Mandatory employment arbitration: keeping it fair, keeping it lawful.

• Author: St. Antoine, Theodore J.

INTRODUCTION

President Obama's election and the Democrats' takeover of Congress, including what was their theoretically filibuster-proof majority in the Senate, have encouraged organized labor and other traditional Democratic supporters to make a vigorous move for some long-desired legislation. Most attention has focused on the Employee Free Choice Act (EFCA). (1) As initially proposed, the EFCA would enable unions to get bargaining rights through signed authorization cards rather than a secret-ballot election, (2) and would provide for the arbitration of first-contract terms if negotiations fail to produce an agreement after four months. (3) The EFCA would apply to the potentially organizable private-sector working population; at their height, unions represented about 35% of that group. (4) This Essay will deal, however, not with the EFCA but with another controversial, if less publicized, proposal: the Arbitration Fairness Act (AFA). (5) The AFA would have a much broader impact than the EFCA. It could affect the whole of the nonunion work force, currently about 92.8% of private-sector employment. (6) It would amend the Federal Arbitration Act (FAA) (7) to prohibit most pre-dispute agreements to arbitrate employment claims or civil rights claims. Some background is necessary to understand what is at stake.

THE PROBLEM

Suppose you are a blue-collar or pink-collar employee, used to making $15 an hour, a trifle more than twice the federal minimum wage, or some $30,000 a year, which amounts to about 75% of the national average individual income. (8) You have been laid off during the current recession and have been actively seeking work for a couple of months. You hear of a job paying $12.50 an hour, a step down but far better than nothing. You apply and are accepted. The personnel director presents you with the usual set of forms to fill out, plus one that states: "All disputes between the Company and the Employee arising out of this employment relationship, including statutory claims, shall be resolved through the arbitration system established by the Company, and the Employee waives all fight to bring any action on such claims against the Company in federal or state court." If you have the effrontery to inquire what happens if you do not agree to this, you will be told curtly, "You do not get the job." So you sign. Later you are discharged, supposedly for inadequate performance, but you are convinced it is because of your age, race, or sex. Can you sue? If you do, can the Company demand that you arbitrate instead?

THE PRESENT LEGAL ANSWER

In Gilmer v. Interstate/Johnson Lane Corp., (9) the U.S. Supreme Court held that an individual stockbroker employee was bound by a contract with the New York Stock Exchange to arbitrate a claim of age discrimination against his employer. (10) The stockbroker was not precluded, however, from filing a charge with the Equal Employment Opportunity Commission (EEOC); only his own court action was barred. (11) The Court also emphasized that the stockbroker had suffered no loss of substantive rights; it was only a change of forum. (12) Moreover, the agreement in Gilmer plainly authorized the arbitrator to handle statutory claims as well as contractual claims. (13) The arbitral procedures simply had to be such that they did not impair the employee's capacity to vindicate his statutory rights. (14) How did this notion of substituting private arbitration for statutorily authorized court suits ever arise?

DEVELOPMENT OF MANDATORY ARBITRATION

During the 1980s, a series of court decisions, which would eventually include all but a few states, imposed significant qualifications on the traditional American common-law doctrine of "employment at will." (15) The exceptions were based on such theories as public policy (a tort), (16) express or implied contract (oral promises or personnel manuals), (17) and, much less often, the covenant of good faith and fair dealing. (18) Judges and juries awarded substantial damages to employees who were found to be victims of wrongful discharge. For example, several studies showed that plaintiffs in California won about 75% of the discharge cases that went to juries, with the average award being around $450,000. (19) Nationwide, individual wrongful discharge plaintiffs received jury awards for actual and punitive damages as high as $20 million, $4.7 million, $3.25 million, $2.57 million, $2 million, and $1.5 million. (20) Even winning was not cost-free for business. By the end of the 1980s, the fees and expenses for a successful defense of a discharge case before a jury could range between $100,000 and $150,000 in major midwestern cities, and amount to around $200,000 on the coasts. (21)

Many employers reacted to the new causes of action and costly litigation by imposing so-called "mandatory arbitration," conditioning employment on a worker's agreement to arbitrate all job disputes with the employer rather than taking them to court. The mandatory arbitration was meant to apply even to claims arising under federal or state civil rights legislation prohibiting discrimination against employees because of race, sex, religion, ethnicity, age, disability, and so on. (22) Mandatory arbitration plainly raises numerous legal and policy questions. That is especially true with regard to attempts to prevent plaintiffs from resorting to the courts for the vindication of statutory rights.

