Category Archives: Arbitration

Duty of Fair Representation Jurisprudential Reform: The Need to Adjudicate Disputes in Internal Union Review Tribunals and the Forgotten Remedy of Re-Arbitration

Source: Mitchell H. Rubinstein, University of Michigan Journal of Law Reform, Vol. 42, No. 3, 2009

From the abstract:
One of the best kept secrets in American labor law is that duty of fair representation jurisprudence simply does not work. It does not work for plaintiff union members because they must satisfy a close-to-impossible burden of proof and have a short statute of limitations window in which to assert their claim. It does not work for defendant unions because they are often forced to file pointless grievances in order to avoid the cost of litigation. It does not work for defendant employers because they are often brought into these lawsuits because they have the “deep pockets.”

This Article makes two proposals to reform duty of fair representation jurisprudence. First, this Article posits that putative plaintiffs should be required to have their claims adjudicated before internal union review tribunals as opposed to courts. This internal tribunal system, if procedurally and substantively fair, would provide unions with a complete defense to duty of fair representation claims. This would move most duty of fair representation disputes from the ex-post stage (after a court dispute has arisen) to the ex-ante stage (before a court dispute has arisen) and reduce unnecessary litigation. Second, this Article argues that the current system needs to be “tweaked” to return to the original Vaca v. Sipes, 386 U.S. 171 (1967), intent of utilizing rearbitration as a remedy, as distinguished from money damages, when a breach of the duty of fair representation is found.

Do Courts Create Moral Hazard?: When Judges Nullify Employer Liability in Arbitrations

Source: Michael H. LeRoy, Minnesota Law Review, February, 2009

Part I of this Article connects the idea of moral hazard to employment arbitration, explaining that laws and social programs reduce personal incentives to avoid risks and arguing that judicial review can serve as government insurance by relieving employers of liability for socially undesirable conduct.

Part II describes how individual employment arbitration helps employers manage litigation costs, while simultaneously disadvantaging some individuals.

Part III describes the complex web of standards that courts use to review arbitration awards. I also demonstrate that common law standards for vacatur increasingly interfere with arbitration.

Part IV pinpoints four scenarios that often occur in conjunction with reversal of arbitrator rulings: courts find that the arbitrator’s remedy is unauthorized or excessive; when courts vacate awards, delay and litigation expenses grow large; vacatur is sometimes caused by arbitration agreements that embed broad, judicial review standards; and state arbitration laws tend to increase court interference with awards.

Part V is the heart of my study, consisting of research methods and statistical findings, that identifies a disturbing trend regarding court review of arbitration awards: state courts vacated many arbitration wins for employees, but not for employers.

Part VI states that courts create moral hazard by vacating a high percentage of employee wins at arbitration. I also propose two public policy changes to reduce moral hazard.

Congress Considers Legislation That Could Significantly Alter Arbitration in the United States

Source: Mark Kantor, NYSBA New York Dispute Resolution Lawyer, Vol. 1 no. 1, Fall 2008

Arbitration in the United States has grown rapidly to encompass consumer and employment disputes. Many arbitration clauses in those fi elds now include waivers of U.S. class action rights, creating signifi cant controversy. In response to these developments, Congress is now considering several legislative proposals that would, if adopted, fundamentally alter arbitration in the United States. The changes contemplated by those bills extend far beyond consumer and similar disputes, to cover business-to-business and international arbitration as well.

Judicial Review Standards for Interest Arbitration Awards Under the Employee Free Choice Act

Source: Andrew Lee Younkins, University of San Francisco Law Review, Vol. 43 no. 2, Fall 2008

When interest arbitration is legally mandated, one or both parties may feel aggrieved by the result, and wish to challenge the terms of the collective bargaining agreement. A provision
of the Employee Free Choice Act (“EFCA”), a proposed act of Congress, would mandate interest arbitration of initial collective bargaining agreements when the union and the employer cannot agree on a contract within a prescribed period of time. The EFCA, however, does not provide courts guidance on how to review the collective bargaining agreements it would mandate.

On its own, the EFCA is inadequate to meet the needs of employers and unions who will be affected by its compulsory arbitration provisions. The EFCA’s first-contract compulsory arbitration provisions will lead unions to become reliant on an arbitrator to resolve their contract disputes, yet the EFCA does not specify a standard or scope for judicial review of interest arbitration awards. Because federal courts have not developed a body of law to address the review of labor union contracts, the EFCA should be amended to require that (1) courts conduct arbitrations in on-the-record hearings; (2) courts vary the level of deference accorded to interest arbitration awards, based on the arbitrator’s expertise; and (3) arbitrators craft awards according to a prescribed set of substantive standards.

