Chapter 1

• Jurisdiction: United States

Chapter 1

Background and ADR Legal Development

§ 1.01 Scope of the Treatise

The term “Alternative Dispute Resolution” covers a wide range of subject matter. In order to organize the materials to make a search in this text easier for readers, the author has established a general approach in categorizing alternate dispute resolution issues. First, private alternate dispute resolution has been generally divided from public alternate dispute resolution. “Private” refers to alternate dispute resolution systems and programs which are established by contract outside the government agency and court systems. “Public” alternate dispute resolution consists of programs and processes that are established by federal and state agencies and courts as part of administrative and judicial processes. A party may find itself entangled in public alternate dispute resolution involuntarily and without any ability to modify the rules. Private and public alternate dispute resolution must necessarily differ as private sector arrangements have traditionally been free of the constitutional restraints that apply when a governmental body imposes a system pursuant to law.

The second major division of alternate dispute resolution employed in this text is to separate it into its various component parts. The term “alternate dispute resolution” is an umbrella term embracing a wide range of methods to settle disputes between parties, including ombuds programs, fact finding, voluntary mediation, compelled mediation, mediation-arbitration, mini-trials, private judging, summary jury trials, early neutral evaluation, judicial settlement conferences, union-management arbitration, non-binding arbitration, and final and binding arbitration. In addition, there are many variants possible on each of these themes. Although discussions in this text will include at varying times all of these systems, binding arbitration will generally be featured. Binding arbitration presents the largest number of legal issues, particularly in the employment context, when employees’ statutory and legal rights, such as protection from discrimination, are involved. In private arbitration, the parties are essentially free to create and modify whatever alternate dispute resolution system they choose and that system will be enforced, barring egregious violations of public policy or unconscionability.¹

This text is concerned with alternate dispute resolution in employment only. It does not address the application of alternate dispute resolution in the disposition of domestic disputes, marital disputes, prisoner complaints, or similar matters. In theory, we are not concerned with commercial arbitration either, but as will be shown in the history of alternate dispute resolution which follows this discussion, it is commercial arbitration that has provided most of the framework of development for dispute resolution in employment. In the current state of alternate dispute resolution law, it is simply not possible to draw entirely upon the stock of case law decisions relating to employment as a basis for drawing many conclusions. One must have a fundamental understanding of how the law has been applied in commercial disputes. This is an unfortunate consequence, as the resolution of disputes between employers and employees is quite different than that between merchants. Instead of mundane commercial problems, employers and employees are often at loggerheads over issues involving such important statutory and public rights as freedom from discrimination. Employers and employees also occupy different power relationships with each other. Employment is a continuing relationship, a type of “forced marriage,” whereas commercial contractors generally enjoy greater freedom to walk away from one among many merchants with whom they have previously done business.

The law developed in union-management arbitration is also having a major impact on the law of employment related alternate dispute resolution for employees who are not union represented. Union-management arbitration has an extensive history dating back to the enactment of the Railway Labor Act² of 1926 and the National Labor Relations Act³ of 1935. Care must be taken in distinguishing the law related to union-management alternate dispute resolution from its counterpart for employees who are not union represented. In the former, the parties are both institutional, one a union, the other an employer. The employee does not act alone and hence does not bring to the table only the bargaining power enjoyed by a single individual. The terms of the alternate dispute resolution process are bilaterally fixed through negotiation by two substantial parties. Does this matter? As this text will demonstrate, the courts have drawn very little distinction between employee and employer arbitration as compared to commercial or union-management arbitration.

Alternate dispute resolution law is governed by both federal and state law. The primary federal statute, the Federal Arbitration Act,⁴ allows the states concurrent jurisdiction provided that state law does not conflict with the Act. Each of the states has a general arbitration statute.⁵ While this text will discuss state law and sometimes give examples in depth for specific states, it should be realized that coverage of all fifty states in detail would create an extremely large text not suitable as a desk reference tool for a national readership. Accordingly, the concentration will be on federal law with references to the states to illustrate points.

Another important distinction in discussing private employment related alternate dispute resolution is whether the disputes to be encompassed in the system are going to cover a wide variety of human resources issues or be limited to statutory and legal claims only. The importance of this distinction lies in its impact on the “employment at will” doctrine, under which an employer who is not violating any specific prohibitive statute or legal requirement may terminate an employee with or without cause.⁶ Once an employer establishes a broad-based alternate dispute resolution system that may review discipline and discharge, and utilizes a third-party decision maker who may issue binding decisions, the employer has abandoned the “at will employment” doctrine, at least to some degree.

An employer is, of course, free to establish alternate dispute resolution procedures that have a scope which is broad enough to enclose all employment related disputes, whether arising from an employer’s own internal policies or out of the law. However, the logic of employers using alternate dispute resolution to seek relief from the costs and delays of litigation is inherently applicable only to employment related disputes which arise out of the operation of law, as only these matters have been subject to litigation.

Counsel and human resources managers considering installing alternate dispute resolution systems should carefully consider whether they wish to create a system that covers disputes that do not present legal issues. The adoption of these systems may be attractive to employers for human resources reasons, but in this context they have no relationship to the litigation cost reduction argument. Indeed, these systems may carry new legal risks, for while their shaping is in the hands of the employer, even voluntary alternate dispute resolution systems carry with them certain legal problems for the employer, and for neutrals, which will subsequently be discussed, including issues such as mediator qualifications and ethics.

Public alternate dispute resolution has often been termed “court annexed.” That term will be used in this text and should be understood to relate only to alternate dispute resolution systems that are mandated or offered on a voluntary basis under the aegis of a governmental body. Public systems differ from private ones in the very important respect that while the parties may, in some systems, be allowed to input into the form or rules of alternate dispute resolution to be utilized, the parties may lack the ability to refuse participation or to modify the system.⁷

The existence of court annexed alternate dispute resolution means that employers and their counsel who may choose not to adopt private alternate dispute resolution procedures may find it impossible in some jurisdictions to avoid some involvement with similar processes. Thus, it is important for counsel and human resources managers, even in organizations that do not have alternate dispute procedures, to become familiar with the opportunities, problems, and legal issues surrounding alternate dispute resolution systems. Sooner or later, virtually every large employer in the United States is going to encounter an alternate dispute resolution system in which it either chooses to participate, is required to participate, or as to which it cannot avoid entanglement.

It simply cannot be overemphasized that the salient feature of private employment related alternate dispute resolution for employers is that, as will be demonstrated, they have the ability to shape the forms, procedures, and processes of the system unilaterally, and, provided they adhere to certain Due Process concepts, they may impose such a system on their employees for the resolution of legal and statutory claims. For employers, alternate dispute resolution thus presents an opportunity to slant the playing field so as to win more disputes, keeping in mind that the Due Process concepts required also tend to build back into their systems the very costs and problems they are trying to avoid. For employees, alternate dispute resolution is far less of a blessing, although it does potentially offer a more rapid resolution of their problems.

This discussion would not be complete without referencing the differences between views of alternate dispute resolution as a legal device and as one for the resolution of human conflict. This text is concerned...