Document Type

Article

Publication Year

2000

Journal Title

Rutgers Law Journal

Abstract

As a matter of general practice, the use of mandatory arbitration as a dispute resolution mechanism for employment discrimination claims has failed to give employers an overall advantage. Instead, this Article will show that the use of mandatory arbitration to resolve statutory employment discrimination disputes presents a significant number of disadvantages for employers, especially large corporations that operate as repeat players in employment litigation.

First, despite purported cost benefits from using alternative dispute resolution ("ADR"), arbitration can be just as expensive as litigation if not more costly. Second, the reluctance of the Supreme Court to clarify the problems with mandatory arbitration has increased the likelihood of ongoing litigation and uncertainty about enforcement of mandatory arbitration agreements. Third, a growing judicial hostility to unfair mandatory arbitration procedures in the lower courts has made arbitration more like litigation, including adding certain components that increase the costs of arbitration. Fourth, some members of Congress and certain civil rights groups have shown a strong determination to challenge these agreements, and their efforts have contributed to the essential abolishment of mandatory arbitration agreements in the securities industry. Fifth, a tremendous opposition from the Equal Employment Opportunity Commission ("EEOC") has made mandatory arbitration agreements essentially worthless in instances where the EEOC has disregarded these agreements, assisted others in challenging their enforcement in court, and successfully obtained injunctive relief and monetary damages from courts in their own actions against companies to attack the use of these agreements. Finally, with evidence of resounding results on behalf of employers in the litigation process and absent evidence that arbitration will provide similar results, employers have no real advantage and little incentive to use mandatory arbitration.

Despite these disadvantages, many critics of mandatory arbitration may find the thesis that large employers do not derive an advantage from it hard to swallow. Without any empirical evidence of employer advantage, most of the scholarly debate has assumed that mandatory arbitration benefits employers. A great degree of this employer advantage rhetoric has relied on the reverse logic that employers would not be trying to use mandatory arbitration if it did not provide an advantage for them and a disadvantage for employees. Although the relationships between employers and their employees, or perhaps more appropriately between corporations and plaintiffs' counsel, might have reached an all-time high of discontent, absent some empirical support, this reverse logic has little justification. Likewise, the assumption that employers have chosen arbitration because certain advantages in arbitration will allow them to prevail at higher rates than in the court system has yet to be proven by empirical evidence. The other unproven assumption of the employer advantage rhetoric asserts that employers save time and money by using mandatory arbitration.

Surprisingly, few commentators have challenged these assumptions. With little empirical evidence that mandatory arbitration does, in fact, benefit employers or for that matter provide a disadvantage to employees, many commentators still emphatically believe that mandatory arbitration should be banned. They have made persuasive arguments in support of their positions. What little empirical evidence that does exist shows that the costs of using arbitration are unpredictable because economic and noneconomic factors dictate the actions of parties. Given the number of disadvantages in costs and outcomes, employers now have no incentive to use mandatory arbitration.

Very little work has been done to foster the use of arbitration after a dispute arises instead of mandatory arbitration. Because the limited empirical data shows that employees are much more successful in arbitration, employees have an incentive to use arbitration after a dispute arises. With limited finances, small employers may still prefer arbitration after a dispute arises. Large employers must still be provided with an incentive to choose arbitration. If offering arbitration after the dispute arises could limit punitive damages, it would create an incentive for both large and small employers to use arbitration without the problems created by mandatory arbitration.

The goal of this Article is to promote critical thinking about the practical problems that employers face when using mandatory arbitration. By realizing that mandatory arbitration presents no panacea for employers, the inherent value of using arbitration as a fair supplement and not a replacement to the court may start to be analyzed, and a limit to the scholarly focus on mandatory arbitration can hopefully result. The absence of any true advantage for employers as a whole suggests that the massive criticism and tremendous focus on mandatory arbitration over the past decade may have resulted in a huge waste of time, except for those employers in the securities industry that were directly affected by Gilmer v. Interstate/Johnson Lane Corp. Those efforts could have been focusing on the use of non-binding mechanisms, such as post-dispute arbitration or even mediation-which is becoming the more preferred option for resolving employment discrimination disputes.

Part II of this Article identifies the tortuous evolution of mandatory arbitration by explaining the growing support for using arbitration to resolve statutory disputes and its intersection with development of the broad remedies in the judicial forum provided by the Civil Rights Act of 1991 (the "Act") for employment discrimination claims. This provides the framework for understanding the disadvantages for large employers in using mandatory arbitration instead of litigation to resolve these disputes. Part III addresses the central inquiry of this Article--does mandatory arbitration give large employers an advantage? After providing a negative answer to that question for large employers in Part III, Part IV addresses the unique and somewhat complex issues for smaller employers with respect to purported benefits from mandatory arbitration. Part V describes a short proposal to correct these problems by providing an incentive for large and small employers to use arbitration after a dispute arises rather than mandatory arbitration. Finally, Part VI presents a final assessment of where the critical focus of ADR may shift now that the myth about employer advantage from mandatory arbitration has been exposed.

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