality and its limited discovery, motion practice and appeals. In addition, private arbitration is not subject to the backlogs and delays inherent in an overburdened public court system. This time savings translates directly into cost savings. Further, faster resolution of claims reduces the employer's exposure to back-pay liability.

Arbitration offers the parties control over the dispute resolution process. They can select the decision maker, who is typically an expert in the subject matter of the dispute. Because the parties can choose the process by which the dispute will be resolved, arbitration allows for more creative and flexible procedures and solutions. The parties also can select the time and place most convenient to them.

Arbitration typically is more predictable than civil litigation. Arbitrators are less likely than juries to be swayed by corporate antipathy or the employee's personality. The parties thus are better able to predict the outcome of any given claim. This predictability, combined with lower costs, lessens the pressure on employees to enter into inflated, risk averse settlements.

Arbitration provides confidentiality, which protects both parties from unwarranted public disclosure. In addition to the obvious benefits, privacy may facilitate reasonable settlements, since the parties are less apt to feel pressure to vindicate their position to the outside world.

An ADR process, because of its private nature, informal procedures and speedier resolutions, is better at preserving relationships than is civil litigation. Where the claimant is still employed, arbitration may resolve employment-related problems before they escalate. And when the relationship cannot be salvaged, it allows the parties to get disputes behind them quickly so they can get on with their businesses and lives.

Arbitration provides employees with greater access to a dispute-resolution system. Many employees do not have the resources to retain legal counsel, and in some cases it may be difficult to attract...

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