The enforceability and fairness of pre-dispute arbitration clause in the employment context, and AAA Employment rules have been a hot topic for decades. The issue is of huge practical importance because, depending on which study one believes, between twenty and forty percent of American workers are covered by such “mandatory” clauses. Although the employee may choose not to agree to arbitration, the consequences of doing so can be harsh.
As the California Supreme Court commented in Armendariz v. Foundation Health Psychcare Inc:
“[I]n the case of pre-employment arbitration contracts, the economic pressure exerted by employers on all but the most sought-after employees may be particularly acute, for the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration requirement.“
Congress, the federal courts, and most states strongly protect and promote a policy in favor of arbitration. (Mitsubishi Motors v. Soler) Any doubts about the scope of agreements are resolved in favor of arbitrability. State statutes that single out arbitration or otherwise obstruct the purposes of the FAA are federally preempted. (AT&T Mobility LLC v. Concepcion.) Arbitration agreements are to be enforced according to their terms, except on grounds that justify the invalidation of any other contracts (9 USC section 2).
The FAA, at 9 USC section 1, excludes “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. “. The Ninth Circuit read section 1 to exempt all employment contracts from the FAA on appeal from the District Court order compelling arbitration. (Adams v. Circuit City).
The Supreme Court overruled, construing section 1’s language as applying only to transportation workers, in line with every Circuit except the Ninth. (Circuit City v. Adams).
Adams means that mandatory pre-employment arbitration clauses are generally valid. The U.S. Supreme Court even found the arbitration process beneficial to employees. The Adams court saw the relative economy, speed, confidentiality, and preservation of relationships characteristic of arbitration as advantageous to employees.
Nevertheless, there have long been concerns about the fairness of arbitration in employment. Adams was decided in 2001 after the release of the so-called Due Process Protocols by the 1995 Taskforce on ADR in Employment and after the AAA’s initial Arbitration Rules on June 1, 1996. It also post-dated the Armendariz 2000 opinion, and the D.C. Circuit’s 1997 holdings in Cole v. Burns International Security Services, on which Armendariz relied. Cole and Armendariz, like the AAA Rules and the Protocols, require minimum standards of fairness for employment arbitration. Against this backdrop of protectionism, the Adams court may have seen no need for further concern for employees in arbitration.
As can be seen, by the brief chronology above, the AAA Arbitration Rules (hereinafter simply the Rules) have been extremely influential for the protection of employees and the promotion of fairness. They have gone through several iterations in the last twenty-five years. The next section reviews the Rules as they exist today. The current Employment Arbitration Rules became effective November 1, 2009. Although the same booklet contains mediation procedures and optional rules concerning emergency protective measures, those are not discussed here. This summary is meant as a quick and clear reference, not a substitute for the Employment Rules. Those are found at https://www.adr.org/sites/default/files/EmploymentRules_Web_2.pdf.
AAA Employment Rule 1: Applicability
The Rules apply whenever the AAA is chosen to resolve an employment dispute by arbitration, regardless of whether the Rules are identified by name. Well, the arbitration agreement normally defines the scope of arbitral jurisdiction, the Rules control in case of any inconsistencies.
If a party seeks judicial intervention, arbitral administration will be suspended for 60 days pending a court stay. The Rules will still apply thereafter
Rule 2: Notification
Within thirty days prior to the effective date of an ADR plan incorporating these rules, the employer shall notify the AAA of said incorporation and provide a copy of the plan. The AAA may decline to administer an arbitration if this requirement is not met.
Employment Rule 3: Administration of the Arbitration
When arbitration falls under the Rules, The AAA has authority to administer it and may do so through any of its employees.
Rule 4: Initiating a Claim
The parties may jointly request arbitration, or one party may file a demand for arbitration in duplicate, and simultaneously serve all other parties. A claim shall contain a short summary of the dispute. A response and/or counterclaim shall be filed within 15 days of a letter from the AAA acknowledging receipt of the claim. If no response is filed, the claim is deemed denied (there is no default simply by failure to file a response.)
Rule 5: Change of Claim
Before the appointment of the arbitrator, a queen may be changed by simply filing a new one with AAA and simultaneously serving the other parties. After the appointment at the arbitrator, any changes to the claim are only at the arbitrator’s discretion.
Employment Rule 6: Jurisdiction
The arbitrator has jurisdiction to determine his or her jurisdiction and the existence or validity of any contract containing an arbitration clause, which shall be treated as a separate agreement. Objections to jurisdiction are due within 15 days of acknowledgment of the claim by the AAA.
