XII. INDUSTRIAL RELATIONS IMPLICATIONS FOR THE PRIVATIZATION OF STATUTORY DISPUTE RESOLUTION

Circuit City Is to Workplace Justice As Voting in Florida Is to Democracy

JOHN L. ZALUSKY
AFL-CIO Retired

Abstract

      The Circuit City Supreme Court decision denies workers their day in court for employment related disputes, even when the dispute involves statutory violations. The Supreme Court thwarts workplace justice, just as it thwarted the rights of voters in Florida in the recent Presidential elections.

      The Supreme Court encourages the use of arbitration in employment disputes, through the use of adhesive contracts.¹ These are hiring contracts to refer all employment disputes to arbitration, including statutory issues. These are contracts where one party has all the power to shape the terms of the agreement and the other parties little to none. The weaker party in the employer promulgated arbitration agreement is clearly the employee. These agreements have been the instruments of grave injustice. The "yellow dog contracts" of the last century, which had the employee agreeing to not join or support a union as a condition of continued employment were contracts of adhesion and notoriously unjust, and would violate today's international standards of human rights. Today's employment contracts that require compulsory final and binding arbitration of disputes arising out of employment are the same kind of contract. Since 1889 the U.S. Supreme Court [Liverpool 6c Great W. Steam Co. v. Phoenix Ins. Co., 129 U.S. 397, 441 (1889)] and many other courts have ruled that the standards for contracts must be reasonable and just. The Rehnquist court, in finding for these adhesive employment contracts, compelling enforcement of arbitration of statutory disputes before the dispute, sets the nation down the road of tyranny by the powerful.

      One vital part of the Supreme Court's current line of decisions represented by Circuit City v. Adams is the fostering of private contract law and arbitration as a means to strip many workers of their rights provided by state and federal statutes, and arising in tort law. A second is fostering the continued use of the unique and archaic employment-at-will doctrine, a doctrine at variance with international standards. A third is that this court goes beyond allowing employers to strip workers of rights they otherwise had; it encourages a number of injurious industrial relations and public policy results that are regressive and will be long lasting. At the heart of this last point is the Supreme Court's engaged tolerance of contracts of adhesion.

      The most recent opinion Circuit City Stores Inc. v. Adams (March 21, 2001) filled in a big hole in the earlier Gilmer v. Interstate/Johnson Lane Corp. (1991) decision. In Gilmer the court found that an adhesive contract to arbitrate statutory disputes would compel the employee to arbitrate, even when the agreement was not made with the employer. In Circuit City the conservative majority found that most employees are not excluded from the Federal Arbitration Act [FAA; 9 U.S.C. § 1 et seq. (1925)], even though it could be and had been read by many to exclude workers in interstate commerce. These two cases are closely related to Equal Employment Opportunity Commission v. Waffle House which is now pending before the Supreme Court. This latter case may completely close the courthouse door on worker rights for the unrepresented, the door that was opened decades ago by elected representatives. Although these cases focus on unrepresented workers, union workers are also at risk with this court's current line of cases. In Wright v. Universal Maritime Services [8 AD Cases 1429 (1999)] the Supreme Court, citing Gilmer, found that a union may be able to waive the statutory rights of a union member. Where the employer has sufficient bargaining power and the desire, it can put the union worker in the same position as the non-union worker. That is, the union worker can be stripped of the right to go to court on a statutory issue and be compelled to use only final and binding arbitration of statutory rights. At the present time most union workers can elect the courts or arbitration or use arbitration and appeal an arbitrator's decision to the courts. These options can now be lost, and replaced by compulsory unappealable arbitration.

The Issues of Compulsory Arbitration

Adjudication of Statutory Rights Ought to Be Open to the Public, Not Secret

      One of the first public policy implications stems from the fact that arbitration is a private process with the record and decision private property. The interpretation of statutes, which are the reflection of public policy, should be open to the press, policy makers and the general public. The public has a right to know and indeed a need to know how the policy is being applied and if it is effective. The parties should be named as a matter of public policy² just as they are when courts rule on statutes. One of the basic goals of public policy is to change behavior and conduct. This is much less likely to occur if the malefactors are kept from public view. For example, it is unlikely that Denny's Restaurants would have changed their civil rights behavior absent public scrutiny. Lives may have been saved in the recent spate between Ford Motor Company and Firestone/Bridgestone if 8 years of private settlements had not been hidden in settlement agreements conditioned on silence. The point is arbitration as a private forum, fostering settlement secrecy, and is therefore harmful to formulating, adjusting and enforcing public policy.

