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Streamlining the Employment Arbitration Process

How to Save Time and Money
Claudia D. Orr
Dispute Resolution Journal - Chapter 29 - Vol. 68 No. 3
06.11.2015

INTRODUCTION

Recent data suggests that 15 to 25% of employers now require their employees to arbitrate employment disputes and that 25% of all nonunion employees are now bound to such agreements.[1]  The US Supreme Court has upheld arbitrations for class actions finding “the Federal Arbitration Act controlled over state laws that nullify binding arbitration for class claims.”[2]

Arbitration has many benefits and, included among them, is cost and efficiency.[3]  In fact, studies show that, on average, it takes three times longer to litigate claims than to arbitrate them.[4] 

Despite the relative speed for resolving disputes through arbitration, the cost and efficiency of the process is often criticized.  If parties seek adjournments, file numerous motions and demand extensive discovery, the arbitration will strongly resemble litigation. Unfortunately, attorneys tend to do in arbitration that which they have become accustomed to do in court.  While arbitrators can curtail some abuses through educating the parties about the need for efficiency and through rulings that will expedite the process, much of the responsibility rests with the parties. Arbitrations can be cost effective and efficient if the suggestions below are followed. [5]

ARBITRATION AGREEMENTS

Arbitration is a matter of contract.  It is less formal than litigation and the rules of procedure and evidence applicable to the judicial forum do not apply to arbitrations.[6]  Thus, the focus is substance over form. The process belongs to the parties to the contract with direction by the arbitrator. How the parties structure the process in their agreement controls. Where that agreement speaks, it controls the process. Where the agreement is silent, the arbitrator has discretionary authority to control the process.

Thus, a well written arbitration agreement should establish rules for an efficient, cost effective process and eliminate needless costly, time consuming, disputes. Since unfettered discovery and motions will result in most of the delays, reasonable limits should be established.  Well designed agreements will aid in efficiency and cost effectiveness.

A “form” agreement found on the internet may not include provisions that emphasize procedural efficiency or meet the needs of the specific organization.  It may also fail to bind employees to arbitrate their civil rights and other statutory claims. See, e.g., Vanderlaan v Michigan Medical, PC, unpublished opinion per curiam of the Mich Ct of App, issued July 9, 2009 (Docket No. 284678)(holding that “any dispute between Employer and Employee arising under or relating in any manner to this Agreement” must be submitted to arbitration was too vague to constitute a clear waiver of judicial forum for statutory claims).

The American Arbitration Association has standard rules for the arbitration of employment claims which can be incorporated into an agreement. However, those rules do not place limits on discovery (as discussed below), but rather grant authority to the arbitrator to order discovery.

COOPERATION

Although a well written agreement is essential to efficiency, it is only part of the solution.  Attorneys who employ tactics honed in litigation will hinder the goals of arbitration. Parties (and/or their attorneys) who are excessively adversarial, instead of cooperative, often cause unnecessary delays and expense. Cases can seemingly drag on when the parties are contentious. Scheduling conflicts are also a source of delay. Be flexible with schedules and move commitments when you can. Civility and cooperation does not mean ineffective advocacy.  There, of course, will be times when the parties cannot agree on an issue. When this occurs, early involvement of the arbitrator in the dispute is the key to efficiency as explained below.

Early Settlement / Mediation

Prior to spending significant amounts in arbitrating the claims, the parties should consider whether to pursue mediation. The arbitrator may raise the issue during the initial conference. If the dispute is not yet ripe for mediation, parties should consider what limited discovery needs to be completed to provide them with the information necessary to determine the strengths/weaknesses of their positions and the value of the claims.  Once completed, consider mediation. 

The arbitrator generally will not agree to serve as the mediator, but may be able to recommend experienced and effective mediators knowledgeable in employment law issues. AAA will also make available to the parties a list of qualified mediators.

Discovery

A well written arbitration agreement will generally limit the amount of discovery that may be conducted and identify the allotted time for responses (e.g., 28 or 30 days after service). Where it does not, the arbitrator may make a recommendation and seek the agreement of the parties. Where the parties differ in their perspectives, the arbitrator will rule. However, to the extent the parties agree, arbitrators will most often approve their agreement — sometimes even if they have agreed to extensive discovery. Most arbitrators believe it is their role to “guide” the parties to agree on discovery and only force their views when the parties disagree or where the requested period for discovery is clearly excessive given the issues involved.

