September 1, 1997
ALTERNATIVE DISPUTE RESOLUTION IN THE WORKPLACE
Employers unhappy with the cost and length of employment
litigation reduce these burdens with Alternative Dispute Resolution. The
cost of litigating an employment dispute with one employee can reach
several hundred thousand dollars. One large national company experienced
average costs per dispute of about $11,000 per case - including attorney
fees - after it set up an ADR program.
ADR is a variety of techniques that can achieve a faster, cheaper and
often more mutually acceptable resolution of disputes than traditional
litigation. Mediation and arbitration are two familiar ADR methods that
can be integrated into an employment setting.
Mediation is a negotiation with the help of a third party whose role is
to focus the issues and help the parties resolve them. Mediation is
typically nonbinding. The parties can still sue or use other ADR
techniques if they fail to agree.
Arbitration is a hearing in which the employee and the employer present
their cases to a neutral decision maker who then issues a final, binding
ruling.
Statutes and court decisions support the use of binding ADR to resolve
employment disputes. The Federal Arbitration Act gives a basis for
enforcing pre-dispute arbitration agreements on employment disputes. The
act provides that "a written provision in any contract evidencing a
transaction involving commerce to settle by arbitration a controversy
thereunder arising out of such contract or transaction . . . shall be
valid, irrevocable and enforceable except upon such grounds as exist in
law or equity for the revocation of any contract." The act permits
courts to stop judicial proceedings where an issue is subject to an
arbitration agreement, and to compel arbitration of the parties' dispute.
The Supreme Court approved arbitration of federal employment
discrimination claims. The court compelled an employee of a securities
firm to arbitrate his claim under the Age Discrimination in Employment Act
where the employee had signed a securities industry registration
application containing an arbitration clause. The court suggested that
claims under other civil rights statutes were arbitrable. It held that an
employee seeking to avoid an arbitration agreement bears the burden of
proving that the statute under which the suit is brought does not allow
arbitration.
The Civil Rights Act and the Americans with Disabilities Act provide
that the use of "alternative means of dispute resolution, including
settlement negotiations, conciliation, facilitation, mediation,
factfinding, minitrials, and arbitration is encouraged." Several
courts have cited these provisions in holding that an agreement lawfully
can mandate arbitration of claims under the ADA and Title VII of the Civil
Rights Act of 1964.
ADR has many advantages over conventional litigation. Reduced
litigation is a principal advantage. ADR typically resolves disputes
faster than litigation. In the case of arbitration, it gives finality
because arbitration awards rarely are appealable. A quick, inexpensive
resolution of a dispute can be advantageous to both employees and
employers. ADR also allows the parties to tailor the procedures used
during the ADR process, such as controlling the amount and type of
discovery and remedies available.
Because ADR is a private dispute resolution process, parties can more
easily maintain the confidentiality of business, personal and medical
information.
ADR also has disadvantages. The parties must live with an unfavorable
decision of an arbitrator because there is no effective appeal of such
decisions. Nonbinding ADR techniques may fail to resolve the dispute and
thus add another layer of procedure and cost before suit.
Besides these general disadvantages, ADR presents specific
disadvantages for employers. There is a risk that ADR could actually
increase the number of claims, thus eroding the cost savings. The relative
ease of pursuing a claim through ADR could encourage frivolous claims from
employees who would not go the lawsuit route. Employers can try to deter
meritless claims by designing the ADR process so that an employee must
make an initial investment of money and effort before proceeding with a
claim. For example, the ADR system could require the employee to pay a
filing fee for mediation or arbitration (such as $100), and to prepare a
statement specifying the factual basis for his or her claim before
proceeding.
ADR can create employee morale problems for employers under certain
circumstances. Introducing an ADR system with little or no advance
explanation to employees could lead them to believe that their employer is
acting to deny them their rights and their day in court. An employer
should explain its ADR system to its employees, how it will work, and the
benefits for the employer and its employees from the system.
The principal disadvantage of ADR for employees is the fact that they
lose their right to a jury, which generally produces a favorable decision
for employees. Numerous lawyers who represent employees have voiced strong
criticisms of binding ADR for this and other reasons, like restrictions on
remedies found in some ADR programs.
An employer deciding to implement an ADR system must consider several
important threshold issues, including:
An employer and an employee could include an ADR clause in an
individual employment agreement. In the past, certain language in the
Federal Arbitration Act created some doubt about whether arbitration
agreements contained in "contracts of employment" were
enforceable under the act. Following several recent decisions, however, a
majority of the circuit courts of appeals agrees that arbitration clauses
in employment agreements are enforceable under the federal act, except
employment contracts covering employees who are actually involved in the
movement of goods in interstate commerce, such as truck drivers and
railroad employees.
Alternatively, an employer can probably include an ADR policy in an
employee handbook circulated to all employees. The enforceability of a
handbook provision depends on the law of the state in which the policy is
set up. It is important to check the law of each state where employees
work. Different states may have different requirements for the formation
of a binding contract when a term of that contract, such as an ADR
provision, is included in an employee handbook rather than a signed
employment agreement.
