Arbitration Nearly Erases Law and Can Leave Low-Income Workers Without a Good Remedy and Poor For Life
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Arbitration is sometimes a one-sided way of resolving disputes so that, no matter what the facts may be, one party is guaranteed to win and the other can be bankrupted for life.
All Power to the Employer
Arbitration essentially lets the employer hire their own judge to order what the employer wanted all along, make the employee pay for all of it, and tell Federal and State courts with independent judges to ignore anything the employer did (or, colloquially, tell courts to go jump in a lake). The Federal arbitration law harms people even if they get free legal help and even if they don’t have to pay any of the costs of going through the arbitration procedure. And employers have no interest in making arbitration free or allowing workers to bring lawyers. Consequently, this kind of arbitration harms society through a slow case-by-case erosion of meaningful legal rights and obligations.
It works best for parties who have virtually equal power when they agree to an arbitration system and who still have virtually equal power when arbitration is slated to begin in a case. That tends to favor institutions who have sources of power other than each other, such as parties to a multi-million-dollar commercial relationship or a labor union and an employer. In that situation, what arbitration may offer, including economy, speed, and secrecy, can be beneficial enough to both parties to justify going into it.
But not everyone would come even close to equality at any stage. In many cases, the inequality is large, obvious, and irremediable absent mutual consent to a remedy. That consent is almost certainly unobtainable where one side has no motivation to consent because it can win without it. Between an employer armed with arbitration and an employee going it alone, the employee will lose.
Only three kinds of cases could lead to the employee not losing. The first is due to the need for the arbitrator to appear neutral. This an arbitrator can do by letting an employee win once in a long while, but a more trivial solution is likelier, adjusting an employer’s claim against an employee so that it’s not quite so bad while leaving the main claims intact, and an arbitrator may show a court that an appearance of neutrality was met through preliminary steps while awarding the employer everything the employer wanted. Another is where the employer effectively makes a gift of a victory. There’s unlikely to be any reason for an employer to start and go through arbitation and then give an award favoring the employee; the main exception to that would be a change of the employer’s mind and that, to the degree needed, is itself unlikely. The third is where the employer’s counsel and the arbitrator are so incompetent that whether either could continue to be licensed to practice law becomes doubtful. That would require a court to intervene so to find; while that’s sometimes done in a capital (death penalty) case for a defendant and is difficult even then partly because some questionable behavior by an attorney may be a permissible case strategy even without the defendant’s particularized consent, I'm not sure a court would so intervene in a case where an adversely affected party could have employed new counsel, something capital defendants usually cannot practicably do. Further, the employer can bring a new case to achieve the effect of overturning the judgment favoring the employee, rendering the issue of inneffectiveness of employer’s counsel useless to the employee.
Easy to Miss That an Arbitration System Exists
An employee could even be surprised to find arbitration applicable. Most employees whose qualifications limit them to low levels of compensation — employers often shun job applicants who appear overqualified as they’re likely to quit sooner, increasing costs of turnover — typically have less education and probably do not understand legal documents that are drafted to satisfy courts run by judges who have earned postgraduate degrees as attorneys but not necessarily most members of the public. Where employment is by contract, it is presumably lawful for a written contract to incorporate by reference another written document that is not shown to the employee but institutes the arbitration system, subject to the requirement for quality of notice. Where employment is not by contract, an agreement to an arbitration system can be prepared in essentially the same way as would a contract to the same effect (although either the contract or the agreement must be written (9 U.S.C. 2)). If either is included among papers to be signed at the time of applying for employment and the prospective employee (the applicant) attempts to read it even in a few seconds, the employer may interpret that as distrust of the employer or as a costly inefficiency caused by the applicant and refuse to hire that applicant, so that reading becomes unavailable to the applicant, thus depriving the applicant of effective notice of the arbitration system, and especially of its details. The statute has no requirement that a copy of the written document must be given to the employee. (I don’t know if the mutual precondition for a contract for all parties to execute and deliver requires providing that copy to the employee.) Apparently, no Federal regulatory agency can promulgate regulations on arbitration and definitely no State agency can. Employers that are exclusively engaging in intrastate commerce may not be able to use the Federal arbitration system and I don’t know about State arbitration systems, if any, but the Federal system is available to vast numbers of employers.
