Litigation and Dispute Resolution
Chapter IV of the Fact Finding Report detailed two distinct problems in contemporary employment law. The first is a steep rise in administrative regulation of the workplace, whose overlapping mandates (both federal and state) impose significant costs on employers and employees. The second is the explosion of litigation under laws that rely in whole or in part on individual lawsuits for enforcement. Primary examples of such privately enforced laws are the Fair Labor Standards Act, Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act.
As the origin and form of these two problems differ in many respects, the Commission will deal with each separately. -This section will focus on the employment litigation crisis and the variety of alternative forms of dispute resolution that have been suggested to the Commission as potential reform measures. Section VI will address the distinct problem raised by administrative regulation.
As the Fact Finding Report discussed in detail, employment litigation has spiraled in the last two decades. The expansion of federal and state discrimination laws and the growth in common law and statutory protection against wrongful dismissal have provided employees with a broader array of tools with which to challenge employer behavior in court. In the federal courts alone, the number of suits filed concerning employment grievances grew over 400 percent in the last two decades. -Complaints lodged with administrative agencies have risen at a similar rate:
- for example, in 1993, the EEOC received nearly 90,000 discrimination complaints from employees across the country.
Employment litigation is a costly option for both employers and employees. -For every dollar paid to employees through litigation, at least another dollar is paid to attorneys involved in handling both meritorious and non-meritorious claims. Moreover, aside from the direct costs of litigation, employers often dedicate significant sums to designing defensive personnel practices (with the help of lawyers) to minimize their litigation exposure. -These costs tend to affect compensation: -as the firms employment law expenses grow, less resources are available to provide wage and benefits to workers.
Further, while the prospective costs of court awards do serve to deter employers from illegal actions, it is not clear that litigation protects all kinds of employees equally well. Most employment discrimination suits are brought by employees who have already left the job where the discrimination took place. Further, those ex-employees who bring suit tend to come from the ranks of managers and professionals rather than from lower-level workers.
Finally, even for those employees properly situated to file suit, the pursuit of a legal claim through litigation often proves stressful and unsatisfying. Overburdened federal and state judicial dockets mean that years often pass before an aggrieved employee is able to present his or her claim in court.<Footnote: In the very last stages of the Commission's deliberations, a panel of nine federal judges commissioned by the Judicial Conference of the U.S. released a draft report of the impending crisis in the federal court system growing out of the huge increases in thecase load on federal dockets. -The panel detailed the upward trend in federal court litigation and underlined the wave of new federal legislation such as the l994 Crime Bill which grants federal jurisdiction to a whole new range of crimes. This increase in criminal cases on the federal docket, the panel emphasized, will further slow the already torpid rate of processing civil complaints in the federal court: -since criminal cases are given priority over civil cases, the expansion of federal penalties for violent crimes will only move civil claims further back on the list of cases awaiting trial. To help alleviate the burden on federal courts, the panel recommended restricting access -for several classes of disputes including anti-discrimination claims brought under federal employment laws. -The panel encouraged Congress to bar employee complainants from bringing claims in federal court unless the EEOC had thoroughly investigated the complaint and found it to be of merit. -These recommendations underline the diminishing opportunities for employees to vindicate public employment rights through the court system. -Administrative Office of the U.S. Courts, Proposed Long Range Plan for the Federal Courts, Dec. l994; Robert Pear Judges Proposing to Narrow Access to Federal Court, New York Times, Dec. 5, l995, p. Al. > -The combative nature of litigation tends to push the employee to the sidelines in this legal struggle, though occasionally subjecting employees to detailed investigation of their personal histories and character.<Footnote: Recent trends in sexual harassment litigation reveal that aggressive defense attorneys have begun to interrogate the complaining employee intensely about her sexual history, personal relationships, or history of child molestation or venereal disease, in order to discredit her character and credibility. The Bedroom Ploy: -Plaintiffs Sex Lives Are Being Laid Bare in Harassment Cases, Wall Street Journal, Sept. l9, l994, p. Al.>
These problems with the legislative model have led many employers, employee groups, and lawmakers to seek alternatives. In fact, in both the Americans with Disabilities Act of l990 and the Civil Rights Act of l991, Congress specifically encouraged alternative methods of resolving discrimination disputes "where appropriate and to the extent authorized by the law."
