No rational justification exists for comparing arbitration and litigation results without including dispositive motions. After years of considering this issue, we have settled on an appropriate analogy. Let’s suppose a professor has accepted at appointment at Cornell, and she is basing her decision on where to live—Lansing, a suburb north of Ithaca, or Ithaca—on the success of the softball program. The professor wants to compare the win/loss records of the two schools over twenty-five years where each team played 500 games. The professor hires a researcher to calculate both teams’ winning percentages. Ithaca has 40% winning percentage, and Lansing has a 31% winning percentage, so the professor chooses Ithaca. What the professor did not know is that, in New York State, leagues employ the “slaughter rule,” which halts a seven-inning game after five innings if one team is ahead by ten or more runs. The researcher decided to exclude slaughter rule games from the analysis. Using the same percentages as that of our study with the slaughter rule acting as dispositive motions, we point to the facts that our softball-obsessed professor should have considered. If 97% of all Ithaca games were decided by the slaughter rule, then Ithaca would have won only six out of 500 seven-inning games for a winning percentage of 1.2% Conversely Lansing, where only 40% of the cases were decided by the slaughter rule, boasted a seven-inning winning percentage of 18.6%.
Why do so many scholars exclude dispositive motions from their analysis? We contend that dispositive motions are like the slaughter rule—the game is so lopsided that it ends early and the players do not even get to finish. For employment plaintiffs in cases decided by motion, they do not get to testify or cross-examine the employer. When we compare employment arbitration to the entire EEOC litigation system, we conclude that employment arbitration is considerably more favorable to plaintiffs.
B. Most of the Prior Work Fails to Even Mention Dispositive Motions
Most of the scholarship opposing arbitration simply ignores dispositive motions. At least one scholar, Mark Gough, discusses dispositive motions and provides an argument to justify their exclusion. We commend Professor Gough for addressing the issue, but respectfully disagree with his contentions. Relying on the Nielsen et al. paper discussed above, Gough argues that it is reasonable to exclude dispositive summary judgment motions in analyzing arbitration and litigation because (1) the parties use summary judgment motions to strategize whether to settle before a motion is filed or after the case survives the motion, and (2) summary judgment is on the rise in employment arbitration. We are unpersuaded by Gough’s argument for several reasons. First, Colvin and Pike’s study found a settlement rate in employment arbitration of around 59.5%, our first arbitration study found a rate of 75%, and our recent study found a settlement rate of 80%. Nielsen’s litigation study found a 58% litigation settlement rate while our study found a settlement rate of 72%. We fail to see why summary judgment should be ignored because it likely plays a role in facilitating settlements in litigation when the parties settle as much, or more often, in arbitration than litigation. Like any other factor (e.g., the facts of the case, the costs of litigation, the type of business, media attention, etc.), dispositive motions are part of the calculus involved in the decision whether to settle. Moreover, since costs are often a primary factor in the decision to settle and since the costs of litigation greatly outweigh the costs of arbitration, it is curious both to exclude a relevant data point because it may affect settlement, and to not even try to control for the disparity on costs. Consequently, it is simply not appropriate to ignore the elimination of 37% of the cases and 97% of cases terminated by a court—all plaintiff dismissals—from a study. Second, the argument that surviving summary judgment facilitates settlements ignores the fact that, in Nelson’s study, 50%, and our study, 55% of the motions that end the case are motions with motions to dismiss—where the employer proves that, even if the facts alleged in the complaint are true, no legal violation exists. This is less settlement strategy and more elimination of frivolous cases. No justification exists for ignoring 19% of cases in one study, and 54% of the cases decided by a court in our study, all of which constitute plaintiff losses. The simple effect of doing so skews the data in favor of the litigation win rate compared to arbitration, and, secondly, it ignores a central benefit of employment arbitration: win or lose, plaintiffs are far more likely to get their case heard in arbitration.