In general, the arbitrator will seek to balance the parties’ needs for discovery with the need for case management of an expedited, cost effective arbitration. Parties to arbitration expect the arbitrator to control discovery and not permit the expensive and time consuming discovery allowed in civil litigation. The goal is to regulate it by setting reasonable timelines and parameters. 

The information sought should be relevant and necessary to inform the arbitrator of the material issues and positions of the parties. Moreover, the cost of the discovery should bare some relationship to the value of the claims, the resources of the parties, and the importance of the issues to be proven by the discovery. Discovery that is overly broad and burdensome or is designed simply to annoy or embarrass a party only adds needlessly to the cost of the arbitration. Fishing expeditions are even more of an affront to arbitration than litigation.

However, sufficient discovery should be permitted to prevent unfair surprise during the hearing, prejudice or resultant delay if an adjournment is requested after a party is ambushed. Finally, to protect the integrity of the process, parties should expect there may be consequences for discovery abuse, including the imposition of costs. 

An arbitration agreement applicable to employees is typically drafted by their employer. Thus, employers have the ability to design a plan that restricts the amount of discovery permitted although much of the discovery is within their possession and control. However, courts have held that employees arbitrating civil rights claims must be permitted a reasonable amount of discovery to satisfy due process. See, e.g., Rembert v Ryan’s Family Steak Houses, Inc, 235 Mich App 118 (1999)(for civil rights claims, agreement must ensure that no substantive rights be waived and fair procedures be provided including a clear waiver of judicial forum, right to counsel and a neutral arbitrator, reasonable discovery and a fair hearing). Thus, parties to employment arbitration not only have a need, but a right, to reasonable discovery. What is reasonable will vary depending on the complexity of the case, but 2 or 3 depositions (with limits on the length of each deposition), 20 interrogatories and requests to admit, and 20 document requests for each party may be reasonable. E-discovery should also be discussed (including who incurs the cost) and limited appropriately.

Parties should cooperate in discovery to the extent possible to simplify and streamline the process and keep the case on schedule.  Not every rock needs to be overturned and inspected.  Parties should determine early on what the dispositive issues are and seek only that discovery which will be directly relevant to the claims and defenses.  Typically the outcome of a case will turn on only a few issues. Parties should focus their discovery on those issues when drafting discovery requests and identifying witnesses. Stipulating to uncontested facts and submitting those to the arbitrator will also save time and expense. 

Third party discovery can become problematic since arbitrators can issue, but not enforce, subpoenas. Where an arbitrator’s subpoena has been ignored, a court action must be initiated for enforcement. Thus, cooperation between the parties can save time in securing documents from third parties. For example, if mitigation of wage loss is relevant and the respondent is reasonably seeking documents from the new employer, the claimant should be willing to provide a written authorization for the release of those records rather than force defense counsel to obtain a court order if the third party refuses to comply with the subpoena. 

Seek and offer assistance during the discovery process. Often, attorneys recognize that the information will eventually be produced during the arbitration. The question is how much time and expense will be incurred in the pursuit of that discovery. Cooperation serves the goal of a cost effective speedy arbitration. And, as we all know, what goes around comes around!

 Motions / Briefs

There is a clear increase in the amount of motions being filed in arbitrations. Importing formal litigation procedures into the arbitration process is counter productive to a swift process. 

Discovery disputes are frustrating to parties and often lead to unnecessary delays. For efficiency and cost effectiveness, discovery motions should be avoided. If the parties cannot agree on an issue, or if timely responses are not provided after a reminder has been sent to opposing counsel, do not spend time drafting a motion. Ask the case manager for a conference call with the arbitrator. Arbitrators are generally easily accessible by phone to the parties within a day or two. It is less expensive to inform the arbitrator of your positions over the phone and obtain a ruling than it is for the parties to draft a motion and an answer. If the issues are complicated, the arbitrator can always request briefs. The arbitrator will decide whether the discovery should be permitted to ensure a fair hearing and due process rights while striving for cost efficiency. Without much delay, the case can get back on track. 