Alternative dispute resolution (ADR) as a generic concept connotes the entire class of mechanisms which facilitate private resolution of disputes. -Such private dispute resolution can take three different forms. First, the parties may try to resolve their dispute through direct, in-house negotiations. Second, the parties may avail themselves of a mediation system sponsored by the courts or other government agency responsible for that class of disputes. The goal of these first two mechanisms is securing a solution both parties will accept voluntarily. When such efforts at voluntary resolution fail, however, a third type of private mechanism -- arbitration -- is needed to produce a binding disposition of the case. -Private arbitration serves as an alternative to the court system or administrative tribunal normally charged with adjudicating such disputes.
In l991, the United States Supreme Court showed itself receptive to the arbitration model of binding ADR mechanisms. -In its Gilmer decision, reviewed in detail in the Fact Finding Report, (pp. 117-118) the Court enforced a securities dealer's agreement to arbitrate all disputes, including employment disputes arising under public laws (there, age discrimination). It is important to note, however, that the Supreme Court in Gilmer did not specifically address whether employers generally could require arbitration under the employment contract. -The Commission also underlines that the Court's decision rested on an interpretation of the Federal Arbitration Act (FAA) -- a statute enacted in 1920, more than forty years before modern employment rights were created.
The Supreme Court also assumed in Gilmer that arbitration agreements were enforceable only if the arbitration system satisfied minimum standards of quality. The court did not, however, conduct a systematic appraisal of the problems posed by integrating arbitration into the employment setting, nor did it issue any specific guidelines for judicial review of arbitral design.
Testimony before the Commission indicated that recent employer experimentation with arbitration has produced programs that range from serious and fair alternatives to litigation, to mechanisms that appear to be of dubious merit for enforcing the public values embedded in our laws. <Footnote: A Wall Street Journal article ("More Law Firms Seek Arbitration for Internal Disputes," Sept. 26, l994, p. B 13) describes how a number of large law firms are establishing ADR programs in the wake of a $7 million jury verdict against a firm for sexual harassment by one of its partners. -One of the programs mentioned was troubling: -the arbitrator for an employee's dispute had to be selected from a pool composed of partners in law firms with 50 lawyers or more.> The challenge, then, is how to encourage the creative potential of alternatives to standard court litigation, while ensuring that the legal needs and priorities of a diverse American work force are fairly satisfied.
- Private Parties Should be Encouraged to Adopt In-House ADR Systems
The Commission strongly supports the expansion and development of alternative workplace dispute resolution mechanisms, including both in-house settlement procedures and voluntary arbitration systems that meet specified standards of fairness. -In the near-term, the formation of such high-quality, low-cost alternatives to litigation would greatly increase the accessibility of public law protections to low wage workers.
- Private Arbitration Systems Should Meet Quality Standards for
The Commission proposes that private arbitration systems meet six key quality standards. -These standards, the Commission believes, will assure employees participating in private systems a fair and full airing of their complaints, and a full range of relief for the real victims of employment discrimination. -At the same time, these standards leave ample room for employers to experiment with a variety of private arbitration systems which will help insulate employers from the high costs of defending meritless but expensive employee suits in court.
We develop this recommendation further at the end of this Section, where we break it down into two recommendations.
Efforts to resolve disputes early and amicably depend heavily on employee participation in creating and running the dispute resolution mechanism, whatever particular form it takes. -One of the most commonly cited effects of employee participation is that it can reduce both the number of formal grievances filed and the percentage taken to higher steps of the procedure or to arbitration. -Effective procedures for communication and workplace problem solving help to build the trust needed to solve problems before they escalate into complaints - especially if the employee participation process is empowered to handle the issues of critical concern to employees. -Thus, the Commission sees successful implementation of its recommendations concerning employee participation and worker representation as essential if ADR systems are to be encouraged and promoted as a part of national policy.