The Arbitration of Statutory Disputes Should Be Appealable to the Courts

      Although labor agreements use final and binding arbitration, there is a world of difference between this application and the employer's use of compulsory arbitration. Arbitration under a collective bargaining agreement generally involves contract interpretation or application. The employer promulgated arbitration scheme focuses on the worker's statutory rights, the award is final and binding regardless of whether it is a statutory issue or contract violation. The union worker, unless the union has waived the worker's right, can go beyond the arbitrator's award on statutory matters and can take a second bite by bringing an action in court.

      The typical employer promulgated compulsory employment arbitration agreement generally contains the American Arbitration Association (AAA) rules, or something very similar. These rules provide that the award is final and binding, with no appeal for the unrepresented employee. However, a little research reveals that other arbitration models have and do permit the appeal of the arbitrator's award. The author believes these models are fairer and provide a better balance of power in the arbitration of statutory disputes.

      In the United States before 1925, arbitration was generally used in commercial agreements and a few labor agreements. The parties were near equals in bargaining power when shaping these agreements. When the FAA was enacted in 1925 one of the major changes in commercial arbitration that it brought about was to practically ban the parties' ability to appeal to the courts. The proponents of commercial arbitration had long been annoyed at the interference of the courts in the process. At the time the FAA became law, it preempted a number of state arbitration laws that allowed either party to appeal an arbitration award for a hearing by state court de novo. The AAA strongly lobbied for the passage of the FAA, which was a replica of the New York statute. At the time a number of other states, most notably Illinois, had arbitration statutes which specifically allowed either party to appeal an arbitration award to the courts. The right of the parties to appeal arbitration awards did not end with FAA.

      The issue of appeal has also been raised at the international level, although the harmonized international commercial arbitration rules call for final and binding awards, a number of national courts have either annulled awards or heard appeals of arbitration awards (Raghavan 1998:103). The parties in international commercial arbitration are much more evenly balanced than the American worker is to the employer, yet courts of other lands find the need to guard against unjust awards by arbitrators.

      Although final and binding arbitration was the norm in collective bargaining agreements, it was not universal. A number of Allied Industrial Workers and International Woodworkers labor agreements retained the right to strike on an arbitrator's award. The United Auto Workers retain the right to strike on safety issues.

      More recently federal courts have annexed arbitration with the right of appeal after the award. The federal courts foster the use of all forms of alternative dispute resolution machinery including arbitration in civil matters. When the federal courts considered annexing arbitration to federal civil cases--bankruptcy and other civil maters--they studied the issues carefully for nearly 20 years using pilot projects, advisory committees, studies by Rand Corporation and CPR Institute for Dispute Resolution, and legislative hearings. This effort first produced the Civil Justice Reform Act (CJRA; 28 U.S.C. §§ 471–82) of 1990 followed by the Alternative Dispute Resolution Act (ADRA; 28 U.S.C. §§ 651–58) in 1998. The author believes they provide a much higher standard of due process and justice to the parties, at a lower cost, without a significant change in processing time, than anything available in private arbitration agreements--the agreements workers are now being forced to sign.

      Although each court differs slightly, the basic model is distinguished from what the worker faces in the following ways: first, the award is not final and binding. That is, the award is sealed and within 30 days of filing the award any party may demand a trial de novo without prejudice. To avoid prejudice the appealed case is placed on the docket of the court as though it had not been referred to arbitration and judges are not allowed to see the award.

Agreement to Arbitrate Must Be Post-Dispute

      Under the ADRA the choice of arbitration or going to court is made post dispute.³ In contrast the worker is generally compelled to sign the employer promulgated compulsory arbitration agreement before he/she has a dispute. Robert Gilmer of Gilmer v. Interstate/Johnson Lane Corp. signed away his statutory rights before there was a statute. There is no way signing an adhesive contract to arbitrate before there is a dispute, even before a statute may exist, can be construed as a knowing act or a meeting of minds.

