Chapter 3

• Jurisdiction: United States

Chapter 3

State Statutes Related to Employment ADR

§ 3.01 Introduction to Employment Related State Statutes and ADR

For purposes of this chapter, the only statutes that will consistently be considered are state general arbitration laws. These statutes often have a long history and many case annotations related to commercial arbitration and only more recently, if at all, are employment arbitration cases interpreting these statutes, outside collective bargaining, beginning to appear. Most of the principles and policies of these statutes will apply with equal force to employment related arbitration.

There may be other provisions of state law that are concerned with arbitration or which fill gaps in how arbitration cases are processed, but if they are not within the general arbitration law, they have not been analyzed in this section. Also excluded from this chapter are statutes relating exclusively to public sector employees and those related to court annexed mediation or arbitration.¹ Discussion will be limited regarding issues as to the interaction of state arbitration laws and collective bargaining agreements. In sum, this chapter is essentially concerned with state statutes related to alternate dispute resolution in employment related matters for employees who are in the private sector and are not represented by unions.

Although this chapter focuses on the statute law of the states, case law will be cited to some extent to explain statutory development or amplify statutory rules. Local laws and ordinances will not be covered and any state regulations regarding the applicable statutes will not be addressed.

Alternate dispute resolution law, after being relatively static for much of its history, is changing far more rapidly than previously and counsel should be consulted in each case. Older research should be verified to ensure its continuing validity.

Of necessity, some selection judgment has been utilized in determining which state statutes should be included for detailed analysis and which sections of statutes should be discussed. The states initially selected for statutory review are among those in which there is considerable litigation activity, or from which a large number of cases are likely to arise, or whose courts are among those that are often accorded great weight in shaping the law in other jurisdictions.

Many state arbitration statutes parallel the Uniform Arbitration Act. (UAA) Because of the importance of the Uniform Arbitration Act, the full text of the Act is included at the end of this treatise.² Due to state variations on the UAA, even among those states that generally follow it, any characterization of a statute as analogous to the UAA is necessarily judgmental.

In reviewing the statutes of the various states concerning employment related alternate dispute resolution, this section will point out some of the significant deviations between the states and from the Uniform Arbitration Act, as well as identifying patterns shared by many of the states. Although there is considerable commonality between the states because many states follow the UAA, variations do exist and readers should never assume that a state statute that parallels the Uniform Arbitration Act will do so in every respect.

Both federal law and the law of all but one of the states, Connecticut, fail to provide any procedure for arbitrators to certify legal questions to the courts for resolution. In Connecticut, at any time during an arbitration, by request of all the parties, the arbitrator is required to make application to the courts for a decision on any question arising in the course of the hearing, providing that the parties agree in writing that the court’s decision shall be final as to the question determined and will bind the arbitrator in rendering the award.³ Note that the agreement of all parties is required for a court referral. This unique provision points out the importance that may attach to having the arbitration agreement specify state law review and also demonstrates the importance of checking each state’s law for deviations from the UAA. It also demonstrates that the law in the United States treats alternate dispute resolution systems as enforceable by the courts, but separate. Although the referral process might slow down arbitration, it would tend to obviate objections that arbitrators are deciding questions of law, sometimes novel questions, without court guidance.

§ 3.02 State Law Preemption by the Federal Arbitration Act and Choice of Law

Among the most complex and perplexing issues still outstanding in alternate dispute resolution law is the question of the relationship between federal and state law, including as it pertains to the right of parties to agree to variations within that scheme. Examination of these issues will require a look into the courts’ various holdings, as Congress has never chosen to clear these issues by a new statutory pronouncement. Indeed, the history of the law concerning these issues is marked by ambiguity, shifting theories, and continuing debate, all of which means that counsel may have difficulty predicting for clients how the law will be interpreted in relation to their arbitration agreements.

Questions concerning preemption and choice of law may be divided into several parts. First, what is the reach of the Federal Arbitration Act (FAA)?,⁴ that is, what is the definition of “commerce” under the Act? Second, how far does the Federal Arbitration Act preempt state alternate dispute resolution law? Third, how far may the states go in enacting and enforcing laws that arguably are in conflict with the Federal Arbitration Act and the federal pro-arbitration policies it creates? Fourth, what rights do the parties have to select and have enforced “choice of law” provisions that substitute state law or their own substance or procedures of choice for the Federal Arbitration Act? As the reader will note, there are several anomalies that have developed that surround the FAA and the application of federal and state law. These anomalies have not been fully resolved.

[1]—Background

Before reaching the question of the FAA’s coverage,⁵ we must consider the background surrounding the enactment of the Federal Arbitration Act. The Act was passed in 1925 before the time when the New Deal brought forth an expanded use of the Commerce power by Congress to enact many far-reaching economic and regulatory laws. Until the New Deal era, the term “commerce” was limited to selling, buying, and bartering and the broad reading of the Commerce Clause to reach “all matters substantially affecting commerce” was not supported by the Supreme Court.⁶ In more recent times, the Court itself has noted that the pre-New Deal Congress that passed the Federal Arbitration Act in 1925 might well have thought the Commerce Clause did not stretch as far as turned out to be the case later on.⁷

In 1925, the key case defining the role of federal courts in relation to state law, Erie R.R. v. Tompkins,⁸ lay 13 years in the future. In Erie, the Court determined federal courts must apply state substantive law in diversity cases.⁹ But, when Congress passed the FAA, it could not have considered the need to clarify whether the Act was intended to create federal question jurisdiction or diversity of citizenship jurisdiction.¹⁰ The importance of that distinction to federal-state relationships did not fully emerge until Erie. The 1925 statute did not expressly spell out whether Congress was passing a statute intended to be federal substantive law, or procedural law applicable only in the federal courts. To this day, there remains judicial questioning as to whether Congress intended the FAA to apply only in federal courts.¹¹

What is clear is that the basic purpose of the FAA was to overcome the refusal of courts to enforce agreements to arbitrate.¹² When Congress passed the FAA in 1925, it was “motivated, first and foremost, by a desire” to change the existing rules against arbitration.¹³ There is no evidence of the type of legislative history that would fully control the open issues. However, what legislative history there is does indicate that Congress may have had an expansive intent in mind regarding commerce.¹⁴

Further, by way of background, when Congress passed the FAA, it was inconsistent with the terms it used relating to interstate commerce and the courts. In § 1 of the Act, commerce is defined as “commerce among the several states or with foreign nations . . .” However, in § 2, the section making arbitration contracts valid and enforceable, the operative language related to commerce relates to contracts “evidencing a transaction involving commerce.”

As to congressional references to courts, Section 3 applies to proceedings brought in “any of the courts of the United States.” Section 4, concerning orders to compel arbitration, applies by its terms, only to “any United States district court.” Sections 5, 6, and 8, which speak to the appointment of arbitrators, applications heard as motions, and proceedings in admiralty, respectively, simply refer to “courts.” Sections 7, 9, 10, and 11, related to witnesses and fees, awards, vacating awards, and modification of awards, respectively, speak in terms of district courts or district courts of the United States. In short, the drafters of the Act were rather casual and inconsistent in their use of terms. In our more litigious current society, and with the growth in the use of alternate dispute resolution, these problems, probably minor at the time the Act was passed, have grown in importance.

Why is state law still important in alternate dispute resolution? If the federal government has exercised its power over commerce and preempted much of state law (at least absent the parties’ choice of state law), why consider state law? The parties to an arbitration agreement may invoke the Federal Arbitration Act in state courts and § 2 of the Act preempts state law to the contrary.¹⁵ As the...