Effective dispute resolution systems rest on a foundation of workplace practices that stress respect for individual and collective rights and that engender a climate of trust at the workplace. -Education about and communication of policies for resolving disputes is another essential building block for an effective system. -In recent years, for example, heightened awareness of sexual harassment concerns has led many organizations to strengthen their policies and procedures for dealing with harassment and for communicating these policies to members of the organization and educating them about this issue.<Footnote: Johns Hopkins University, for example, made extensive use of faculty and staff advisory committees to communicate with and obtain input from its university community in developing a system for handling sexual harassment and related problems. -So did the Massachusetts Institute of Technology and other organizations.>
Dispute resolution systems experts stress the importance of providing multiple options for handling workplace problems that do occur. -The options most often included in these systems are direct negotiations among the disputants, counseling and assistance by a trained facilitator, mediation, fact-finding, peer review, and finally formal procedures for issuing a decision. Multiple options are needed both because of a variety of issues that can arise and because some employees will prefer informal and confidential procedures while others will prefer more formal alternatives.<Footnote: The Brown & Root Corporation provided the Commission a description of a multi-option system implemented in their corporation in February, l993. -Their program includes four steps: -(1) an open door policy whereby an employee can go to a manager at a higher level than the one with whom he or she has a dispute; (2) a conference in which an employee meets with a company representative and a staff person from the dispute resolution system to discuss options for resolving the issue; (3) mediation with an outside mediator supplied by the American Arbitration Association (AAA); and (4) arbitration with an outside arbitrator also supplied by the AAA.Individual employees have the right to be represented by an attorney of their choice and the company pays up to $2,500 of the employees legal fees (although so far none of the employees who have pursued cases to arbitration have taken advantage of this offer). The employee pays the first $50 for the outside mediation or arbitration service and the company pays the rest. -The company says almost 500 employees have used the system, 75 percent of the cases were resolved within four weeks, and there have been 25 outside mediations and four arbitrations. -The annualized cost of the program is substantially less than what one large court case would cost the two sides.Brown & Root requires participation in the plan -- including foregoing litigation for arbitration or mediation -- as a condition of employment for all of its non-union employees in the U.S. The company has, however, reserved the right to terminate the plan at its will.>
Most experts agree that it is important to involve a wide cross-section of the workforce in the design and administration of workplace dispute resolution systems.<Footnote: See, testimony to the Commission of the Labor Policy Association presented by Mr. Joseph F. Vella, Vice President, Federated Department Stores, Sept. 29, l994, p. 15.> -Practice varies considerably, however, on this issue. -In unionized settings, employees have input into the design and/or modification of the system through contract negotiations and through their shop --stewards and/or grievance committee repre- sentatives. -In non-union settings procedures vary more widely. A long-standing system in place at Donnelly Corporation in Michigan involves employees through elected representative committees that have authority to make binding decisions to resolve grievances or complaints. -As noted in the Fact Finding Report (p.59), this is part of a broader system of employee participation in the company. However, few other companies have as much employee participation built into their systems as Donnelly.<Footnote: In particular, very few ADR systems presently involve employee representatives directly in the oversight or evaluation of the system. Brown & Root's dispute resolution system, for example, reports to a Dispute Resolution Policy Committee composed of senior executives of the company. -Submission of Mr. Joe Stevens, p.12.>
Employee advocates see the need for a strong and informed role for employee representatives in ADR systems. -Some believe that no system of employee involvement can overcome the power imbalances inherent in employment relationships if employees lack independent representation, either through a union or some other organization not controlled by management. -Ms. Judith Lichtman, President of the Women's Legal Defense Fund, emphasized this point in testimony to the Commission:
We remain very concerned about the potential for abuse of ADR created by the imbalance of power between employer and employee, and the resulting unfairness to employees who, voluntarily or otherwise, submit their disputes to ADR. -These concerns are obvious if the process is controlled unilaterally by employers, such as when employees are required to sign mandatory arbitration clauses as a condition of employment; union representation may greatly reduce this disparity.<Footnote: Oral Statement of Judith L. Lichtman, President, Women's Legal Defense Fund, September 29, l994.>
This view was echoed by representatives of other women's and worker advocacy groups.<Footnote: See, e.g., Sept. 29, l994 testimony of Mr. Nelson Carrasquillo, Executive Director, Farmworkers Support Committee.> -Yet women's groups also recognize that, if properly designed and used to supplement government and court enforcement of workers' rights, ADR systems can be useful in resolving disputes.<Footnote: Testimony of Ms. Judith Lichtman, Sept. 29, l994. See also the Sept. 29, l994 testimony of Ms. Martha Burk, President, Center for the Advancement of Public Policy, speaking for a coalition of 20 women's organizations.
The Commission sees the development of private systems for prevention or informal resolution of disputes, tailored appropriately to fit different employment settings, as essential to the effectiveness of the more formal arbitration procedures discussed in the next section. -The Commission also believes there is considerable scope for future innovation in these systems. -For example, unions, professional associations, and other worker advocacy groups may wish to market their services in representing individuals in these processes and providing technical advice and services in the design and oversight of these systems. -The Commission encourages experimentation with and evaluation of current ADR systems and those that may evolve in the future.3. Binding Arbitration for Public Law Disputes
As a practical matter, the Commission recognizes that not all workplace disputes can be resolved through in-house, voluntary dispute-resolution procedures. Rather, when voluntary procedures fail, the parties must resort to a system which can provide a final and binding decision. -Currently, as the Commission discussed in the Fact Finding Report, the dominant mechanism for securing binding adjudication of employees' public law grievances is litigation in the federal and state court system.