Privatizing Labor Law: Neutrality/Card Check Agreements and the Role of the Arbitrator

Source: Laura Cooper, Indiana Law Journal, Vol. 83, 2008

[N]eutrality/card check agreements are usually administered by private arbitrators empowered to interpret and apply them. In the last six to eight years, the American labor movement has significantly bypassed the legal structure Congress created for employees to express their desires regarding union representation and instead privatized labor law. In entering into neutrality/card check agreements, unions have focused on their goal of increasing union representation. However, such privatization has the secondary consequence of placing in the hands of private individuals serving as arbitrators some powers that had previously been the exclusive province of the NLRB, and other powers that even the NLRB never possessed. While scholarly, political, and administrative attention has understandably been focused on the broad public policy implications of neutrality/card check agreements, scant attention has been directed to what neutrality agreements require of arbitrators and whether these expectations are consistent with the institutional capacity *1590 and role of arbitrators. Do arbitrators actually have the legal authority and administrative capacity to assume this role? Can neutrality/card check agreements achieve their intended objectives if arbitrators cannot perform that role? What role can and should arbitrators play when unions join with employers in agreeing to privatize labor law?

Crowning the New King: The Statutory Arbitrator and the Demise of Judicial Review

Source: Michael H. LeRoy, Journal of Dispute Resolution, Vol. 29, No. 3, Spring 2009

From the abstract:
Judicial review of arbitration awards is highly deferential- but when does it become rubber stamping? Using original data, I find that federal courts vacated only 4.3 percent of 162 disputed awards. Nearly the same result was observed for a sub-sample of 44 employment discrimination awards under Title VII. By comparison, federal appeals courts in 2006 reversed 12.9 percent of 5,917 rulings made by civil court judges on the merits of legal claims.

Why are the rulings of Article III judges scrutinized more than the awards of citizen-arbitrators? What does this mean when companies can avoid Article III court rulings by requiring employees to arbitrate their claims? Judicial review of awards based on statutory claims is inadequate, and undermines the constitutional role of federal courts.

I point to two prominent junctures – in 1698, and again in 1925 – when lawmakers in England and the U.S. believed that court litigation hampered commerce. They enacted similar statutes to authorize courts to confirm disputed awards, unless these private rulings resulted from corruption or misconduct. This deference grew out of practical considerations. The parties had chosen the arbitrator, agreed to the private process, and bound themselves to an industry norm.

Courts deferred so heavily to awards because William III wanted these merchant tribunals to be autonomous. His law, the 1698 Arbitration Act, did not allow courts to vacate awards for fact finding or legal errors. Great deference in its reviewing standards reflected the king’s infallibility.

My textual research shows that the FAA’s reviewing standards descended from William III. I suggest that our law crowns today’s statutory arbitrator with the king’s mantle of infallibility. But this deference is too extreme for awards that rule on statutory claims. In Gilmer v. Johnson/Interstate Lane Corp., the Supreme Court ignored the commercial history of arbitration when it broadly approved a theory of forum substitution. Gilmer said that arbitrators may decide statutory claims, even if one disputant objects to the forum and wishes, instead, to be heard by a court. The result is that the ruling of the arbitrator is subject to a narrower standard for review than an Article III judge’s order. Epitomizing this regal deference, a contemporary court said: “The arbiter was chosen to be the Judge. That Judge has spoken. There it ends.” In textual and empirical analysis, I show that statutory arbitrations enjoy a presumption of royal infallibility. I conclude with two solutions for aligning the review of rulings by statutory arbitrators and Article III judges.