The nature of litigation and arbitration may explain why motions are so much more prevalent in litigation than in arbitration. Cases end upon the granting of a motion. Arbitrators, who are paid by the day, have a financial incentive not to grant motions and can justify any such decision by saying that while it may be a close call, the employee deserves their day in hearing. Alternatively, judges, who are not paid by the case, have an incentive to reduce their docket. This contrast is illustrated by two anecdotal occurrences and an analysis of AAA data. One of the authors’ former teaching assistants clerked for a district court judge, sitting in the Fourth Circuit, who ordered his clerks to find a way to grant dispositive motions against discrimination plaintiffs because the judge did not want these cases clogging his docket. Similarly, while practicing, author Professor Dave Sherwyn found judges to be openly hostile to low-wage employee claims because they considered them to be “attorneys’ fees” cases (i.e., cases where the attorneys’ fees outweighed the potential employee loss or outweighed the judgment).
As Professors Colvin and Grough correctly state, motions are on the rise in arbitration. Our research group was very surprised that 40% of the non-settled, non-withdrawn cases ended in a motion. In fact, we were so surprised that we sought to get a better understanding of the type of cases that were being dismissed by arbitrators on pre-hearing dispositive motions. We randomly selected thirty AAA cases where arbitrators dismissed the claims by dispositive motion. Of the thirty dismissals, twenty-four of the cases were untimely and, thus, did not comply with the statute of limitations. Of the remaining six, four alleged violations of classes not protected by law, and only two were judged by the merits. Based on this very small sample size, it appears that most arbitrations dismissed by motions would be dismissed in court by motions to dismiss. We contend that further research to examine motions and settlements is warranted.
We also would agree with Professors Colvin and Grough that cases decided by motion would not be relevant if the forums had the same or very similar percentages. They do not, though. Depending on the study, there are anywhere from 2.5 to 5 times the number of cases decided by dispositive motion in litigation over arbitration. This disparity is too great to ignore, even if arbitration’s motion practice continues to rise.
The key point is that there are several plausible and debatable ways to address motions. Ignoring motions leads to results suggesting that litigation is fairer to employees as compared to employment arbitration. Therefore, our view is that public policy decisions should not depend on the findings of any existing study. Rather, policy decisions should recognize what is clearly apparent: namely, that under the right conditions, mediation and arbitration can help produce fair and effective dispute resolution.
IV. Other Comparisons Between Employment Arbitration and Litigation
Along with plaintiffs’ win/losses, scholars also compare the time, cost, and damage awards in various procedures. The evidence is clear with regard to time: arbitration is faster. When analyzing the average length of time between the filing of a claim and disposition, one study found 260 days for employment arbitration and 679 days for litigation. Colvin, in a 2011 paper, determined that litigation took 2.5 years from filing to trial, while arbitration took just under one year (361.5 days). We have found no study that concludes that arbitration is as costly as litigation. With limited discovery, less time, fewer motions, no juries to pick, and limited appeals, there is simply no way for a plaintiff’s arbitration costs and fees to be close to that of litigation.
The last issue that scholars examine is awards. While a number of studies examine costs, there exists no good way to judge awards in the two forums against each other because (1) settlements take so many high- and low-damage award cases out of the mix; (2) damages are based on back pay—employment arbitration is faster, so less back pay has accrued; (3) the lower costs of arbitration in terms of time and money could result in lower value cases making it into the mix; (4) awards as a percentage of demands is based on lawyers’ demands, which are often motivated by pushing settlement and are not grounded in the actual losses; and (5) litigation almost always involves relatively high wage earners, and they are more likely to have extended back pay because it takes longer to secure high wage employment versus low wage employment.
V. Research Findings Regarding Employment Arbitration Versus EEOC/Litigation
From the data and arguments described previously, several conclusions emerge: (1) we simply do not know which system is more just in the sense that it yields the correct result (i.e., a finding for the employee or the employer); (2) the EEOC litigation process is not clearly more employee friendly than employment arbitration; (3) under plausible assumptions, analyzing the effective win rate and the plaintiff compensation rate with available data, employment arbitration is more plaintiff friendly than litigation; (4) to truly measure the two systems, we need to study a universe of EEOC claims and employer claims; (5) the EEOC/litigation model is not the best way to resolve disputes; (6) the current employment arbitration system is not the best way to resolve disputes; and (7) we can create a hybrid program that will be significantly better for employees and employers than the current EEOC/litigation and employment arbitration systems. Below, we describe that suggested system.