Rule 7: Administrative and Mediation Conferences
Before any arbitrator is appointed, a party may seek or the AAA may unilaterally set an administrative conference to consider how best to organize and administer the arbitration, and how arbitrators should be selected.
Mediation may be discussed. At any time, with the consent of the parties, AAA will set a mediation conference. The mediator will not be an arbitrator acting in the case without the mutual written consent of the parties.
Rule 8: Arbitration Management Conference
Within 60 days of the appointment of the arbitrator, a telephonic arbitration management conference shall be held. At the conference, parties will discuss the issues, choice of law, discovery disputes, exchange of stipulations, scheduling of hearings, witnesses and witness exclusion, briefs, the award, Admission of documentary evidence, and testamentary evidence other than live at the hearing, bifurcation and other process details.
Rule 9: Discovery
In line with Armendariz and Cole, Rule 9 empowers the arbitrator to order discovery necessary for a full and fair exploration of the issues.
Rule 10: Location of Hearing
If the parties disagree, the AAA may fix the location of the hearing, subject to the power of the arbitrator in view of the contentions and circumstances of the case.
Rule 11: Hearing Dates
The arbitrator shall set the date time and place for hearings. The parties are to cooperate in scheduling the earliest hearing date possible and are expected to adhere to the schedule. The AAA is to give 10 days’ written notice of hearings unless otherwise agreed.
Employment Rules 12-15 Selection: appointment, number, and qualifications of arbitrators, chairperson, and disclosure of potential conflicts
Rules 12 to 15 deal with the appointment and qualifications of arbitrators. To summarize, panel members are to be experienced, knowledgeable in employment law, free from conflicts of interest, and chosen in a diverse and non-discriminatory manner. Unless otherwise agreed or specified in the arbitration clause, one arbitrator shall preside.
Arbitrators shall be chosen as set forth in the arbitration agreement, otherwise by striking objectionable arbitrators from a list and ranking the remainder in order of preference. Each party may choose one member of a three-member panel, with the party arbitrators jointly selecting a third arbitrator. A chair will also be jointly selected unless the arbitration agreement requires the selection of a chair from the National Roster. Should the parties fail to timely select an arbitrator or chairperson, the AAA will do so.
Potential conflicts of interest and circumstances that might give rise to doubts about impartiality shall be disclosed by the arbitrator in writing, but they shall be deemed safe to represent that any potential conflicting relationships or interests would not affect their impartiality or ability to serve.
Rule 16: Disqualification
An arbitrator may be disqualified either on objection a party or sua sponte by AAA if they are partial or lack independence, or they are unable or refuse to perform their duties with diligence and good faith. Arbitrators may also be disqualified on grounds specified by applicable law.
Party-appointed arbitrators need not be impartial if parties so agree in writing.
Rule 17: Ex Parte Communication
No party or representative may communicate ex parte with an arbitrator or candidate for arbitrator except as to his or her qualifications, independence, or suitability as a third arbitrator. However, the general nature of the controversy and anticipated proceedings may be discussed. This rule does not apply if the parties have agreed in writing that the arbitrator need not be impartial.
Rule 18: Vacancies
If proof is given that an arbitrator cannot continue with his or her office, a vacancy exists. Under the rules, any remaining arbitrators may render an award by a majority of them if the hearing has commenced. The parties may also request the appointment of a substitute, in which case the panel shall determine if evidence must be retaken.
Rule 19: Representatives
A party may be represented by an attorney or other authorized representative at the arbitration. Notice of the identity of the representative shall be given within 10 days of the hearing. The filing of a demand by the representative shall constitute such notice.
Rule 20: Stenographic record
Any party may, at its expense, make direct arrangements with a stenographer to create a record of the arbitration. The parties and arbitrator shall be given notice three days before the hearing. If the arbitrator determines or the parties agree that said record is the official record of the arbitration, It must be provided to the arbitrator and made available for inspection as the arbitrator directs.
Rule 21: Interpreters
A party may, at its expense, directly contract with an interpreter.
Rule 22: Attendance at Hearings
The arbitrator has the authority to exclude non-party witnesses from the hearing during the testimony of other witnesses and to exclude any nonparty non-witness from hearings.
Rule 23: Confidentiality
The arbitrator shall maintain the confidentiality of the arbitration unless the parties otherwise agree or the law requires otherwise.
Rule 24: Postponements
The arbitrator shall postpone a hearing upon agreement of the parties. He or she may postpone a hearing for good cause shown or on his or her own motion.