The Commission acknowledges that court litigation has become a less-than-ideal method of resolving employees' public law claims.
As spelled out in the Fact Finding Report, employees bringing public law claims in court must endure long waiting periods as governing agencies and the overburdened court system struggle to find time to properly investigate and hear the complaint. Moreover, the average profile of employee litigants -- detailed in the Fact Finding Report -- indicates that lower-wage workers may not fare as well as higher-wage professionals in the litigation system; lower-wage workers are less able to afford the time required to pursue a court complaint, and are less likely to receive large monetary relief from juries. Finally, the litigation model of dispute resolution seems to be dominated by ex-employee complainants, indicating that the litigation system is less useful to employees who need redress for legitimate complaints, but also wish to remain in their current jobs.
For these reasons, the Commission believes that development of private arbitration alternatives for workplace disputes must be encouraged. -High-quality alternatives to litigation hold the promise of expanding access to public law rights for lower-wage workers. -Private arbitration may also allow even the most contentious disputes to be resolved in a manner which permits the complaining employee to raise the dispute without permanently fracturing the employee's working relationship with the employer.
In light of the important social values embodied in public employment law and regulation, however, the Commission believes that a shift to private alternatives must proceed carefully. Significant quality standards should be met by the private arbitration mechanisms developed by individual firms and their employees, to enhance the contributions they make to insuring both protection of and respect for America's workforce.
- Quality Standards
During the Commission's deliberations and hearings on workplace arbitration, the Commission principally focused its attention on the following question: what forms and methods of private arbitration provide high-quality, fair and accurate results? In response to this inquiry, the Commission was pleased to see a high degree of consensus,<Footnote: Sept. 29, 1994 Testimony of Mr. Arnold M. Zack, President, National Academy of Arbitrators and Professor Samuel Estreicher.> -including among employer groups,<Footnote: Testimony of the Labor Policy Association, September 29, 1994.> regarding the quality standards necessary to ensure effective protection of employees' substantive legal rights. In fact, both employers and employees agree that if private arbitration is to serve as a legitimate form of private enforcement of public employment law, these systems must provide:
- neutral arbitrator who knows the laws ---in question and
understands the concerns of the parties;
a fair and simple method by which the employee can secure the necessary information to present his or her claim;
a fair method of cost-sharing between the employer and employee to ensure affordable access to the system for all employees;
the right to independent representation if the employee wants it;
a range of remedies equal to those available through litigation;
a written opinion by the arbitrator explaining the rationale for the result; and
sufficient judicial review to ensure that the result is consistent with the governing laws.
The Commission endorses this general consensus. -Meaningful quality standards coupled with space for flexible experimentation with low-cost procedures should guide employers designing workplace arbitration systems. -In specific terms, the Commission recommends the following guide posts for ensuring quality in private arbitration:
Selection of Arbitrator. -The selection process should allow both the employer and the affected employee(s) to participate. -The arbitrator should be selected from a roster of qualified arbitrators who have training and experience in the area of law disputed and are certified by professional associations specializing in such dispute resolution.<Footnote: The Commission encourages the various governing agencies responsible for overseeing the processing of public law claims, such as the EEOC or OSHA, to implement training programs for public law arbitrators and to adopt standard training requirements to be satisfied by arbitrators marketing their services for public law dispute resolution.> Attention should be paid to ensuring that professional rosters include women and minorities in significant numbers. -Neither party should be able to limit the roster unilaterally so as to risk the possibility that the arbitrator finally selected will be biased in favor of that side.
Procedures. -Aggrieved employees should have the opportunity to gather the relevant information they need to support their legal claims. -Employees pursuing a claim, for example, should be granted access to their personnel files. Broader access to personnel files should also be available for workers bringing disparate impact or treatment claims. Workplace arbitration systems might also consider allowing a complaining employee at least one deposition, or official interview, of a company official of the employee's choosing. The arbitrator should be empowered to expand discovery to include any material he or she finds valuable for resolving the dispute.
Payment of Arbitrator. -To ensure impartiality of the arbitrator, both the employee and the employer should contribute to the arbitrator's fee. -Ideally, the employee contribution should be capped in proportion to the employee's pay, so as to avoid discouraging claims by lower-wage workers.
