When Ella and Ember aren’t getting along, their disputes can usually be resolved with a delicious snack of human turkey baby food, Ella hissing at and then swatting Ember, or Feliway diffusers (which I suspect are like bongs for cats). Unfortunately, when humans don’t see eye to eye, things are a bit trickier.
When two parties have a dispute that they cannot work out between themselves, there are a lot of ways to settle the dispute without heading off to see Judge Judy (aka suing someone). In addition, some government agencies, like the Equal Employment Opportunity Commission (EEOC), may require administrative steps (including suggesting voluntary mediation) before issuing a “Right to Sue” letter on a particular claim.
The two primary means of alternative dispute resolution are mediation and arbitration.
Let’s review the basics before we get to how on Earth alternative dispute resolution relates to the dangers of office romance, the downfall of Roger Ailes, and the ongoing Twitter dumpster fire.
“Mediate/Alleviate…Try Not to Hate, Love Your Mate”
Mediation is a method of resolving disputes where a facilitator (mediator) assists the two parties in a dispute to try to come to a resolution. The mediator does not make a decision or rule on the situation, and there is no binding outcome that arises from the procedure unless the parties agree to such and sign a Mediation Settlement Agreement (a binding contract signed at the close of successful mediations). Because the parties themselves work through the issues collaboratively and there is no discovery or fact finding, mediation is typically the cheapest and quickest solution to resolve a matter. The risk of mediation is that a stalemate is fairly common, and if the parties themselves cannot work out their differences, the process can make positions more entrenched or damage relationships. In addition, because mediation and mediators are virtually unregulated, participants are at the mercy of who they select to facilitate their discussions.
If mediation fails, the parties can move on to arbitration or litigation.
“Yes or No…I’ll make it easy for YOU [the arbitrator] to decide…”
Arbitration is the second form of alternative dispute resolution. Arbitration is a more formal proceeding that typically includes fact finding, discovery, and presentation by the parties of their positions to an arbitrator. Sometimes, the parties even hire attorneys to represent them at arbitration. This can make arbitration look and feel more like actual litigation.
The arbitrator (often an attorney or retired judge) listens to both sides, reviews the information and facts, and renders a decision based on the facts and the application of relevant law. This decision may be either binding or nonbinding, depending on the type of arbitration that the parties select or what is required under their contracts or other documents that govern their relationship. In addition, arbitration is governed by the Federal Arbitration Act (“FAA” - more on the FAA below).
Nonbinding arbitration looks and feels a lot like mediation, except that the arbitrator renders a decision for the parties instead of merely facilitating a resolution coming from the parties themselves. Nonbinding arbitration gives the parties a chance to see how things might be viewed by a jury or outsider, without taking the very public step of litigation.
Binding arbitration is, wait for it, binding on the parties. And under arbitration rules and the FAA, it is very difficult to overturn. Basically, the decision is binding and not appealable unless the arbitrator does something truly heinous, like committing fraud, not disclosing a pre-existing relationship with one of the parties, or grossly disregarding the law.
What law governs mediation and arbitration?
As noted above, mediation does not have any governing law, however, arbitration does. This can make arbitration proceedings more predictable and consistent.
The FAA, among other things, requires the enforcement of arbitration agreements. However, it exempts a few categories of workers from the act, rendering mandatory arbitration agreements unenforceable for them. These exemptions include seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.
In addition to federal law, many states have arbitration rules on the books. There are also three main organizations that administer arbitrations: the Judicial Arbitration and Mediation Services (JAMS), the American Arbitration Association (AAA), and the International Institute for Conflict Prevention and Resolution (CPR). Each organization has rules and procedures that providers in their programs must follow, with slightly different nuances related to confidentiality, procedure, etc.
Now that we have the basics, this is where it gets interesting…
Mediation, Arbitration, and Who Benefits the Most
I am pretty sure mediation is a waste of time, why would I want to do it?
A valuable aside to mediation is the element of “free discovery” that it offers both sides. For example, if an employer participates in mediation when a disgruntled employee makes a claim through the EEOC, it may yield information from the employee that the employer was previously unaware of (and because employment claims so often include the knowledge of a very limited number of parties, it might not be something that an internal investigation would uncover). If the complaint is merited, this allows the employer to make necessary changes to policy, take disciplinary action where needed, and ensure a stronger culture.
The employee also benefits, especially when mediation occurs while they are actively employed, because they feel “heard” by their employer for the issues at hand and often see the changes resulting from their action. The employee is able to increase their leverage beyond a normal report to human resources, ensuring that the employer takes the claims seriously and makes necessary changes. In situations where the claims are not merited (for example if an employee believes that they were denied a promotion because of their age when in fact they were passed over for performance related reasons), it allows the employer to verify that their initial assessment of the matter was accurate in a confidential manner that protects both parties from unwanted publicity.
What is a mandatory arbitration provision?