Agreement to Arbitrate Must Be Knowingly and Freely Obtained

      The ADRA also provides that consent to arbitrate must be knowingly and freely obtained--that is, it must be voluntary and the parties must understand the pros and cons of the agreement. Again this must be contrasted to the employer coerced arbitration plan, wherein agreement to arbitrate is generally obtained as a condition of employment or continued employment. The employer promulgated plan is often found buried in the raft of papers employees must sign when employed and the details are obscured in the employee handbook among the provisions stating the employer "is an at-will employer" (a term of art most workers do not understand). The only voluntary aspect to employer promulgated arbitration is with the employer.

Complete Discovery Is Essential to Due Process

      Under the ADRA the arbitrator has the same power to compel discovery as the federal judge. Workers bound by an employer promulgated compulsory arbitration plan are often unable to compel witnesses to appear or produce documentary evidence (trade secrecy and presumed privacy issues of other employees are often raised as a defense by employers), and when a worker is allowed discovery the worker must pay whatever the employer says it will cost. When dealing with statutory issues, timely and affordable discovery are fundamental to due process, a right involuntarily put in the arbitrator's hands. An arbitrator may or may not order, or be able to order, the production of documents, witnesses or the taking of depositions.

Arbitrator Competence and Fees

      Another point that the ADRA addresses is the competence and the fees of arbitrators. One of the reasons there are more arbitrators than arbitration work is that a fair number are never selected by either party--presumably some of these unengaged arbitrators are not considered competent. Under ADRA the court qualifies each person serving as a neutral, decides on their competence in the subject matter, and determines their compensation⁴ . In fact the court pays the arbitrator. Thus cost to the parties is much less than anything available in the private sector.

Is Arbitration Cost Effective and, if So, for Whom?

      For decades the argument has been made that arbitration is less costly than going to court. But there is not much hard evidence based on rigorous studies to support this notion.⁵ Of course this argument begs the question, less costly to whom?

      A worker has the court's services at no cost. In either event there will still be the cost of counsel, transcripts and discovery (unless discovery is truncated by the arbitrator to expedite matters). Expedited discovery may be false savings on statutory issues. Going to court may add some costs due to the formal courtroom procedures of filing various motions. These formal courtroom procedures are not normally seen in the less formal arbitration forum; however, in the overall picture, they would not add much to total costs.

      Looking at the cost of arbitration, the worker must first file for arbitration. The American Arbitration Association, the predominate provider of arbitration services, has a basic filing fee of $500 for employment cases; however, if the amount of the claim is more than $10,000, the fee starts going up. This can be hard for an unemployed worker to afford and can effectively bar the doors of justice for some. Many, but far from all, employer promulgated arbitration plans split this filling fee. In comparison, the use of the court is free.

      The courts do not charge for the use of the courtroom or for the salary of the judge, but arbitrators do charge. Although arbitrators will sometimes use public facilities, they normally must rent a suitable room, and they must be paid for that by the parties. Arbitrator basic fees vary but normally run $1,100 per day, with some as high as $4,000 on the West Coast. The worker's total cost for the arbitrator will vary based on the number of hearing days, study days, and expenses. However, it would not be unreasonable for a worker to expect a bill of a $5,000 to $10,000 for arbitrator services. The service of judge in court costs the worker nothing.

      Additionally, workers are able to cut their legal fees in court if they can form a class action. The author has never heard of class action in arbitration, nor has anyone else with whom this was discussed. Although the rules currently in use do not bar class actions in arbitration, they clearly do not encourage such an approach.

      The studies associated with enactment of the ADRA concluded that cost savings to the courts, if any, were due to fewer cases going to court. Otherwise, Allen Lind concludes "the court's saving from arbitration seems to just compensate for the costs associated with arbitration."⁶

      Thus if there are savings they must be employer savings. Again there are few studies, but there are a couple of areas where the savings might be found. As mentioned above one benefit of arbitration is that it is a private judicial process and that the product is private property. That property has a market value. Publishing or making public an award requires the consent of the three basic parties: the arbitrator, the worker and the employer. In a settlement handled through the courts, the employer would normally have to pay the plaintiff extra for keeping an award out of the press. This is one cost saving to the employer from arbitration.