Some people are required by other law to accept almost any lawful job that is offered, so they cannot refuse a job because the employer has instituted an arbitration system. Since arbitration once agreed to is generally irrevocable, departing from that employer, even for a new job elsewhere, does not revoke the arbitration system that once was forced on the employee. While that duty to accept an offered job applies to people on certain government-funded programs intended to alleviate or prevent poverty and it applies to some immigrants, and most such people are hardly knowledgeable enough to study arbitration law generally, a similar principle applies to people who can refuse job offers but are in such economic straits that refusal is a bad idea even with miserable burdens. Some people can cope with this conflict by striving to not be offered a certain job if it appears to be inadvisable to accept it, but that can’t be repeated too many times without jeopardizing one’s ability to be economically self-supporting. The goal of eliminating poverty is impeded by requiring a system that imposes lifetime poverty.
Scope of This Article
The focus here will be on arbitration as part of employment between an employer or former employer who is nongovernmental, solvent, and sufficiently in interstate or foreign commerce to be within Congressional Constitutional authority for the purpose of arbitration and an employee or former employee whose compensation is near the legal minimum wage and whose assets are no more than enough to pay the cost of living for two months; where the law does not define a minimum for compensation, the focus includes employees whose compensation is not much more than that needed to provide minimal nutrition for average health, local shelter regardless of season, clothing, and other necessaries of life.
The focus also does not include 5 U.S.C. chapter 5 subchapter IV (i.e., 5 U.S.C. §§571–584), which involves arbitration with a Federal agency, even though a private employer–employee agreement of the kind discussed herein could involve the Federal agency as well. It is noteworthy that the Federal agency statute does appear to provide more protection through law for an employee than does the arbitration statute on which this essay is focused (cited infra).
However, the issues generally apply to some other circumstances. Instead of employment, we could consider service contracting that is not employment or is self-employment for one party and the production and transfer or import and transfer of goods with arbitration being between transferor and transferee (e.g., a retail packaged product seller can write on a package label that purchase of the product constitutes agreement to arbitrate per details available free online and thereby essentially obviate product liability claims). Government employment may require additional procedural protection because of the Constitutional restriction on the taking of property without due process. Employees with higher income or asset levels will inversely and approximately proportionally have similar concerns. For the sake of simplicity in this essay, these and similar other circumstances will not be considered further although they raise significant issues.
Also for convenience, the discussion here will be limited to cases in which arbitration is by a single arbitrator, since the law is essentially the same even when there is a panel of arbitrators.
Judicial precedents recognizing rights for employees could appear to be valuable, but I didn’t look into them, because in order to take advantage of any of them, one must be able to persuade a court to block arbitration or refuse to give an arbitral award effect. Almost no employee will know how to proceed in court pro se or have the means to hire an attorney. In the event of an employee’s victory in court, the employer can simply bring a brand new case (and perhaps the same case) and the outcome of that can have the effect of reversing any benefit of the court victory. Were an employer to attempt that in court, the judicial principle of res judicata, which generally prevents bringing the same case more times just to get the result one likes, would apply; but when arbitrations are secret then previous arbitrations may not be mentionable and thus that principle may not apply; even if they can be mentioned, a court may simply refer the new matter to the arbitrator, which is tantamount to the employee losing.
Organizations such as the American Arbitration Association are treated here as adding and subtracting nothing regarding the subject. Although such an organization may offer improvements in arbitration, the employer may not agree to the organization’s participation or to such improvements. Thus, I did not consider the offerings of such organizations.
Statutory Basis
A U.S. Federal statute authorizing arbitration in contracts and other agreements was enacted largely some decades ago, at 9 U.S.C. Chapter 1. (All references herein to the statute, unless otherwise stated, are to that chapter, which is comprised of §§1–16 and was enacted in its present iteration in and last amended, as of during the first writing of this essay, in .) Due to several judicial affirmations of its legal validity over recent decades and the long duration since enactment, the statutory scheme is unlikely to be adjudged unconstitutional by any court in the future, although some defects or features might be and, I think, should be.
Author’s Experience
I’m influenced by having been ordered by a then-employer to agree to arbitration should a dispute between that employer and myself arise. I refused so to agree and I was fired for that in (the employer would likely have denied having fired me). I kept the arbitration agreement to which I did not agree and a copy is available here (page [1], page [2], and page [3] of 3) (each file is about 200 to 400 KiB in size). Since I did not agree to it, I am not bound by its secrecy provision, and therefore can publish it, although parties who agreed to it may have been forbidden to publish it or even to show it to anyone.
I was willing to give up the right to sue and a right to class action status, but unwilling to give up protection from being sued, bankrupted, and imprisoned under this arbitration system; however, terms were not negotiable, despite my attempts at finding solutions.