Mandatory arbitration provisions come in all shapes and sizes. Employers include them in their offer letters and other employment agreements.1 In states where it is permissible, insurers often use them in certain insurance contracts to require claim disputes to be settled by arbitration. Service providers like banks, credit card companies, and cell phone providers often include them in their “click to agree” terms and conditions to ensure that any consumer complaints cannot rise to a class action. Even the New York Times includes a mandatory arbitration provision for its subscribers.
The results in each situation are the same. Claimants are required to take their claims to arbitration instead of suing the person they feel has harmed them. But what happens if they don’t want to?
Mandatory arbitration clauses are a frequent source of litigation, are often reviewed by the Supreme Court, and are a hot topic of conversation in Congress (see below). In 2019, the Supreme Court (in the first opinion written by Justice Kavanaugh) strengthened arbitration clause enforceability by simplifying the test to include simply (1) did the parties agree to arbitrate? and (2) did that agreement clearly and unmistakably delegate the decision to the arbitrator?
What does an arbitration provision typically look like?
Generally speaking (and again, for the lawyers out there, this is for generic explanation only and not intended to be form language), a mandatory arbitration provision is structured like this:
But why would an organization require arbitration?
Remember Roger Ailes? He is probably the most extreme and misguided case in recent history of why a company might want mandatory arbitration. As a recap, Fox News hired Gretchen Carlson as a journalist and on-air reporter. Carlson was then repeatedly harassed by the head of the network, Roger Ailes. Because Carlson signed a nondisclosure agreement which included a mandatory arbitration provision, the avenue of a public trial was not available to her and the “legal maneuvers [enabled by her employment agreements] ensure[d] that bad behavior [could] remain a secret, allowing perpetrators to remain in power.”
In its best light, arbitration is a lower cost (often speedier) way for the party who typically has less power to have claims “heard” by an independent decision maker. Mandatory arbitration also keeps the frequency and content of claims confidential (as well as proceedings and usually decisions), reduces the likelihood of outsized rulings and penalties (studies show arbitration often favors the organization and results in lower damages), and can eliminate the potential for class actions.
Conversely, in addition to keeping bad behavior out of the spotlight, mandatory arbitration reduces the likelihood that a claim will even be pursued because attorneys are harder to find due to the lower likelihood and amount of damages. For example, Comcast and AT&T have in excess of 330 million customers, yet an average of only thirty (30) people took the main cellular carriers to arbitration. Given my recent experiences with Comcast, I know more than 30 people had compensable claims against the company!
And, even when a company doesn’t honor its promises, courts will often uphold arbitration provisions, such as the recent Federal Court decision requiring employees that were promised certain severance packages to arbitrate their disputes with Twitter instead of pursuing a class action.
What’s the alternative to mandatory arbitration?
Eliminating mandatory arbitration provisions in agreements does not eliminate a claimant’s ability to pursue arbitration if they choose, especially when considering the time and expense involved in litigation. Many opponents of mandatory arbitration provisions argue that allowing employees and parties to “clickable” contracts to pursue litigation will not be burdensome to organizations as most are unlikely to do so, but those who will pursue claims should not be forced to give up a complete avenue for justice. In addition, the decision about how a claim can be pursued should be made at the time of dispute based on the type of dispute contemplated, and not arbitrarily at the beginning of the relationship when the imbalance of power between the employer and the employee, or customer and provider, is probably the greatest.
Practice point for attorneys and HR professionals: When considering your company’s position on whether to require mandatory arbitration, consider the impact to your culture, shareholder value, and reputation. Provisions that might “gag” employees who are victims of discrimination or other issues at the hands of powerful leadership can have an impact on the organization, its ability to self-govern and provide a safe and inclusive environment, the Board’s ability to discharge their duties, and the viability and value of the organization.
Supporters of mandatory arbitration point to the efficiency of claims, the company’s financial support of the costs in the event of employment arbitration (allegedly making the avenue more viable than litigation for the employee), and the ability to resolve matters on a confidential basis (which allegedly protects the individual by giving them a confidential way to make otherwise embarrassing or difficult to discuss claims) as the business philosophy behind keeping these provisions in place.
The future of mandatory arbitration
Litigation under the FAA will continue, as each case hinges on the unique set of facts and circumstances that apply. In addition, the Forced Arbitration Injustice Repeal Act of 2022, which was passed by the U.S. House of Representatives, sought to prohibit pre-dispute (mandatory) arbitration provisions in employment, consumer, antitrust, or civil rights disputes. It died in the Senate. With the current regulatory climate, and so much attention to things like noncompetition provisions in employment agreements and the continued influence of #metoo, the provisions of the bill will be seen in other laws. This happened most recently when President Biden signed the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act,” which prohibits the mandatory arbitration of sexual harassment and assault claims.
When your “back [is] against the wall,” there is always self help
In the meantime, companies with mandatory provisions should look out for uprisings where individuals bound by unshakeable mandatory arbitration provisions start to behave like “human denial of service attacks,” such as flooding the system with arbitration claims. Look out Twitter!
*Again Substack with no ability to link in titles!