Awards and Remedies. The introduction of a workplace arbitration system should not curb substantive employee protections. -This means that private arbitration must offer employees the same array of remedies available to them through litigation in court. -Public law arbitrators should be empowered to award whatever relief -- including reinstatement, back pay, additional economic damages, punitive awards, injunctive relief, and attorneys fees --that would be available in court under the law in question.
Final Arbitrator Ruling. -The arbitrator should issue a written opinion spelling out the findings of fact and reasons which led to the decision. -This opinion need not correspond in style or length to a court opinion. -However, it should set out in understandable terms the basis for the arbitrator's ruling.
Court Review. -Judicial review of arbitrator rulings must ensure that the arbitration decision reflects an appropriate understanding and interpretation of the relevant legal doctrines. While a reviewing court should defer to an arbitrator's fact findings as long as they have substantial evidentiary basis, the reviewing court's authoritative interpretation of the law should bind arbitrators as much it now binds administrative agencies and lower courts. -For example, if an arbitration decision in regard to a sexual harassment claim fails to grasp and apply the standard set for such claims by the Supreme Court,<Footnote: Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57 (1986).> the reviewing court must overturn the arbitration decision as inconsistent with current law.
- neutral arbitrator who knows the laws ---in question and understands the concerns of the parties;
- Employee Participation in Workplace Arbitration
Having set our the key requirements for high-quality arbitration, the Commission now turns to the question of whether with respect to an arbitration system which satisfies the quality standards listed above -- an employees agreement to arbitrate an employment law claim should be legally enforceable. Growing out of the Gilmer decision, the Commission recognizes, is a major debate over whether an employee may agree, as a condition of employment, to be bound by an employer's arbitration system.
Testimony before the Commission indicated that a number of employers have begun to implement private arbitration systems into their employment contracts. In other words, employers offering arbitration systems are often asking their employees to agree to participate in the system and thereby waive their right to pursue a claim in court when the employee agrees to accept the job. -A number of lower courts have upheld these types of arrangements on the basis of the Supreme Courts decision in Gilmer.
The public rights embodied in state and federal employment law such as freedom from discrimination in the workplace and minimum wage and overtime standards are an important part of the social and economic protections of the nation. -Employees required to accept binding arbitration of such disputes would face what for many would be an inappropriate choice: give up your right to go to court, or give up your job. -Private arbitration systems, which we believe can work well if properly administered, will have to prove themselves through experience before the nation is in a position to decide whether employers should be allowed to require their employees to use them as a condition of employment. We urge employers to experiment broadly with voluntary programs so the nation can gain experience with this potentially valuable tool.
- Forbid Making Agreement to Arbitrate Public Law Claims a
Condition of Employment at This Time
Binding arbitration agreements should not be enforceable as a condition of employment. -The Commission believes the courts should interpret the Federal Arbitration Act in this fashion. -If they fail to do, Congress should pass legislation making it clear that any choice between available methods for enforcing statutory employment rights should be left to the individual who feels wronged rather than dictated by his or her employment contract.<Footnote: With respect to the securities industry, the Commission believes employees of securities firms should not be required as a condition of employment to arbitrate disputes arising under federal or state employment laws. However, the Commission does not oppose traditional industry requirements that employees agree to arbitrate other disputes, such as those involving customers.> -At some time in the future, as the nation gains experience with private arbitration systems, it may wish to reevaluate the situation.
- Encourage Employees to Consider Binding Arbitration of Claims
After They Have Arisen
The Commission encourages employees whose employers offerarbitration programs that meet the standards outlined above to consider their use when a dispute occurs. -Employees who decide to use a private arbitration system instead of going to court after a dispute over a legal right has arisen should be bound by the results of the arbitration decision subject to the limited court review we specified above.
In the longer run, the best way to ensure the acceptability to workers of binding arbitration of their public law claims is to afford employees an independent -voice in the design and implementation of such programs. -For the present moment, the Commission underlines its support for continuing experimentation by private parties and government agencies with low-cost, high-quality alternatives to the court-based litigation system.
Indeed, the Commission predicts that as workplace arbitration systems evolve and expand, both workers and employers will gain experience and trust in such systems and in the mutually valuable gains achieved through them. -The costs and time involved in enforcing public employment rights through the court system are increasingly denying a broader slice of American workers meaningful access to employment law protections. -High-quality private arbitration, the Commission believes, can provide both workers and their employers with an attractive alternative