A. How Workplace Disputes Should Be Resolved
Numerous ways exist to settle workplace disputes. Indeed, other countries have tribunals, work councils, and various dispute resolution forums. In an attempt to be practical, we will not propose a system that completely alters the current method. With that in mind, we have several thoughts that drive our proposal:
- Workplace disputes have been a major vehicle for social change, and thus the system must allow the law to evolve;
- Some workplace disputes are so egregious that they need to be public with substantial penalties to prevent similar future behaviors;
- Most employees, and all employers, wish that their disputes would remain private;
- Many employees have been led to believe that they have more rights than they are afforded by law, which often results in unrealistic expectations with regard to lawsuits and other employment actions;
- Employees should be educated about the rights granted by the government or by contract with their employer;
- Most workplace disputes are best resolved at the lowest possible level with little or no outside legal intervention;
- The ideal solution to most disputes is satisfaction without employment termination;
- The concept of “procedural justice,” where employees have the opportunity to be fully heard, is vital;
- The system should be accessible and efficient.
B. Our Proposal Includes a Role for Pre-Dispute Employment Arbitration
Before we begin describing our proposal, we need to address the argument that there should be no pre-dispute regulations and that both parties, or just employees, instead, should be able to choose their forum when the case is ripe. In an earlier article, we showed that voluntary post-dispute arbitration is not useful. In our study, all parties who had cases before the Illinois Human Rights Commission over a period of several years were given the opportunity to choose to litigate or arbitrate their cases. In the more than 2,000 cases in the study, there were numerous instances where the employer or the employee chose arbitration, but there were no instances where both sides did so. Simply put, the forums are different, and the facts of the case, as well as other circumstances, will dictate attorney strategy. Since the fallback was litigation, the post-dispute option effectively provided no change or benefit. In other words, because both sides needed to choose arbitration in order for the case to be resolved outside of litigation and because there was not one instance when both sides chose arbitration, the entire exercise was pretty much useless, and the parties were left with the default option—litigation. If the employee could unilaterally dictate the choice of forum, a substantial increase in arbitrations would have resulted because employees elected arbitration in a large number of instances. To that end, there are some who contend that employer polices should allow the employee to have a choice of forum. The question then arises: Why should (or would) an employer subject itself to a system where the choice of forum is based on what benefits the employee most? This makes little sense. Instead, the employer would prefer to use the EEOC/litigation path as the standard and only consider employment arbitration if requested by the employee. As indicated by the data reviewed above, however, if requested by the employee, arbitration is unlikely to be considered a viable option by the employer.
Our second threshold issue concerns the poignant relevance of our concept. Do we truly believe that upcoming legislation will either outlaw or modify ADR in the employment space? Prior to the passage of the EFASASHA, we believed that proposing legislation was, at best, unrealistic. Now, with the law predicated on what we contend to be faulty research, Congress should revisit the efficacy of arbitration. Even if this is not the case, employers can implement our proposals on their own. While the EEOC does not defer to arbitration, under current law employer-promulgated policies prevent any litigation other than that initiated by the EEOC. As seen below, our proposal requires employers to notify employees that they have a right to file with the EEOC and let the Agency decide if the case is one of the fewer than 200 cases they will litigate. The rest of our policy can be implemented. Indeed, our proposal is greatly influenced by what we perceive to be the best practices of ADR. Thus, employers seeking to be employers of choice can implement our proposed policy and advertise it to applicants.
VI. We Propose the Following
The EEOC (and other federal and state agencies) should endorse an ADR policy and agree to “defer” cases to arbitration if the cases and the policy meet the following criteria:
- 1. Employees must be informed that they have the right to file their charges with the EEOC.
- a. The EEOC will have thirty days to decide whether to defer or litigate the case. Because the deferrals will greatly reduce the number of cases to investigate, the EEOC will have increased resources to litigate cases.
