Copyright 1999 American Bar Association; Lewis Maltby. Reprinted with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. "Employment Arbitration: Is It Really Second Class Justice?," Dispute Resolution Magazine, Fall 1999.
Employment Arbitration: Is It Really Second Class Justice?
by Lewis Maltby
Arbitration of employment disputes has always been dogged by the perception that it is second class justice. Even its defenders often describe arbitration as a good alternative "if you can't afford to go to court."
The reasons for this perception are many and varied. Much of the explanation is simply that arbitration is new and unfamiliar. Litigation has been the primary method of resolving disputes in the Anglo-American legal system for centuries. Most attorney's entire training and practice is based on litigation. For many, litigation is not just one way of getting justice, it is the only way, and skepticism about ADR was inevitable.
The manner in which employment arbitration has generally been introduced increased this uneasiness. Few employers have discussed with their employees their mutual problems with litigation and worked to design a system that both prefer. Instead, management traditionally designs the system with no employee input, often in secret, and then springs the system on employees. Generally, employees have no choice about using this new and unfamiliar system. They must either "agree" to waive their right to litigate and use the company's arbitration system or lose their jobs.1
Worse, many employers' systems are not even fair. For example, the infamous Hooters system allowed management to hand pick the arbitrator. And when the Dunlop Commission examined a wide range of employment arbitration systems, it found the majority did not comply with the ADR Protocol endorsed by the American Bar Association. 2 Under these circumstances, it is small wonder the civil rights community and plaintiffs' lawyers have a jaundiced view of ADR.
But an impression, even if justified, is not fact. The critical question remains: Is employment arbitration really second class justice? Ultimately we must, as presidential candidate Al Smith said, "look at the record." The critical record is that of arbitrators' decisions. The critical question is: How do arbitrators' decisions compare with those of judges and juries? Arbitration's advantages of faster decisions and lower cost mean very little if the end result isn't fair.
Empirical research initially seemed to contradict negative impressions of ADR. Professor Lisa Bingham of Indiana University examined the results of American Arbitration Association decisions in employment cases during 1993-95. She found that employees won 63 percent of their cases.3 This is a far greater success rate than employees generally achieve in court. For example, only 15 percent of employees who took their claims to federal district court in 1994 were successful. 4 Other researchers also found that employees win in arbitration more often than in court.
Many found this result surprising. It is commonly believed that juries are extremely sympathetic to employees, employers would say overly so. This perception is not entirely accurate. For example, employee-plaintiffs won only 44 percent of jury verdicts in federal civil rights cases in 1994.5 Employers won 56 percent of the time.
But when Bingham turned to the amount that employees receive in arbitration she found serious problems. Examining the results of AAA employment decisions in 1993-95, she found that the mean damages awarded to employees who won their case was $49,030.6 The mean damages awarded by federal district courts to employees who prevailed at trial was more than 10 times as high, $530,611.
This picture is slightly misleading because most of the arbitrations involved contract disputes with only economic damages, whereas most of the court cases involved statutes which provided for emotional distress and punitive damages. But when this factor is eliminated by computing the awards as a percentage of the amount demanded, the disparity remains. Successful plaintiffs in arbitration received on average 25 percent of their demand. Employees who prevailed in court recovered 70 percent of their demand. 7
Many took this as proof that employees do worse in arbitration. In reaching this conclusion, however, they made a huge oversight. One of the great differences between arbitration and litigation relates to motion practice, especially summary judgment. In arbitration, summary judgment is almost unheard of. Virtually every employee-plaintiff receives a decision on the merits from the arbitrator. In litigation, summary judgment is common. In fact, the majority of employment cases, some 60 percent, are resolved by summary judgment.8 This would not be a major distortion if summary judgment victories were relatively evenly divided between employers and employees. But this is not the case. Employers win 98 percent of cases which are resolved through summary judgment.9
Thus, one cannot compare the results of arbitration with those of the courts by examining only those cases in which the employee reaches a jury and prevails. Such cases represent one-fifth of all employment litigation, and a skewed fraction as well. One must compare the results of arbitration with the outcome of employment litigation as a whole, including the majority of cases that never reach a jury.
I conduct this analysis by computing the total amount received by all plaintiffs in both arbitration and litigation as a percentage of their aggregate demands. In other words: What percentage of their total demands does the class of employee-plaintiffs receive in arbitration, and how does this compare with the total received by employees in litigation?
The answer to this question will come as a shock to many. The entire class of employees who take their disputes to court collectively receive 10.4 percent of their total demand. Employees who take their disputes to arbitration receive 18 percent of their total demand.10 Employees who take their dispute to arbitration receive almost twice as much of their demands as the employees who take their dispute to court.
It is hard to maintain the belief that arbitration is second class justice in the face of this evidence. It is true that the small fraction of employees who take their disputes to court and win a jury verdict do better on average than employees who are successful in arbitration. But far more employees win in arbitration than in court, and, overall, employees who take their disputes to arbitration collect more than those who go to court.
Over the years, there have been many things which everyone knew were true that turned out to be wrong. The idea that employees are better off in court than in arbitration may well be one of them.
A more comprehensive article appeared in ARBITRATION NOW, edited by Paul Haagen and published by the ABA Section of Dispute Resolution (1999).
Lewis Maltby is the director of the American Civil Liberties Union's National Task Force on Civil Liberties in the Workplace and can be reached at maltbyclu@aol.com.
Endnotes
[1]. Mei Bickner, et al., Developments in Employment Arbitration, 52 Disp. Resol. J. (1997)
[2]. U. S. General Accounting Office, Employment Discrimination (1995)
[3]. Lisa Bingham, Employment Arbitration: The Repeat Player Effect, 1 EMPLOYEE RTS. & EMPLOYMENT POL. J. 189 (1997)
[4]. Search of Inter-University Consortium for Political and Social Research Database, case category 442 jobs (July 11, 1997) (on file with author) [hereinafter Search of Inter-University Database]
[5]. Search of Inter-University Database
[6]. Lisa B. Bingham, Unequal Bargaining Power: An Alternative Account for the Repeat Player Effect in Employment Arbitration, in 50th IRRA Proceedings (forthcoming 1999)
[7]. Search of Inter-University Database.
[8]. Search of Inter-University Database.
[9]. Search of Inter-University Database.
[10]. Search of Inter-University Database.