I later refused at another firm (which offered self-employment) to agree to another arbitration agreement, a longer one for which I was told by an apparent supervisor to “use your Evelyn Wood speed-reading skills”, which skills I didn’t have and didn’t say I have, a copy of which agreement I would not be allowed to have even if I agreed to it, and of which agreement I would have been offered by the counterparty only a summary, apparently a very brief summary that appeared to be about five sentences long and which the supervisor verbally characterized as simply “you work and we pay you” or “you agree to work and we agree to pay you” (I don’t remember which of those two statements was uttered but one was). If that’s all the arbitration agreement said, no arbitration agreement was needed even by the firm. Thus, its terms were largely absent from the supervisor’s verbal characterization and probably from the summary.
I have voluntarily agreed to some other arbitration systems, generally as a business customer and when I thought the terms were not as oppressive and not as likely to be invoked. Invocation against customers is less likely than against employees especially where having a good reputation among prospective employees is not important. I have copies of some or all of those agreements.
I have never sued anyone.
Procedure and Pitfalls
Start in Court
Once a suit or proceeding has been begun, whether arbitration is begun depends on the court ordering it and that depends on a party applying to the court for a referral to arbitration (9 U.S.C. 3). However, that in an employer-favoring arbitration system the employer would prefer a court case or wouldn’t care is against an owner’s interest and the thought is delusional. The employer will apply and the court will make the referral.
Selecting the Arbitrator
The employer’s agreement to which I refused my assent allowed each party to nominate an arbitrator subject to refusal by the counterparty and if both parties so refused then the matter would have been referred to court, and there a judge would have chosen an arbitrator. Thus, facially, the parties were equal in choosing the arbitrator.
However, some common customs would likely have influenced a judge’s choice in favor of the employer and prohibitively expensively against the employee taking a chance. While people who have done financially well for themselves and their families in the private sector and who retire to a post-retirement career often choose one that has less financial compensation per annum, perhaps running an interesting small business or an important nonprofit, people who have made their careers in the public sector and who retire to a post-retirement career often opt for one that supports fulfilling aspirations for families down through grandchildren (e.g., college funds) and thus often choose one that has more financial compensation per annum, and for many judges that reportedly has been arbitration, and that probably is for firms that attract clients. Arbitration has been said ordinarily to cost thousands of dollars a day. If a judge is normally paid a salary of $100,000 annually to work an average of five-day weeks with two weeks of vacation, the judge’s compensation would average $400 a day and therefore the judge could look forward to more than that per day as an arbitrator. It would likely be helpful to the judge’s career prospects to cultivate relationships with one or several such already-established firms during the judicial career in the hope of being engaged to be an arbitrator after being a judge. One way so to cultivate would be to refer matters requiring arbitration from the bench to an arbitration firm of interest, as long as that firm or arbitrator is qualified to arbitrate in that matter. Since firms are likely to add a markup to what the arbitrator charges for the service (including the arbitrator being paid a portion of what the firm would be paid for the firm’s arbitration service), reasonably anticipatable costs just for the arbitrator’s services would be between $600 and $1,000 a day, and, I think, more, for an arbitrator chosen by a court.
That alone could be prohibitive. Granted, one could ask the judge for leniency on the cost of the arbitrator’s service, but that runs into two problems. One is that the judge will expect to leave that to the arbitrator, and for good reason, because no one knows what you or your opponent will do in arbitration that may raise costs, promises about that being largely unenforceable. The other is that the law already provides for when people cannot afford to pay for something, because the law provides for bankruptcy. But bankruptcy is not reached because you’re saving money for a future need and therefore can’t afford to spend your savings. You’ll have to spend it for arbitration, even if that means wiping out your savings and even if it means being unable to pay your other bills. Being unable to pay your bills despite using all of your assets to pay them is what brings bankruptcy into action. At that point, finding housing may be a problem, because landlords may be unwilling to rent to a bankrupt or former bankrupt, because the landlords doubt they’ll be paid on time and in full. So, you should expect that there’ll be no limit on the arbitrator’s costs until you hit bankruptcy and have to pay for bankruptcy proceedings and have someone else manage all of your poverty-level finances for you. You can probably qualify for food stamps, but getting out of poverty may be impossible if, as shown below, the employer wants to bring more cases against you over the rest of your life and keep you in bankruptcy until you die.
Neutrality
The statute provides that an arbitrator may not have “evident partiality” (9 U.S.C. 10(a)(2)). However, a rule of statutory construction forbids interpreting any word as redundant, unlawful, or meaningless unless no alternative interpretation can be legally supported. Therefore, “evident partiality” is not the same as “partiality”. A duty on the arbitrator to have no “evident partiality” is not a duty on the arbitrator to have no “partiality”. The arbitrator does not have to be impartial. The arbitrator is allowed by law to favor one side in their findings and conclusions, even the same side in all cases.