Filing repeated motions to compel discovery and accusing the opposing party of dilatory tactics is expensive and inefficient. An arbitrator will have a sense of whether your opposing party has been engaged in dilatory tactics just as easily during the conference call discussion as from reading a motion. And, while it is rare, arbitrators can, and will, award costs for repeated dilatory tactics. 

Also, consider whether a dispositive motion is likely to be granted. In litigation, defense attorneys file a motion for summary dismissal in nearly every case. However, this should not be the practice of defense counsel in the arbitration setting. While such motions may save time if granted and AAA’s rules provide the arbitrator with the authority to dispose of claims by motion, they are far less likely to be granted in arbitrations than in civil litigation. Weigh the odds and have a realistic view of whether a genuine fact issue exists before investing your time and your client’s money in filing a motion for summary dismissal. 

A motion for failure to state a claim is unlikely to be granted unless the legal theory for the claim is completely devoid of merit. Mere in artful pleading, especially where a party is in pro per, should not prompt a motion to dismiss for failure to state a claim since arbitration is a less formal setting. Such motions will not likely be granted and will only delay the proceedings and result in unnecessary expense to clients.

Prehearing briefs should be completely avoided or restricted in length to one or two pages. Ask your arbitrator whether pre-hearing briefs would be helpful and rely on the response. Generally, arbitrators are selected by the parties because of their expertise and knowledge of the area of law at issue and, by the time the hearing is held, the arbitrator will have a fair idea of what the case is about. Thus, extensive pre-hearing briefs are generally unnecessary. An opening statement by each party may suffice to provide the arbitrator with a road map of what will be presented during the hearing.

Post hearing briefs are commonly submitted and may be helpful to the arbitrator. However, such briefs should also be restricted in length, especially where the parties have hired a stenographer making the record available for the arbitrator’s review. The simultaneous exchange of briefs with a simultaneous exchange of very short reply briefs is effective and efficient. Transcripts are useful where a reasoned opinion is required. Where post hearing briefs are submitted, closing statements are generally unnecessary.

Miscellaneous Matters

Parties should agree to produce information simultaneously to AAA and the arbitrator without the need of having all information pass through the AAA (accelerated exchange). Also, whenever a party communicates with the arbitrator, opposing counsel and the case manager should be copied on the communication. Because exparte communications are inappropriate, this will eliminate the need of the arbitrator to forward the communication each time to the other party.

Parties may wish to avoid three arbitrator panels as well. There, each party selects an arbitrator of their choice and then together they agree to the panel’s chair or they will empower their arbitrators together to select the chair. While all three arbitrators are neutrals, there is a perception that each party’s arbitrator will bring to the deliberative process a perspective that will be beneficial to them. The use of a three arbitrator panel not only requires the parties to pay for three arbitrators instead of one, it typically causes delays because the three arbitrators need to consult on matters, including discovery disputes, before ruling. Because a three arbitrator panel decreases efficiency while increasing the cost of arbitration, the practice is rare in employment cases.

The hearing will also be more efficient if the parties can agree to one binder of exhibits. Any exhibits accepted into evidence can be marked as the defendant’s or the plaintiff’s and those not utilized or accepted into evidence can be tossed at the end of the hearing. In addition, there may be times when it makes sense for the parties to agree that the testimony of certain witnesses be submitted either in an affidavit or through a short transcript. This is most practical when the issues are peripheral and the parties know what the witnesses will say under oath. Doing either will shorten the length of the hearing. Also, keep in mind that the arbitrator has been chosen because of his/her expertise in the relevant area of law. Thus, it is unnecessary to present the same evidence over and over hoping he or she will “get it.”  Once parties commit to the length of a hearing, they should do all that they can to tailor their case to fit within the confines established.

To expedite the hearing, and to avoid the need to prove the amount of damages, parties may agree to stipulate to an all or nothing award, setting the amount of damages should claimant prevail. A variance of this arrangement is a high/low agreement which provides the arbitrator with parameters for the award removing some of the uncertainty in the outcome.

Also, when drafting your witness list, consider carefully whether an expert witness is necessary. Experts are expensive and oft times an arbitrator, unlike the jury, will be unimpressed by the credentials and more sophisticated in the use of experts. For example, consider having the claimant testify how depression from the termination affected him rather than have a psychiatrist say the same thing.  Damages can be introduced through a party and challenged through cross-examination. 