ARGUMENTS FOR AND AGAINST MANDATORY ARBITRATION

One can easily imagine the arguments against mandatory arbitration, and they are most appealing on their face. For example, Congress, or some other legislative body, has prohibited various types of employment discrimination and has prescribed certain procedures for the enforcement of those rights. In a given case, the specified procedures, sometimes including the right to a jury trial, may be almost as important as the substantive rights. No employer should be able to force an employee to waive the statutorily provided forum, procedures, and remedies as the price for getting or keeping a job. Conditioning employment on the surrender of statutory entitlements would seem a blatant affront to public policy.

An employer dealing with an individual employee, opponents contend, is the "repeat player" against the one-timer, and arbitrators may be affected by knowing who the much likelier source of future business is. (23) Some sizable, well-publicized jury verdicts could do considerably more, it is said, to deter workplace discrimination than any number of smaller, confidential arbitration awards. (24) An employer's provision for arbitration is arguably a not-so-subtle antiunion device, because a grievance and arbitration system is regarded as one of the principal benefits of unionization and collective bargaining. For these and other reasons, several scholars, two federal agencies, and two prestigious private bodies have gone on the record as opposing mandatory arbitration of statutory employment claims. (25)

These arguments against mandatory arbitration are impressive, but they are not dispositive. One study, for example, indicates that the greater success of the repeat player is simply the result of employer experience, not arbitrator bias. (26) Any repeat-player advantage that may exist will diminish with the increasing growth of a plaintiffs-claimants bar. The deterrent effect of some large jury verdicts may well be assumed, and yet it is widely thought that the certainty of sanctions is more of a deterrent than their severity. (27) The history recounted above indicates that employers' resort to mandatory arbitration in the 1980s was triggered far more by the size of jury verdicts and the cost of litigation than by efforts to stymie union organization. (28) Concerns that private arbitration will hinder the development of judicial doctrine in the civil rights area seem ill-founded in light of the very large federal caseload dealing with employment discrimination. (29)

Post-dispute arbitration agreements are undoubtedly fairer to workers than mandatory, pre-dispute agreements. As in my hypothetical of the laid-off worker seeking a new job, pre-dispute agreements are usually executed when employees are predisposed to sign any document placed before them. The post-dispute agreement is more likely to be truly voluntary, since it is entered into when the relevant facts are mostly known, and the employee can make an informed judgment about whether to arbitrate or go to court. (30) If a worker has been discharged, he or she has little or nothing to lose by refusing to go along with an employer's offer of arbitration.

Yet the attractiveness of the post-dispute agreement to arbitrate may be mostly a chimera. Management representatives testified before the Dunlop Commission that employers would generally not be willing to enter into such arrangements. (31) Employers will wait out most smaller claims, knowing that employees will usually not be able find a lawyer to bring suit. Conversely, employees and their lawyers are unlikely to agree to arbitrate the big case rather than take it before a judge and jury. As a result, pre-dispute agreements to arbitrate, when no one knows what the future holds, may be the most sensible course for both parties. (32) In my mind that gets to the core of this long-running debate. Employers generally believe they are better off with arbitration than with costly court suits before emotionally aroused juries. What about our ordinary rank-and-file worker with a relatively small monetary claim but with a job and its related benefits at stake? What better serves him or her in actual operation: a mandatory arbitration system, with its admitted defects, or the statutorily provided access to federal or state court? Here, facts speak louder than abstract theories, and I believe we should listen.

ACCESS TO A TRIBUNAL

All the statutory (or contractual) rights in the world mean nothing if they cannot be enforced. Both...