Rule 25: Oaths
The arbitrator shall take an oath of office before the first hearing. The arbitrator may require witnesses to testify under oath and shall do so if requested by a party.
Rule 26: Majority Awards
All awards are determined by a majority unless a law or arbitration agreement requires unanimity.
Rule 27: Dispositive Motions
The arbitrator may allow dispositive motions if the party makes a substantial showing of a likelihood of success that will narrow or dispose of the issues.
Rule 28: Order of Proof
A hearing opens by recording its date, time, place, those present, and receiving into evidence the demand and answer. The burdens of proof are the same as in court. Other than that, the necessary resemblance to litigation is minimal.
This is not to say that the parties and arbitrators do not cause arbitration to look like litigation. They do. But they do so by agreement, not by rule. The speed and economy of ADR are sacrificed in favor of familiarity when this occurs.
Employment Arbitration Rule 28 gives the arbitrator tremendous flexibility, allowing the neutral to use alternative means of taking evidence, and requiring only that parties be given a full and fair opportunity to present their claims, that the arbitrator act to expedite matters, that evidence be received, that witnesses submit to direct and cross-examination, and that witness information be made part of the record. A dozen years of reports in the academic literature tell us that arbitration has become the bloated twin of litigation. This is not the fault of the rules, but of the participants.
Rule 29: Proceedings in the absence of a party or representative
If any party or representative given notice of a hearing fails to appear without having obtained a postponement, the hearing may proceed in their absence. However, such absence is not sufficient to support an award; the arbitrator shall receive evidence necessary to support one.
Rule 30: Evidence
The parties may introduce relevant and material evidence and shall introduce evidence the arbitrator deems necessary to the understanding and resolution of the dispute. The arbitrator can change the order of proof, exclude irrelevant or cumulative evidence, and judge the admissibility of the evidence. Rules of evidence need not be followed. The arbitrator may cause subpoenas to be issued.
Evidence shall be taken in the presence of all arbitrators and parties unless a party is absent without having obtained a postponement, has waived their presence or is in default. “Present” need not mean physically at the hearing.
Employment Rule 31: Inspection
At the request of a party, the arbitrator may make an inspection. If any party is unable to be present at the time set by the arbitrator, he or she shall make an oral or written report, on which the parties may comment.
Employment Rule 32: Interim Measures
At the request of a party, the arbitrator may grant on an interim basis any relief that would be available in court.
Employment Rule 33: Closing the Hearing
The arbitrator shall specifically whether they have further witnesses or evidence to offer. Upon being satisfied that the record is complete, the arbitrator shall close the hearing. The hearing shall not be closed until the last day to file any briefs, or documents under Employment Rule 30, has passed. The time within which the award must be made begins to run upon the closing of the hearing unless otherwise agreed.
Rule 34: Reopening the Hearing
A hearing may generally be reopened for good cause. But if the arbitration agreement requires the award to be made by a given date, and the deadline would be missed if the hearing were reopened, it may not be reopened without the parties’ consent to an extension of time.
If there is no deadline, the award is due 30 days after the reopened hearing is closed.
Employment Rule 35: Waiver of Oral Hearing
The parties may agree in writing to the waiver of an oral hearing. If no process is agreed upon, the arbitrator shall determine one.
Employment Rule 36: Waiver of Objection
If any provision of these rules is not followed and the party proceeds without making an objection in writing, the right to object is waived.
Rule 37: Extension and Modification of Time.
The parties may modify any time period by agreement. The AAA and the arbitrator may extend any time except the time to make an award, and the AAA shall give notice.
The parties may modify any period of time by mutual agreement. The AAA or the arbitrator may for good cause extend any period of time established by these Rules, except the time for making the award. The AAA shall notify the parties of any extension.
Rule 38: Serving Notice
a. Any papers, notices, or process necessary or proper under these rules or related court proceedings may be served on a party by placing in the mail addressed to the party or its representative, at the last known address or by personal service, or by fax, provided that due process is granted to the party.
b. Where all parties and the arbitrator agree, notices may be transmitted by e-mail or other methods of communication.
c. Unless otherwise instructed by the AAA or by the arbitrator, any documents submitted to them shall simultaneously be provided to all parties.
