Chapter 11

• Jurisdiction: United States

Chapter 11

Human Resources Considerations

§ 11.01 Introduction

When a project team from Cornell University, Price Waterhouse, and the Foundation for the Prevention and Early Resolution of Conflict conducted a survey of corporate counsel to determine the use of alternate dispute resolution among 1,000 of the largest U.S. corporations, with 528 organizations responding, the findings indicated that the use of alternate dispute resolution techniques is widespread and is likely to grow significantly in the foreseeable future.¹ Although the survey was addressed to legal departments, it is reasonable to assume that once alternate dispute resolution procedures are adopted by counsel to manage legal risk, the issuance of policies and the day to day administration of the procedures will be vested in the hands of human resources personnel, as is frequently the case with arbitrations in the unionized sector.

If an alternate nonmandatory dispute resolution procedure is to be creditable to employees and widely utilized by them, based on the author’s own experience in the 1970s as the prime administrator of Cornell University’s unilateral grievance procedure for employees outside bargaining units, the procedure will need to be generally administered by human resources personnel and not by the legal department. Under these circumstances, human resources managers will largely shape the operation and success of any alternate dispute resolution procedure.

Human resources managers should keep in mind at all times while reading this chapter that alternate dispute resolution systems outside of collective bargaining are unilaterally adopted and shaped by the organization and not by its employees. If an organization wants to increase the chances that the courts will defer to the results of its alternate dispute resolution system, it will need to provide considerable substantive and procedural due process. However, the devil is in the details and management representatives should never forget that it is they, and they alone, who adopt the wording and methods to govern the alternate dispute resolution process. This chapter is largely concerned with those details.

In the current rush to adopt alternate dispute resolution systems as an alternative to litigation, organizations may forget that the results they wish to achieve may be lost by not forging a comprehensive, well thought out, procedure. For example, failure to provide a complete charter for the selection of third-party neutrals and to define the limits of their authority over the organization may later result in broad policy changing case decisions with which the organization may find itself ultimately unwilling to live, and unable to appeal.

This chapter assumes that the reader’s organization has decided that it wishes to adopt an alternate dispute resolution program. This decision may originate from the legal department or from human resources itself. The author strongly suggests that before a final decision is made to adopt a system of binding arbitration for employees who are not union represented, those who have considerable experience in representing the organization in its arbitration procedures with unionized employees, if any, be consulted. Although arbitration in the unionized context has certain problems that do not carry over into arbitrations in which no union is involved, much may be learned by examining the problems encountered in union arbitration with arbitrator selection and setting the boundaries of arbitrator authority.

The law regarding alternate dispute resolution for employees who are not union represented is still in its relative infancy and on many questions is in flux or indeterminate. This presents both an opportunity and a danger. The opportunity is that the absence of predictive law leaves employers with considerable freedom to draft alternate dispute resolution programs which closely meet their needs and which, while basically just, slant open questions in favor of the employer. The danger is the very lack of predictability, which means that no assurances may be given that any procedure, except perhaps one totally mirroring an employee’s rights in court, will be given judicial deference. Nevertheless, alternate dispute resolution systems offer some potential procedural advantages to management, such as the ability to discover some of a potential plaintiff’s case in advance, while still somewhat limiting the scope of discovery in relation to the organization.

The use of alternate dispute resolution on either a mandatory basis or to resolve statutory rights remains controversial. There is no legal barrier to the establishment of truly voluntary arbitration or mediation as a precursor to potential litigation, provided the employee may bypass this step. Under these circumstances, the law is likely to become involved only as to the preclusive effect, if any, of the alternate dispute resolution procedure result.

Most of America’s largest corporations have used alternate dispute resolution, 88 percent have used mediation, while 79 percent have used arbitration. Other alternate dispute resolution systems are used less frequently. Twenty-three percent have used mini-trials, 21 percent used fact finding, and 11 percent utilized peer review. About 10 percent have an ombudsperson on staff and about 35 percent have an in-house grievance procedure outside collective bargaining agreements. Only about 10 percent of large corporations, concentrated among the very largest, always try to use alternate dispute resolution.² Corporate lawyers tend to have a preference for mediation or other nonbinding third-party techniques, rather than arbitration. The growth of alternate dispute resolution may be attributed to cost control, legal mandates, and dispute management.³

The courts have facilitated the use of arbitration as a binding means of resolving employment related disputes. In its landmark Gilmer decision,⁴ the U.S. Supreme Court abandoned its historical distrust of arbitration in employment disputes and declared agreements by employees to arbitrate these disputes to be enforceable. Gilmer opened the door for mandatory arbitration of employment disputes. However, the question of whether or not a labor union may negotiate a clause in a labor agreement effectively binding the employees it represents to arbitrate statutory rights issues remains open.⁵

Counsel should be cautious in establishing alternate dispute resolution procedures. Great care needs to be taken to ensure that the alternate dispute resolution procedure that is adopted serves the organization’s needs and balances the organization’s tolerance for legal risk with the “fundamental fairness” concepts the courts have adopted for their enforcement of, and deference to, these employer established procedures. The boundaries of tolerable legal risk will vary by organizational culture. Accepting too much risk by tilting the policy too much toward the employer may result in adding to rather than replacing costs. Accepting too little risk will leave the employer with a procedure that is so much akin to litigation that the cost savings will be small and the process almost indistinguishable from litigation.

There are numerous legal and practical issues that human resources managers will need to keep in mind as they establish charters or policies for their organization’s alternate dispute resolution system. Charter issues concerned with the process up to a hearing will include coverage (statutory or non-statutory issues), the time limits for filing a complaint, mandatory or voluntary usage, unilateral charter amendment, processing timelines, group actions, representation, limitations that alternate dispute resolution may place on employment at will, and the design of a selection system to yield qualified third parties who will live within the charter. At the hearing, charter issues include what rules of evidence are to be used, limits on the neutral’s authority, and the remedies allowed. The charter should also address issues such as who pays the arbitrator and any additional rights of appeal. These issues will now be considered in depth.

§ 11.02 Speed vs. Appeal Rights

For many corporate executives, the use of alternate dispute resolution is a strategy pursued in hopes of reducing the time needed to process claims, thereby reducing costs.⁶ There can be little doubt that the time necessary to process a claim through mediation and/or arbitration is usually significantly less than the time required for litigation. The time lapse from the events giving rise to a claim in litigation and the final determination, including appeals, in litigation may be measured in years, or sometimes a substantial portion of a decade.⁷ However, the trade off for greater speed will be a significant loss of appeal rights.

Human resources managers who believe that arbitration will be extremely fast should keep in mind that dispute resolution procedures that provide the due process rights required to increase the chances of judicial deferral may slow progress to resolution down more than expected. Employers may provide for arbitration of future disputes by inserting the following clause into their employment contracts, personnel manuals, policy statements, applications, or other agreements:

“Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Employment Dispute Resolution rules of the American Arbitration Association, and judgments upon the award rendered by the arbitrator(s) may be enforced in any court having jurisdiction thereof.” ⁸

When arbitration of statutory claims is involved, different schools of thought exist on the question of whether an employer should be allowed to require employees outside collective bargaining agreements to consent to arbitration of future employment related disputes, including those over statutory rights, as a...