The Arbitration Trap: How Credit Card Companies Ensnare Consumers

Source: John O’Donnell, Public Citizen, September 2007

From the summary:
This report details how arbitration firms and credit card companies enjoy a cozy, mutually beneficial relationship at the expense of consumers they force into binding mandatory arbitration. Using data from California, the findings provide a glimpse of how arbitration traps consumers throughout the country in unfair, secret proceedings where for-profit arbitrators make the rules. Public Citizen’s research uncovered consumers who spent years fending off collection agencies, cleaning up identity theft messes and struggling to bounce back from credit rating hits.
• Read the press release
• Read our news coverage
• Read the testimony of Laura MacCleery [pdf] before the House Judiciary Subcommittee on Commercial and Administrative Law regarding the Arbitration Fairness Act of 2007
• Read Public Citizen’s rebuttal to industry’s misleading statements about the report.
• Read our fact sheet on the Arbitration Fairness Act of 2007
• Read a letter of support of the Arbitration Fairness Act of 2007 signed by 32 groups
• Take action now
• Learn ways to protect yourself
• Read the blog
• Read the statement of Joan Claybrook, Public Citizen President
• Read the statement of Laura MacCleery, Director of Public Citizen’s Congress Watch
• Read the statement of Troy Cornock, victim of binding mandatory arbitration
• Read the statement of Sen. Russ Feingold (D-Wis.), sponsor of Arbitration Fairness Act of 2007.
• Read our bibliography of law review articles critiquing binding mandatory arbitration
• Examples of BMA clauses from MBNA (April 2006) and JPMorgan Chase & Co. (2005)
• NAF California data Jan. 2003 to Mar. 2007* [Excel file]

From Court Surrogate to Regulatory Tool: Re-Framing the Empirical Study of Employment Arbitration

Source: Mark C. Weidemaier, University of Michigan Journal of Law Reform, Forthcoming UNC Legal Studies Research Paper No. 1095111

From the abstract:
A growing body of empirical research explores the use of arbitration to resolve employment disputes, typically by comparing arbitration to litigation using relatively traditional outcome measures: who wins, how much, and how quickly. On the whole, this research suggests that employees fare reasonably well in arbitration. Yet there remain sizeable gaps in our knowledge. This Essay explores these gaps with two goals in mind.

The first and narrower goal is to explain why it remains exceedingly difficult to assess the relative fairness of arbitration and litigation. The outcome research does not account for a variety of “filtering” mechanisms that influence the relative merits of the cases adjudicated in each system. This Essay explores these filters, focusing on one in particular: most employee grievances are resolved within the workplace through relatively informal procedures. Workplace structures thus filter out most employee grievances before they reach arbitration. This fact has significant implications for efforts to interpret the arbitration outcome research. It also highlights the significance of the workplace as a locus of dispute resolution activity. Indeed, a growing body of research focuses directly on workplace compliance and grievance procedures.

Recognizing the significance of workplace dispute resolution leads to this Essay’s broader goal. That goal is to expose, and hopefully bridge, an artificial conceptual divide that separates the arbitration research from research into workplace dispute resolution. Many researchers view internal compliance and grievance procedures as a means of harnessing the employer’s own regulatory capacity. This conception drives a research agenda that explores the role of workplace structures in generating private norms and in implementing (or subverting) public norms like anti-discrimination. By contrast, the arbitration outcome research conceives of arbitration narrowly as a court surrogate, one that should ideally yield equivalent outcomes at lower cost. Although legitimate to a degree, this conception artificially separates arbitration from other employer-structured disputing procedures and yields an empirical agenda that leaves fundamental questions unanswered. This Essay closes by discussing two of these questions: First, do arbitrators play a meaningful regulatory role, either by shaping other arbitrators’ practices or by shaping the terms of arbitration contracts? Second, under what circumstances do arbitrators effectively generate and enforce norms?

Banks vs. Consumers (Guess Who Wins)

Source: Robert Berner and Brian Grow, Business Week, June 5, 2008

The business of resolving credit-card disputes is booming. But critics say the dominant firm favors creditors that are trying to collect from unsophisticated debtors.

What if a judge solicited cases from big corporations by offering them a business-friendly venue in which to pursue consumers who are behind on their bills? What if the judge tried to make this pitch more appealing by teaming up with the corporations’ outside lawyers? And what if the same corporations helped pay the judge’s salary?

It would, of course, amount to a conflict of interest and cast doubt on the fairness of proceedings before the judge.

Yet that’s essentially how one of the country’s largest private arbitration firms operates. The National Arbitration Forum (NAF), a for-profit company based in Minneapolis, specializes in resolving claims by banks, credit-card companies, and major retailers that contend consumers owe them money. Often without knowing it, individuals agree in the fine print of their credit-card applications to arbitrate any disputes over bills rather than have the cases go to court. What consumers also don’t know is that NAF, which dominates credit-card arbitration, operates a system in which it is exceedingly difficult for individuals to prevail.