      A study of 1,700 wrongful discharge law suits between 1988 and 1995 reported judgments averaged $152,000 for men and $75,000 for women, with litigation costs averaging $80,000 (studies by John 1996, reported by Lind et al. 2000). On the other hand, large awards to workers by an arbitrator are rare and nearly nonexistent in tort cases. They certainly are not near the awards given by juries.

The United States' Default Employment Law

Employment-At-Will

      Another major factor depriving U.S. workers of their workplace rights is the employment-at-will doctrine, the default employment law. It is not a law strictly speaking; it is doctrine handed down by the courts and is not based on an enacted statute. Although it grew up the United States to address problems of another time (Ballam 1996:91–130) and is deeply embedded in U.S. culture, the courts operate with it as though there were no other standard. Yet, all other modern major industrial nations have moved beyond this pre–industrial revolution thinking and have adopted the much less complex "just-cause" standard, while the United States holds onto the "at-will" concept. In other industrialized nations, the employer simply must keep a record and show there is a just cause for discharging or substantively changing the conditions of employment for a worker. While what constitutes just cause is quite broad, the basic difference is that the burden of proof is upon the employer. The just-cause standard contains dynamics compelling positive management styles, while the employment at-will standard enables, indeed encourages, negative employee management styles in all but the tightest labor markets. When U.S. firms operate overseas in just-cause countries, they seem to do just fine.

      The current stream of Supreme Court decisions has effectively legislated adhesive arbitration contracts as a means around the employer's problem with the maze of limiting U.S. laws, contract rules and implied public policy. The Supreme Court and appropriate legislative bodies have given little or no consideration to the idea that the employment-at-well doctrine is at the core of the problem. Yet, in 1986 the AFL-CIO Convention⁷ advocated a prohibition on discharges without cause and called for employee access to financing to assure access to due process, speedy access to a tribunal, mandatory reinstatement of wrongfully discharged employees and full compensation for all losses sustained as a result of the wrongful discharge. This model is similar in concept to the modern models used by other industrial nations, including Canada.

U.S. Employment-At-Will Versus Just-Cause

      International labor standards addressing discharge are found in the International Labor Organization's Convention No. 158 (International Labor Standards 1990:28)--(Employer) Termination of Employment, 1982. The International Labour Conference affirmed this Convention in 1999. The purpose of the Convention is "protection against termination of employment by employers without valid reason." The burden of proof is clearly on the employer, which is the opposite of the U.S.'s employment-at-will doctrine. It also provides for due process, which should cost the discharged employee nothing.

      The point is that propping up employment-at-will, by burying its inadequacies in the secrecy of private arbitration, postpones dealing with the basic problem--the United States needs to come up to world standards in the workplace. And the just-cause is the standard applied in other industrial democracies, not discharges for any reason limited by hundreds of statutes.⁸

Anticipated Effects of Rehnquist's Supreme Court Arbitration Decisions Can Be Expected to Produce

Increased Employer Abuse of Worker Rights

      Among the industrial relations spin-offs from these Supreme Court decisions will be a lessened employer deterrent to employee abuse. This exists because compulsory arbitration costs the employer less than the risk of a decision by a court of law and/or a jury. This conclusion is also arrived at because of the secret nature of arbitration and the absence of bad public relations as a deterrent. Among the public policy casualties will be obvious civil rights and age discrimination worker protections, but there are many others: the employment rights of reservists and veterans, overtime and minimum wage standards, occupational safety and health standards, whistle blower protections will be among the wounded, and each has obvious implications for the nation. The nation wants and needs individuals to join the military reserves and National Guard, without employment problems. Individuals should report many forms of misconduct by their employer and its agents. If the whistle blowing employee's protection against unjust treatment is found only in final and binding arbitration, it is less likely he/she will come forward.