- b. This will allow for development of the law and provide deterrence because the litigated cases will be public and the potential resources of the government to pursue these cases are vast. As one of our Cornell Center for Innovative Hospitality Labor and Employment Relations (CIHLER) board members once stated, “[I]f the EEOC is the plaintiff, God help you!” Instead of fewer than 200 cases (under 1% of the A cases), this should allow the EEOC to increase their litigation docket so that becoming an “Agency case” becomes a realistic concern of employers. Since all cases are published, the EEOC can see where the law is not being interpreted correctly and take the next case in which such an issue arises.
- c. Cases that do not fit into the EEOC enforcement priority protocol will be deferred if the employer’s policy contains the elements listed in part 2 of our proposal below.
- 2. ADR in Exchange for Discharge and Discipline for Cause:
- a. Anecdotally, we believe most employees do not understand the concept of “employment at will.” Moreover, the United States is one of the few, if not the only, industrial nations that still employs this doctrine.
- b. With the number of different limits on at-will employment that already exist and the cost of turnover (e.g., morale, productivity, recruiting, training, etc.), it is not in employers’ best interests to rely on the at-will doctrine as a defense in discrimination trials. Defense lawyers rarely take a case to trial without having a specific lawful reason for the employment decision. As CIHLER Board member Gregg Gilman stated: “No jury wants to hear I can fire anyone for no reason and they will infer an unlawful motivation. If I can’t “prove” a good reason, I settle.” Of course, it is not in employees’ best interests to be subjected to at-will employment. Thus, since at-will employment is not in society’s best interests, it is time to let (and even encourage) employees and employers make the following trade: ADR in exchange for just cause instead of at-will employment. We know of several employers who provide employees with a choice: (1) agree to a well-defined ADR system that includes an individual contract under which the employee can only be terminated for cause; or (2) remain an “at-will” employee, and if there is a dispute, the ADR system is not available and the employee would have to file with a state or federal agency. Consequently, two issues need to be addressed: (i) the distinction between voluntary versus mandatory arbitration; and (ii) the definition of just cause.
- i. One of us, Katz, believes that employees should be able to voluntarily choose between ADR with cause or EEOC/litigation with at-will employment and not be forced to do so as a condition of employment. He has a fundamental belief that employees should have choice and that fair systems will be chosen. Moreover, he believes that employees should have the ability to opt out of the ADR program after a certain amount of time (perhaps only two years after their initial choice to eliminate instability for organizations and the possibility of gaming). Sherwyn and Wagner, on the other hand, are fine with mandatory arbitration in exchange for a system where employees can only be terminated for “cause” (and we address what cause should be below) because they equate an ADR/for-cause system to the numerous employment rules that employees have no choice over (e.g., type of health insurance and cost, dress codes, vacation pay, reporting structures, remote work, union dues, etc.). That said, Sherwyn and Wagner do not think that the voluntary versus mandatory distinction is particularly relevant. They note that several employers who have offered employees the choice to choose just cause (and eliminated) at-will employment in exchange for ADR have found selection of the ADR-cause option at rates of over 95%. Thus, Sherwyn and Wagner would support a voluntary arbitration system if necessary to get ADR legislatively available. Sherwyn and Wagner do not, however, support having an open-ended opt-out of the ADR system. Like Katz, they think this option would be unwieldly to manage and would be used strategically by lawyers, thereby undermining the process.
- ii. What would just cause be in this system? Over the last seventy years, grievance arbitration included in collective bargaining agreements has resulted in a body of law that defines just cause. This standard for discharge and discipline is extremely high. Since supervisors are not covered by the National Labor Relations Act (NLRA), this jurisprudence has been applied exclusively to non-supervisors and almost all unionized hourly workers. Sherwyn worries that the common union version of just cause has also created a backlash against unionization, as it is seen as a guarantor of lifetime employment, save for egregious behavior. He believes there should be a viable middle ground between at-will and the existing unionized definition of just cause, especially since this system will apply to supervisors, managers, and high-level executives who are not covered by the NLRA and likely have more nuanced employment standards than the typical unionized hourly employee. He proposes that stakeholders on both sides of the aisle define this middle ground. Katz is not convinced that the current union version of just cause is fundamentally flawed.
