GUEST-POST PART I | Employment Arbitration: Short-Term Value but Long-Term Harm

by F. Peter Phillips

One hot, lonely summer day in 1958, at our rural home near Crozet, Virginia, I was working on an 8-year old’s project: dislodging a big quartz rock that was buried in the gravel driveway. After a few hours I realized the trowel just wouldn’t do the job. So I found a wood chisel in my Dad’s tool chest. “Ah-ha!” I thought, “This is just the thing! I’ll reduce it to bits and dislodge it a chunk at a time!” By the time Dad got back from work at 5:30 or so the quartz had not been reduced by much, but the wood chisel had lost about all of its utility. I had used the wrong tool for the job.

Which (obviously) gets us to the Arbitration Fairness Act of 2009.

Some people date commercial arbitration from the time of the Greeks and even before. In Arbitration and Mediation in International Business (Kluwer 2006), Christian Buhring-Uhle says that “[c]ommercial arbitration is probably as old as commerce itself.” (p. 31) Certainly by the time of the Renaissance, it was an established attribute of international trade. Its attractions to the contemporary international merchant are all the more pronounced as commercial litigation becomes more bemired in discovery rules, burdensome cost, commercially unacceptable delay, unwelcome publicity and uncertainties of enforcement.

The heart of commercial arbitration, to me, is captured in an apocryphal anecdote: In 1350, on a wharf in Venice, a purchaser questions whether the bale of cotton he is offered is of the same quality as the cotton he had ordered. He needs to buy and the seller needs to sell, so rather than the deal’s collapsing they agree to call over a cotton merchant of many years’ experience who sticks his hand into the bale, fingers it, and declares it’s Grade B. The price is adjusted and the matter is resolved by means of a process whose authority no one doubts, whose alacrity everyone extols, and whose commercial reasonableness no one questions.

What happens when this excellent tool is misapplied to other kinds of disputes – ones that don’t involve the grade of goods sold, and don’t even involve quarreling merchants? The cotton merchant did not decide the fate of the young urchin who was caught stealing someone’s purse on the wharf. That process is not designed to reach a commercially rational outcome, but rather to enforce certain standards and expectations set by the state. Which gets us to the unease many feel about arbitration of employment-related claims.

Claims raised by an individual employee have at least three attributes that make them a poor “fit” with arbitration:

• First, the individual employee seldom has bargained for arbitration as the method of resolving workplace-related disputes. The justification of employment arbitration is almost never that the employee asks for it — it is that the employer imposes it as a condition of employment and the employee accedes to that requirement in order to accept the offer of employment.

• Second, the imbalance of resources and sophistication between employers and employees is usually far more pronounced than the imbalance between two merchants. A merchant’s contract addresses what happens if one party breaches. An employee seldom determines whether to accept a job upon a deliberative assessment of a risk of violation of statutory protections.

• Third, merchants arbitrate their own financial interests. By contrast, employee claims very frequently involve a statutory “right” that persists independently of any contract and that reflects a public, not a private, covenant.

What do you think will happen when someone is told that her statutory rights will not be heard in court but rather by a private judge, whose decision is binding even if mistaken in fact and law, with no way to correct the error? And that the employer hires this judge all the time? And that if she doesn’t agree to this process she’ll be fired, or not hired?

What happens is, employment arbitration is challenged. And right away we stop managing the workplace — we start to lawyer-ize the workplace.

We figure out ways that final and binding employment arbitration can withstand challenge, through Supreme Court opinions and Due Process Protocols and enlightened arbitration providers and so on. And sure enough, if you lawyer this thing up enough, pre-dispute employment arbitration programs can be tweaked to survive most judicial challenge.

But is this what rational business managers want? Is the best we can do, to have dispute resolution processes “survive most judicial challenge”?

More to the point, is this what we wanted for arbitration? The Federal Arbitration Act and the New York Convention are purposely designed to eliminate almost every basis for judicial challenge of an arbitration award and — on the contrary — to ensure the enforceability of arbitration awards on a global scale. Arbitration is freely selected in open negotiation between merchants on the understanding that, yes, maybe today the arbitrator will make a mistake that hurts you, but tomorrow she may make a mistake that helps you, and in any event over time she usually doesn’t make many mistakes. That is, commercial arbitration has advantages when compared to commercial litigation. But it addresses rights that arise from a commercial contract that was negotiated by the parties, not rights that arise from a statute that was enacted by the United States Congress.

There comes a point when the enforceability of pre-dispute employment arbitration “agreements” ceases to be the point — the distrust and suspicion and resentment that the practice creates makes it bad business. Much more troublesome, however, the resentment that builds from legal, but stupid, employee arbitration schemes threatens to hurt arbitration itself, right where it matters — in merchant-to merchant, international business.

And, as promised, this gets us to the Arbitration Fairness Act, to be discussed tomorrow in Part II of this post.

Technorati Tags: law, ADR, arbitration

F. Peter Phillips is an arbitrator and mediator practicing in the New York City area. He teaches ADR and International Commercial Dispute Resolution at New York Law School. This post appeared in a different form at the Business Conflict Blog.