In either case, an employer is presented with the issue of what to
include, and what not to include, in an ADR system. Several organizations
such as the American Arbitration Association and the CPR Institute for
Dispute Resolution provide ADR services to the public and have generic
procedures that they use when handling disputes. Parties that do not want
to use a detailed ADR agreement or policy can simply incorporate some or
all of the procedures of these organizations, setting forth any
modifications.
An ADR agreement should:
Employers also should include provisions to ensure that the parties
obtain an experienced, qualified mediator or arbitrator. The parties can
do so by specifying eligibility requirements for the mediator or
arbitrator selected, such as being a lawyer, having several years of
experience in the employer's industry, or being a member of or sanctioned
by highly regarded organizations such as the National Academy of
Arbitrators.
Moreover, employers must take care in drafting the scope of the ADR
clause. The clause should clearly and unambiguously say that it covers all
employment-related disputes, such as "any and all disputes relating
to the employee's employment or the termination of his or her
employment." Some recent decisions have refused to enforce
arbitration agreements where the clause in question was ambiguous or did
not specifically refer to employment-related disputes.
The Ninth Circuit went one step further in Prudential Insurance Co.
v. Lai, and held that an employee must knowingly and voluntarily
consent to an arbitration agreement that mandates arbitration of claims
asserted under state or federal discrimination statutes before a court can
enforce the agreement. The court held that an employer could not compel
arbitration of discrimination claims where the agreement failed to refer
to employment disputes or to specific discrimination statutes.
Significantly, the employer also failed to give the employees a sufficient
opportunity to read the agreement before signing it.
It is questionable whether the knowing and voluntary standard will meet
with widespread approval in other circuits. In any event, to help assure
enforcement, employers should include language in an ADR agreement that
specifically refers to the various local, state and federal civil rights
statutes and ordinances that the agreement will cover.
An employer drafting an ADR agreement also must consider the type of
procedures and remedies available during the process. As noted above, one
of the principal advantages offered by ADR is cost containment by
controlling the amount of discovery and tailoring available remedies. The
U.S. Supreme Court's Gilmer decision says that a pre-dispute agreement to
arbitrate is enforceable although the discovery and remedies available are
less extensive than those available in a lawsuit.
For example, an ADR agreement could limit the number of depositions
that either party can take, and require each party to bear its own
attorneys' fees and costs despite the outcome. The U.S. District Court for
the Southern District of New York recently enforced an arbitration
agreement that precluded employees from seeking attorneys' fees, punitive
damages or injunctive relief in an employment dispute. The employee gave
up her right to these remedies, which she would have had if she could sue
in court under Title Vii.
An ADR agreement should not restrict discovery and remedies so
significantly that an employee cannot receive meaningful relief, or cannot
gather sufficient information to prosecute the case. Any ADR system also
should allow the parties to examine the background of any potential
arbitrator or other decision maker and to challenge the selection of any
individual who shows bias. Courts are more likely to enforce an ADR policy
where the available procedures and remedies parallel those found in state
or federal court.
The existence of a valid ADR agreement may not prevent the EEOC from
filing an independent action for injunctive relief against an employer
based on the same conduct covered by the arbitration agreement. In a
recent case, the EEOC took a dim view of agreements that mandate
arbitration of civil rights claims. The commission obtained a preliminary
injunction prohibiting an employer from requiring its employees to enter
into an arbitration agreement that forced the employees to bear the costs
of ADR proceedings and precluded them from filing charges with the EEOC or
bringing suit. Employers should be aware that a valid arbitration or other
ADR agreement will not necessarily insulate them from all employment-
related litigation. Likewise, the Massachusetts Commission Against
Discrimination has issued a policy stating that employer mandated ADR
programs will not be recognized. This policy has not been tested in court.
A well-designed ADR program is likely to be enforceable, can save
employers money, and generally will result in quick resolution of
disputes, hopefully without adversely affecting employee morale. Because
of the ever expanding statutory rights and remedies available to employees
at the local, state and federal levels, therefore, employers are
well-advised to consider the substantial benefits available to them in the
developing field of ADR.
The employer and employee must reach a legally binding agreement to use
ADR satisfying all of the legal requirements for formation of a contract.
Of course, the parties can agree to submit a dispute to ADR after the
dispute has already arisen. However, ADR advantages are greater when the
program requires employees to use ADR to resolve any employment disputes
that may arise.
Employers must address several critical issues when drafting any ADR
program. First, the employer must decide which method to use. Although the
vast majority of published opinions concerning ADR involve arbitration
agreements, employers may wish to consider other ADR methods that may
better suit their business needs, such as mediation or "hybrid"
ADR processes that combine the benefits of both mediation and arbitration.
Several courts have explicitly approved such agreements in commercial
disputes and are likely to show equal receptiveness in the employment
context.