A contrary argument is that the word “evident” is superfluous because, for example, it is unlawful to rob a bank and yet one cannot be convicted of it without evidence of having robbed a bank, and a similar principle applies to a civil offense. Evidence is implicitly required for any conclusion of having done something against the law. However, the fatal flaw in that argument is that, for arbitration, Congress wrote the word “evident” and therefore it is to be legally presumed that Congress meant it and meant a difference in meaning by including the adjective. Therefore, if at all possible, the difference is to be found. Once found, it is to be obeyed. That difference allows the arbitrator to be partial to one party.
It is in the interest of each party choosing an arbitrator to select one who is not neutral but is loyal to that party’s side and against the other party’s side. Where other law requires an employer to maximize revenue and minimize expense, that law, if not counterbalanced, requires that the arbitrator be partial to the employer. Examples of such other laws are laws requiring maximization of for-profit corporation shareholder value and possible laws requiring rate-regulated utilities to reduce litigation expenses that might otherwise be passed along to rate-payers. In terms of normal business practice, the duties of an employee or contractor working with a given employer include generally advancing the employer’s profit (or, in the case of a not-for-profit organization, surplus), more specifically that one not give the employer’s competitors and disgruntled employees an advantage equal to the employer’s, and the duty of an arbitrator would be no different, thus generally precluding neutrality by arbitrators. Courts’ judges tend to be neutral, exceptions in both directions existing but general neutrality being assisted by, at least in Federal courts, lifetime (during good behavior) appointment of judges, occasionally random assignment of judges to cases, appellate review of law applied to cases, and other methods that are generally not available in arbitration. If court decisions are generally not neutral in a class of cases, that may be due to the law itself, which may need amending. Arbitrators should not be used to neutralize the law through enforcement in ways not approved by courts or through nonenforcement where courts generally would enforce.
Being chosen by the court should, one could expect, produce an arbitrator who would be neutral, but I doubt that’ll be the practice. Capitalism is well established in every U.S. jurisdiction and, under it, people are to maximize income and minimize expense in order to acquire net capital for future use. Capitalism is a good and widely-approved and -deployed economic system and it should be preserved. Courts do not have the strength to make their orders overcome fundamental capitalism and are denied statutory authority to require impartiality from an arbitrator, since that would be a stricter standard than that already established by the statute. Courts ignoring the reality that capitalism is engaged in by nearly every adult and many minors in the nation will simply be ineffectual. If courts try to ignore this, employers won’t and employees can’t, since employees are held responsible for their participation in arbitration and employees have no choice but to accept that capitalism is built into arbitration. Arbitration is a business like many others and a good business model is to provide greater service to those customers who are likelier to become repeat customers. Thus, an arbitrator would be economically more advantaged by ruling in favor of employers and their attorneys who can bring more cases than in favor of employees who can bring, at most, one or two cases each; and the employees probably won’t have attorneys so employees’ attorneys won’t likely generate cases for arbitration. More capital gains would generally accrue to arbitrators who serve the desires of employers against their employees than to arbitrators serving in the other direction (serving against the grain, so to speak).
Many methods can assist an arbitrator in maintaining an appearance of neutrality without actual neutrality. Examples: If an employee has several claims, an employer or employer’s attorney can fail to respond to one nearly-trivial claim and, with or without that failure, an arbitrator can grant it to the employee’s benefit although with little effect on the final award against the employee. If several employees have initiated cases that are under nearly simultaneous consideration by one arbitrator, an employer or employer’s attorney can apologize for the employer’s alleged mistreatment contributing to one employee’s grievance and, with or without that apology, an arbitrator can dismiss that case although with little effect on the totality of outcomes of all of the cases. An employer’s attorney may be motivated to assist a favored arbitrator in maintaining an appearance of neutrality as a strategy toward preserving all arbitral decision-making against possible judicial overrulings.
To favor the employer, an arbitrator and an employer would be well-advised to conceal evidence of the arbitrator’s partiality to the employer, but, of course, that’s not helpful to the employee.
Other Mandatory Expenses
Expenses such as for a meeting location and transportation had no limit in the employer’s agreement I refused. The arbitrator, likely partial to the employer, can impose them on the employee with the employee having no right to limit them. The only limit is bankruptcy. The arbitrator has no interest in charging less than a bankruptcy court would award or less than would force the employee into bankruptcy.