- c. We do not see the development of a sensible and fair ADR policy as a choice between employment arbitration and litigation. We see it as a choice between ADR and EEOC/litigation. ADR is not litigation; to be effective, it should be part of a dispute resolution system. We propose that every approved ADR system have at least the following three steps:
- i. Employees discuss the issue/concern with HR. If the organization does not have an HR professional, the discussion takes place between employees and their supervisors or the supervisors’ supervisor. Numerous studies show that this first informal and non-adversarial process resolves the most disputes. If not resolved, employees should move to step ii.
- ii. Employees can bring a complaint to a higher-level manager or to a peer review forum. Sometimes HR or the supervisor need either high-level people or peers to be involved in order to make the parties in the dispute see both sides and find a fair resolution. We have found that peer review is especially effective because peers understand the specifics of the work and the personalities of the players, and often can resolve problems effectively. Mediation can play an effective role in solving disputes at the workplace level, especially when included within a conflict management system. This can advantage both employees and organizations by providing less expensive and quicker dispute resolution. Perhaps more importantly, mediated dispute resolution can address the organizational and systemic deficiencies that commonly underlie what at first might appear to be only an individual dispute. Our experience suggests that workplace disputes often escalate due to poor employee-supervisor communication, ineffective performance improvement efforts, or deficient organizational design. Mediators can both help identify these systemic problems and stimulate the development of creative solutions.
- Note that if the parties cannot settle, arbitration is the last step:
- iii. Arbitration is the last step. There has been a lot written about various procedures that can help make arbitration a fair process.
- 1. The parties mutually select the arbitrator through an established agency (e.g., AAA, JAMS, etc.);
- a. Law schools should establish clinics to assist employees in arbitrator selection and case preparation if the employee does not have counsel;
- b. Arbitrators’ biographies and records of case dispositions should be made available;
- c. The employer should pay all the costs of the arbitration except for the employee’s attorneys’ fees and adjudication costs;
- 2. There must be adequate discovery with a select number of depositions, document requests, and interrogatories to be determined by the arbitrator or the policy;
- 3. The statute of limitations for statutory claims should be no less than 180 days;
- 4. The damages available, including fee shifting, must mirror that of federal, state, local, and common law;
- 5. If an employer makes a settlement offer and the judgment is for an equal or lesser amount, the plaintiff will pay the employer’s costs and fees;
- 6. The arbitrator must issue a written opinion;
- a. The names of the parties will be redacted, and the opinion will be filed with an organization (e.g., government, university, private business such as West or Lexis) that will make the opinions available to the public.
- b. The opinion will also be filed with the EEOC so that it will allow the Agency to ensure that arbitrators are correctly applying the law. If not, the EEOC can pursue cases where litigation is necessary to “get the law right.”
- 7. Appeals should be limited in accordance with generally accepted arbitration principles, as lack of appeals keep costs and time under control. Moreover, research shows that employment appeals weigh heavily in the employer’s favor.
- 8. Arbitration should be private. Privacy helps make it attractive to both employers and employees. If both parties agree, pre-arbitration, that they want the results to be public, they can make the publication happen; however, we would predict that, most often, both sides will favor privacy.
As stated in the opening, we believe that strong arguments on several sides of many of these ADR issues exist and that they need to be debated and refined so as to be acceptable to reasonable employers and employees. For example, Katz can support a process without the opt-out, while Sherwyn and Wagner could support a system where employees have a choice upon hire.
Conclusion
We do not pretend that our proposed system is either perfect or that it should be set in stone. Policy experimentation, informed by academic research, would promote a useful evolution of policy. Numerous tweaks might be made to create a better system. We do know, however, that EEOC/litigation is an inefficient, heart wrenching, and costly practice. Moreover, the number of EEOC charges that are filed each year has made it impossible for the Agency to enforce and develop the law because it spends too many resources investigating and dismissing tens of thousands of cases each year. Despite common perception, no convincing evidence indicates that EEOC/litigation is more employee friendly than employment arbitration. That said, the current state of employment arbitration, as allowed by the Supreme Court, does not address the EEOC resource issue and thus does not help develop the law, does not create a process to productively address disputes, and lacks controls to ensure fairness and due process. Our proposal seeks to address the problems with the current systems by creating an ADR process, allowing the EEOC to maximize its effectiveness, and imposing controls that fix the problems that plague employment arbitration.