Arbitration provides an opportunity for parties to resolve disputes privately and more quickly than traditional litigation. The U.S. Chamber of Commerce Institute for Legal Reform has funded several studies that have found arbitration to be fairer, faster, and better than litigation for both consumers and employees. The most recent of these studies, from March 2022, found that in the period from 2014 to 2021, consumers who initiated arbitration claims fared better than those who pursued litigation when comparing win rate (41.7 percent versus 29.3 percent), award amount ($79,945 versus $71,354), and time to resolution (321 days from initiation to termination versus 439 days); likewise, employees who pursued arbitration rather than litigation had a higher win rate (37.7 percent versus 10.8 percent) and award amount ($444,134 versus $407,678) and resolved disputes more quickly (659 days from initiation to termination versus 715 days). (Nam D. Pham & Mary Donovan, NDP Analytics, Fairer, Faster, Better III: An Empirical Assessment of Consumer and Employment Arbitration (Mar. 2022).)
But arbitration is not perfect. It has the potential to be clouded by biases. So, how do you navigate that road while ensuring a fair, impartial arbitrator or arbitrator panel for your client? You must ask for more transparency and do more background research.
As the use of arbitration increases, “repeat player” bias has become particularly problematic. When an entity consistently chooses the same arbitrator or arbitration organization for all or a majority of its arbitrations, the result is a reasonable suspicion of bias. Specifically, the concern is that the arbitrator or arbitration organization will feel the need to keep the entity happy to ensure the continued receipt of its arbitration business, and the way to ensure that is by ruling in favor of said entity in arbitration matters.
To help guard against repeat player bias, request disclosures that state the nature of an arbitrator’s or arbitrator panel’s participation in previous cases involving one of the current parties and the prevailing party. If dealing with a repeat player who prevents the disclosure from being released, reach an agreement with the other party that such an action will disqualify the arbitrator as a candidate for the case.
Note, arbitrators with no financial interest in the operation of their alternative dispute resolution services organization (e.g., the American Arbitration Association and JAMS) have no obligation to disclose that organization’s overall business with a repeat player. However, some organizations (e.g., the American Health Law Association and American Arbitration Association) make the request for disclosures easy by utilizing appointment forms that require the arbitrator to disclose any participation in previous cases involving one of the current parties. Additionally, some states, such as California, have passed statutes that require arbitrators to make public their decisions.
Furthermore, some administrative organizations require their arbitrators to abide by codes of ethics. Find out if there is one, what it is, what the process is for reporting an arbitrator, the potential consequences imposed, if any arbitrators have violated the ethics code in the past, and what was the result.
Simply being a repeat player should not necessarily disqualify an arbitrator from contention. By being a repeat player, the arbitrator may provide the benefit of specialized industry knowledge and experience, especially for highly technical cases. This is another reason why disclosures are important; they can help you vet and select an arbitrator who comes with specific subject matter expertise and thus is able to streamline the process because of an understanding of logistical industry-related specifics. For more complex cases, an experienced arbitrator with specialized knowledge may likely be much more equipped to creatively resolve a dispute than an arbitrator with a general background as a judge, whose experience generally leans toward deciding who has the winning case.
Diverse arbitrators and diverse panels bring a perspective and wide array of additional knowledge that cannot be learned, only experienced firsthand. It may be beneficial to the client, whether an individual or a large company, to have an arbitrator or panel that reflects that individual or that company’s workforce.
Personality is especially important with a one-member panel or when choosing the panel chair. The arbitrator must have the necessary social skills to manage the process constructively. In the selection process, consider whether the arbitrators are reasonable and cooperative.
Asking other attorneys with experience before the arbitrator is, of course, the best resource to assess how the arbitrator manages an arbitration, including how quickly (or not) the arbitrator moves for resolution, the kinds of arguments favored, or how motions and disputes are handled.
Another avenue is to research the potential arbitrator online. Some arbitrators speak publicly at conferences or events, which will provide insight into their personality and thoughts about the relevant topic. These speeches may be publicly available.
Another aspect of personality is whether the arbitrator has strong management skills, and this includes managing people and the process. Having a set of delineated procedural rules can set the tone for what to expect in the process and ultimately lead to a prompt, efficient process. The absence of procedural rules can easily lead to delays and unnecessary costs.
An arbitrator with a manageable caseload is key when a fast resolution supersedes expertise. Inquire about the arbitrator’s schedule and whether the arbitrator’s schedule permits providing the necessary time and attention to your case. Otherwise, resolution can easily be delayed due to scheduling conflicts, by any party, that arise during the proceedings; if the arbitrator selected has a heavy caseload, rescheduling might prove challenging.
The process of finding the right arbitrator can be arduous, particularly when the two parties need to agree. At least in arbitration (as opposed to litigation), the parties do get to choose the decision-maker. If all else fails, the Federal Arbitration Act (FAA) provides that a court can vacate an award if there is evident partiality by the arbitrator, corruption by the arbitrator, particular misconduct by the arbitrator during adjudication of the case, or abuse of power by the arbitrators. (9 U.S.C. § 10.)
While it may appear appealing or seductive for your client when the other party offers to pay the full arbitrator fee, there are some steps to consider when protecting your client’s interests. Of course, make sure to weigh the benefit of choosing arbitration over mediation, as arbitration will remove your ability to seek recourse through litigation. When agreeing to arbitration, consider an agreement to arbitrate that includes such provisions as a requirement that the parties agree on the arbitrator or panel of arbitrators and that there be disclosures that evaluate the arbitrator or panel for a track record of fairness and for specific qualification; the agreement to arbitrate should clearly state the type of experience, professional credentials, and subject matter expertise desired for complex or technical matters.
Be mindful when reviewing employment contracts, which are often skewed against the employee’s interest, especially with large corporate repeat players. Review the arbitration clause for fairness to your client. There has been a lot of litigation to protect the rights of individuals in these adhesion contracts. Also, some states do offer protections by statutes or legislation. Recently, significant protection was codified on March 3, 2022, when President Joe Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. The Act exempts sexual harassment and sexual assault cases from arbitration in employment agreements, including arbitration under the FAA.
Last, on May 23, 2022, the U.S. Supreme Court unanimously ruled that the FAA’s “policy favoring arbitration” does not permit courts to condition a waiver of the right to arbitrate on a showing of prejudice to the opposing party, which is a test created by federal circuits. (See Morgan v. Sundance, Inc., 596 U.S. ___ (2022).) In short, the Supreme Court decided this is not permissible. Instead, the “federal policy is about treating arbitration contracts like all others, not about fostering arbitration.” (Id. at 6.) Note, this case involved an employment agreement wherein the employee consented to confidential binding arbitration to resolve any employment dispute.