      In conclusion, the dissent in the 5 to 4 Circuit City decision put it best: "A method of statutory interpretation that is deliberately uninformed, and hence unconstrained, may produce a result that is consistent with a court's own views of how things should be, but it may also defeat the very purpose for which a provision was enacted." That is the sad result of Gilmer, Wright, and Circuit City, and is likely to occur in Waffle House. The partisan Rehnquist court is taking workplace justice in the same spirit it took democracy.

Endnotes

1. Contracts of adhesion are standard form contracts, wherein one party crafts the terms of the contract and the other parties lack the power to change the terms of the contract.

2. In a significant but insufficient shift §34 of the 2001 American Arbitration Association's National Rules for the Resolution of Employment Disputes, provides public availability of awards, but carefully excludes the names of the parties and witness.

3. The issue of pre- or post-dispute arbitration is the major outstanding issue remaining in the Due Process Protocols. The default position, and the one employed by most mandatory plans, is pre-dispute and final and binding arbitration. See "A Due Process"; "National Rules" 2001.

4. By any standard the fees fixed by the courts are modest. In some federal districts the court pays the fee; in others the parties pay the neutrals at a rate set by the parties or the court. For the example the District Court of Arizona paid the neutral $250 per day or per case in 1996. See Plapinger and Stienstra 1996:29–55.

5. In a study of one federal district court (Middle District of North Carolina) Allen Lind found a 20 percent to 38 percent savings to litigants in total legal fees and costs. Bear in mind that the court paid the arbitrator's fees from congressional approbations. See the Testimony of Allen Lind before U.S. House of Representatives, Committee on the Judiciary, Subcommittee on Courts and Intellectual Property, hears on the Alternative Dispute Resolution and Settlement Encouragement Act, October 9, 1997, p. 111.

6. Allen Lind before the U.S. House of Representatives, Committee on the Judiciary, Subcommittee on Courts and Intellectual Property, hears on the Alternative Dispute Resolution and Settlement Encouragement Act, October 9, 1997, p. 111.

7. In 1986 the AFL-CIO reaffirmed its position with a Convention Resolution that called for (1) a prohibition on discharges without cause, (2) employee access to financing to assure access to due process, (3) speedy access to a tribunal, (4) mandatory reinstatement of wrongfully discharged employees, and (5) full compensation for all losses sustained as a result of the wrongful discharge.

8. Recently Dennis Pastranna, CEO of Goodwill Industries, fired Michael Itale because his membership in the Socialist Worker Party. Itale was running for Mayor of Miami. Itale worked on a government contract sewing military uniforms. His lawyer says this contract gave him some basis for a lawsuit. This discharge was newsworthy because it was not socially acceptable. It would probably not pass muster in a just-cause country and probably would not have happened. From the news reports it seems there will be a lawsuit. Miami Herald, Miami, Florida, October 30, 2001, p. 3.

References

Ballam, Deborah A. 1996. "Exploding the Original Myth Regarding Employment-At-Will: The True Origins of the Doctrine." Berkeley Journal of Employment and Labor Law, Vol. 17, no. 1, pp. 91–130.

Circuit City Stores, Inc. v. Adams, No. 99–1379, March 21, 2001.

"A Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship" <www.adr.org/rules/employment/protocol.html>.

Gilmer v. Interstate/Johnson Lane Corporation (1991) 520 U.S. 20.

International Labor Organization. 1990. International Labor Standards. 2nd ed. Geneva, Switzerland: Author.

Lind, E. Allen, Jerald Greenberg, Kimberly S. Scott, and Thomas D. Welchans. 2000. "The Winding Road From Employee Complaint: Situational and Psychological Determinants of Wrongful-Termination Claims." Administrative Science Quarterly (September).

"National Rules for the Resolution of Employment Disputes." 2001. New York: American Arbitration Association <www.adr.org/rules/employment_rules2.html>.

Plapinger, Elizabeth, and Donna Stienstra. 1996. Settlements in the Federal District Courts: A Sourcebook for Judges and Lawyers. Washington, DC: Federal Judicial Center and the CPR Institute for Dispute Resolution.

Raghavan, Vikram. 1998. "Heighten Judicial Review of Arbitral Awards: Perspectives From the UNCITRAL Modal Law and the English Arbitration Act of 1996 on Some U.S. Developments." Journal of International Arbitration, Vol. 15 (September), p. 103.