Thursday, February 17, 2011

The Future of Employment Arbitration

Pend Two new articles, both just posted on SSRN and both forthcoming in Indiana L.J., have very different takes on the direction employment arbitration should be taking.  Both articles agree that employment arbitration is broken in its current form; one article argues that it can be fixed and the other argues that it is beyond awful.

Zev Eigen (Northwestern),  Nicholas Menillo (Cornell student) and David Sherwyn (Cornell Hotel Admin.) argue that arbitration should be reformed, then accepted as a trade-off for for-cause employment.  Their article is Shifting the Paradigm of the Debate: A Proposal to Eliminate At-Will Employment and Implement a "Mandatory Arbitration Act".  Here's the anstract:

This article recasts the debate over mandatory arbitration of employment disputes as a discussion of the need to overhaul some critical elements of the way in which workplace rights disputes are adjudicated. Efforts to overhaul the system such as the Arbitration Fairness Act perpetuate the status quo of unjust cost-driven exploitation by law-breaking employers and employees alike. The authors provide an alternative two-part solution. First, we propose a "Mandatory Arbitration Act" that attempts to remedy legitimate problems like forum privacy that increase bad employers' abilities to hide from the law, while retaining significant benefits of pre-dispute arbitration like flexibility, speed, and reduced costs which augment access to justice for low wage earners. Second, we propose that employees engaged in interstate commerce can be terminated only if there is cause for the termination or severance pay given in lieu thereof. The article outlines a new employment standard that will provide employees with protection, allow employers to operate with greater certainty, and restore creditability and accountability to discrimination law.

David Schwartz (Wisconsin), on the other hand, argues in Claim-Suppressing Arbitration: The New Rules, that arbitration is analogous to slavery and points the blame squarely at the Supreme Court.  Here's his abstract:

Binding, pre-dispute arbitration imposed on the weaker party in an adhesion contract so-called "mandatory arbitration" should be recognized for what it truly is: claim-suppressing arbitration. Arguments that such arbitration processes promote access to dispute resolution have been refuted and should not continue to be made without credible empirical support. Drafters of such arbitration clauses are motivated to reduce their liability exposure and, in particular, to eliminate class claims against themselves. Claim-suppressing arbitration, furthermore, violates two fundamental principles of due process: It allows one party to the dispute to make the disputing rules; and it gives the adjudicative role to a decision maker with a financial stake in the outcome of key jurisdictional decisions "that is to say, arbitrators have authority to decide their own power to decide the merits, a question in which they have a financial stake. The Supreme Court has facilitated this doctrine through a series of poorly-reasoned and incoherent decisions, in which the Court's liberal wing has been particularly inept at seeing the stakes for consumer and employee plaintiffs. Exploiting Justice Breyer's incoherent line of majority opinions attempting to identify "gateway" issues, the conservative Court majority has recently insulated all questions of enforceability of arbitration clauses from judicial review and is on the verge of allowing corporate defendants to immunize themselves from class actions through use of arbitration clauses.


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Dear person--Can you send me the citation of the two articles above in the Indiana Law Journal? What does the "URL" box, above, require me to enter?

Posted by: Leroy Clark | Feb 18, 2011 8:05:38 AM

Follow the embedded link to each article, then click on the "one-click download" button near the top of the SSRN page. There are no permanent citations yet to the articles because the articles have not yet been published.

Posted by: Rick Bales | Feb 18, 2011 2:38:09 PM

I was planning to post a piece on Zev et al's article but RB beat we to it, and now I wonder if the debate rehearsed in the first part of the piece has not been pushed off the front page by the Colvin study. While (like all empirical work) it seems to have its limitations, it would seem to provide substantial confirmation for those who claim that arbitration is not superior (in terms of outcomes) for employees. I'll be interested on Zev's take on this.

But even assuming that the empirical basis for the core claim that the system will work better (except for what are called "bad actors," whether employees or employers, I find the proposed just cause protection more than a little Utopian.

Indeed, the employers who generally favor arbitration are likely to react viscerally to such a proposal. Most obviously, the costs of such a regime for employers are likely to be far more than the costs of either litigation or arbitration (and resultant judgments) under current substantive law. For example, severance pay (where it is not otherwise provided) for every worker could easily far exceed the cost of nuisance value settlements for those employees who “work the system” the way the authors fear.


Posted by: Charlie Sullivan | Feb 22, 2011 9:23:10 AM

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