Rule 39: The Award
a. The award shall be made within 30 days of the date of closing of the hearing unless otherwise agreed or specified by law. If oral hearings have been waived, time runs from the AAA’s transmittal of the final statements and proofs to the arbitrator. Three additional days are provided if other documents are to be transmitted.
b. An award issued under these rules shall be publicly available. The names of the parties and witnesses will not be publicly available absent express agreements.
c. The award shall be signed in writing and shall provide the reasons for the award unless the parties agree otherwise.
d. The arbitrator may grant any remedy or relief that would have been available to the parties had the matter been heard in court.
The arbitrator shall assess arbitration fees, expenses, and compensation in favor of any party and, in favor of the AAA, subject to the provisions contained in the Costs of Arbitration section. (As set forth at https://adr.org/sites/default/files/Employment_Fee_Schedule1Nov19_0.pdf an employee who brings a claim must pay $300 as a filing fee, with the employer paying $1900.
An employer who brings a claim pays $2200, with the employee paying nothing. A $750 administrative fee, administration expenses, the arbitrator’s fees and expenses are payable by the employer unless the employee elects to share them (to promote neutrality or preserve the relationship with the employer), or the claim is found to be patently frivolous. )
e. If the parties settle their dispute during the course of the arbitration and mutually request, the arbitrator may set forth the terms of the settlement in a consent award.
f. The parties shall accept as delivery of the award mail or personal service described in Employment Rule 38, or filing of the award as required by law.
g. The award is final and binding.
Rule 40: Modification of the Award
Within 20 days of transmittal by the AAA, any party may ask the arbitrator to correct only clerical, typographical, technical, or computational errors in the award. Other parties have 10 days to respond to the request, after which the arbitrator shall have 20 days from transmittal by the AAA of the request and response to dispose of it.
Rule 41: Copies of Arbitration Records
The AAA will, on written request and at the party’s expense, furnish certified copies of arbitration records for use in related judicial proceedings.
Rule 42: Application to Court
a. No judicial proceeding relating to the controversy in the arbitration shall be deemed a waiver of the party’s right to arbitrate.
While rules 42 a, 42 b, and 42 may bind the AAA and the arbitrator, a court could find differently. It is unclear that this Rule is effective to waive a potential cause of action.
b. Neither the AAA nor any arbitrator in a proceeding under these rules is or shall be considered a necessary or proper party in judicial proceedings relating to the arbitration.
c. Parties shall be deemed to have consented that judgment upon the arbitration award may be entered in any court having jurisdiction.
Rule 42 c assumes that the award is not defective in some way. A court or party might oppose entry if the award was irregular.
d. Parties shall be deemed to have consented that neither the AAA nor any arbitrator shall be liable to any party in any action for damages or injunctive relief for any act or omission in connection with any arbitration under these rules.
Rule 43: Administrative Fees
AAA fees shall be paid in accordance with the Costs of Arbitration section. (See the comments to Rule 39)
The AAA may, in the event of extreme hardship, defer or reduce the administrative fees.
Rule 44: Neutral Arbitrator’s Compensation
Arbitrators shall charge a rate consistent with the arbitrator’s stated rate of compensation. If there is disagreement, an appropriate rate shall be established by the AAA and confirmed to the parties.
Any arrangement for compensation shall be made through the AAA and not directly between the parties and the arbitrator. Payment of the arbitrator’s fees and expenses shall be made from the fees and money collected by the AAA for this purpose.
Arbitrator compensation shall be borne in accordance with the Costs of Arbitration section. (See comments to Employment Rule 39)
Rule 45: Expenses
Unless otherwise agreed, or provided under applicable law, the expenses of witnesses shall be borne by the party producing such witnesses.
All expenses of the arbitrator, and any AAA expenses, as well as the costs relating to proof and witnesses produced at the direction of the arbitrator, shall be borne in accordance with the Costs of Arbitration section. (See comments to Employment Rule 39)
Rule 46: Deposits
Before any hearing, the AAA may require a deposit sufficient to cover the cost of arbitration, including arbitrator’s fees.
Rule 47: Suspension for Nonpayment
If Administrative or Arbitrators’ fees or costs have not been paid, all parties shall be given the opportunity to advance said fees and costs. If payment is not made, The arbitrator may suspend or terminate the hearing. If no arbitrator has been appointed, the AAA may do so.
The arbitrator, or a majority of the panel, shall interpret the rules. If this does not resolve the issues, the AAA may make a determination.
Arbitration using these rules promises to be quick and efficient. In general, time frames provided by the AAA Employment Arbitration Rules are much shorter than litigation, procedures are much more flexible, the arbitrator has broader discretion, and action by agreement is encouraged.