Finally, keep in mind that not all delays are tactical. Opposing party may have a heavy caseload or not be timely receiving information from the client. Playing “hardball” and responding aggressively only alienates opposing counsel, causes needless tension during the hearing, and often results in kind.  Moreover, all attorneys have professional reputations whether good or bad. You can be an effective advocate for your client without attacking opposing counsel. And, most importantly to the spirit of professionalism, is the attitude of an advocate. You can disagree without being disagreeable.  Snippy remarks to opposing counsel during the hearing may result in a directive from the arbitrator…perhaps in front of your client … and not reflect well on your performance.  Bring professionalism to the hearing.

Recent Court Decisions

Recently, the U.S. Supreme Court ruled that employees may be bound to arbitrate civil rights claims if their collective bargaining agreement clearly and unmistakably provides that they must. 14 Penn Plaza LLC v Pyett, 129 S Ct 1456 (2009). However, the majority of justices also recognized that unions generally retain control over the decision to pursue arbitration. What may have been left unresolved by the Penn Plaza decision is whether arbitration of civil rights claims would be mandatory if a union blocked the employee from arbitrating the claims.

In Hall Street Assoc, LLC v Mattel, Inc, the US Supreme Court reviewed the grounds for vacating/modifying awards under the Federal Arbitration Act and held that those grounds identified in the Act are exclusive. The Court rejected the argument that additional grounds, such as a general review for legal errors, should be recognized. Thus, under the FAA, an award may only be vacated where: “(1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators or either of them; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior by which the rights of any party have been prejudiced; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.”

Also under the FAA, the award may be modified only where: “(1) there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award; (2) the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted; or (3) the award is imperfect in matter of form not affecting the merits of the controversy.”  While review under other statutes may consider other factors, review under the FAA may not.

Finally, the expense associated with arbitrations can be shared between the employer and employee. However, if the employee’s financial burden is too great compared to his or her salary, a court may find it unreasonable. See, e.g., Mazera v Varsity Ford Services, LLC, 2008 WL 283698 (ED Mich, 2008)(Judge Cohn ruled that requiring an employee who earned only slightly more than minimum wage to pay a $500 deposit to initiate arbitration was unreasonable). However, on appeal, the Sixth Circuit Court of Appeals recognized that the agreement provided that the deposit could be waived or reduced by the employer if a request is made by the employee. The court remanded the case stating that “[i]f Varsity Ford waives or sufficiently reduces the deposit amount for those employees who are likely to be deterred from pursuing their rights because they are unable to pay it, the provision would not run afoul of the prohibition….” Mazera v Varsity Ford Management Services, LLC, 565 F3d 997 (CA 6, 2009). Thus, a good rule to remember is that pigs get fat, but hogs go to slaughter!

CONCLUSION

Three things will make your arbitration more efficient and cost effective: a properly drafted arbitration agreement, cooperation between the parties, and avoiding the temptation of employing litigation tactics. If parties insist on arbitrating a case in the same manner as they would have litigated the claims, many of the advantages to arbitration will be lost.


[1]  Bennett, Revisiting the Arbitration of Employment Disputes: the More-Utilized System for Resolving Workplace Disputes, 194 NJLJ 840 (2008); Employment Arbitration Gets a Boost”, March 22, 2013;abcnews.go.com/Business/story?id=88450&page=1.

[2] Wilke, Labor: New Options for Compelling Arbitration in Employment Disputes, Inside Counsel April 29, 2013.

[3] Pincus, Why Consumers, Employees, and Businesses All Benefit from Arbitration in its Traditional, individual Form, Conference on “The Future of Arbitration”, George Washington Univ. L School, March 17-18, 2011.

[4] The study showed that the mean time for disposition of employment claims by arbitration is 250 to 330 days as compared to 700 to 820 days for litigation.  Id.  Thus, even at its slowest, arbitration is much quicker than litigation. 

[5] Some employers do not mind their attorneys employing litigation practices during arbitration and slowing the process.  Their goal is to have some control over the selection of the “judge” and to have a private resolution with a limited right to appeal.

[6]  Pincus, supra.

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