However, I could use the statute to lower my need to travel expensively far for arbitration. If I failed to proceed to arbitration, I could await a court order that I so proceed, and that has the advantage that the arbitration has to be held in the court’s district (see 9 U.S.C. 4). Many of those Federal districts are large enough to make travel to some locations within them financially prohibitive, but in my case I still could have saved, since the arbitrator could otherwise have ordered me to travel to New York, Dallas, Toronto, Boston, and Atlanta, among other locations, to all of those cities, not just one, and to all of those cities on journeys roughly resembling those of a ping-pong ball while exempting the employer from appearing in those cities. That would still have left a risk due to the employer choosing in which district to bring the case. But, besides that, awaiting a court order to comply with arbitration would have left open the possibility that the arbitrator could have held that against me. On the other hand, the arbitrator has the right to rule for the employer regardless of merits and therefore that I must turn over all of my property and thereby qualify for bankruptcy, so perhaps it wouldn’t matter whether I awaited the court order or not.
Total Costs
With the employer’s agreement to which I refused assent, there was no limit on what the employee might have had to pay for arbitration, with potentially the entire amount to be borne by the employee. By its terms, it was to be divided into half and half (not counting potentially steep transportation) except as otherwise provided by law, but what most nonlawyers (including most low-paid employees) probably don’t realize is that a contract is law between its parties and therefore that a contract between the arbitrator and the employer could, for example, exempt the employer from paying anything and therefore the arbitrator could require the employee to pay the whole amount. That would have been the law providing otherwise than for half and half. A contract could provide, for example, that late payment or nonpayment by the employee could obligate the employer to pay an amount to the arbitrator, not necessarily the amount discharged or dischargeable in bankruptcy but some amount, and that, too, would come within the exception for law. The employer’s agreement to whch I refused assent required that arbitration take at least thirty days, so the employee would have had to pay approximately thirty times that daily amount, or more. That could easily have been thirty to one hundred thousand dollars. Most employees receiving little pay would not have been able to afford nearly that amount and would have risked being criminally convicted under the law in at least one jurisdiction for theft of service, namely, the arbitrator’s service and perhaps the employer’s service (State of New York, Penal Law, §165.15, subdiv. 10 (class A misdemeanor with the possibility of imprisonment for one year per offense)), followed by a risk of being subject to new arbitrations begun by the same employer inspired by the employee having failed to satisfy the employer previously, even if the failure so to satisfy was due to the employee having becoming bankrupt in the attempt so to satisfy, as bankruptcy may not have terminated the arbitration agreement itself, only the obligation to pay a particular judgment under it.
Even if the arbitrator had published a price schedule for the service and the employer had done so as well, omitting those from the arbitration agreement itself and not incorporating them by specific reference into the arbitration agreement would have left the arbitrator with the legal option of ignoring all of that, even ignoring the arbitrator’s own price schedule, because the agreement to whch I refused assent provided full authority to charge an unlimited amount. By law, no legal promulgation inferior to the agreement can amend or limit the agreement, the agreement is immediately inferior to the statute, and the statute does not provide for any other inferior promulgations, so, absent a change in the law, an arbitrator’s price schedule is merely advisory to the arbitrator and can be ignored. Thus, there’s no point in asking for prices in advance of an arbitration.
Had the employer wanted to assure the employee of an affordable total cost for at least everything essential to the arbitration, the employer would have written that maximum cost amount into the arbitration agreement. Some agreements do. Not all do. This one didn’t.
Silence
Secrecy is a feature of some arbitrations. It is also a feature of some settlements that are judicially approved in the course of litigation. In both situations, parties may be restrained from publicly revealing some, perhaps most, or perhaps any of the content of an arbitral award or a judicially-approved settlement. However, while settlements are subject to negotiation between the parties and are not arrived at or subject to implementation without judicial approval, arbitral awards are not subject to negotiation between the parties regarding their terms (those being within the authority of the arbitrator to decide in a manner potentially binding on the parties) and, while subject to judicial enforcement, they’re open only to limited pre-enforcement judicial approval for themselves, the scope of approval being less than for settlements, the approval of the arbitral award being otherwise mandated by the statute.
A consequence of secrecy without negotiation and judicial review of arbitral terms is the exclusion of the Constitutional Fourteenth Amendment right of equal protection of the laws. With negotiation and review, a waiver of that protection can be adjudged an intentional waiver by a person competent so to waive, and such a waiver can be acceptable. Courts often accept it, even if only implied. But, without an opportunity for negotiation and review, such a waiver would rely for its legitimacy on nothing more than the arbitral agreement governing and preceding the dispute resolution effort. To apply the Equal Protection Clause requires knowledge of similarly situated parties, which requires knowledge of the other parties’ factual situations, which is not available if the facts are secret from the parties in the case seeking a comparison. Where arbitration is secret, knowledge cannot be shared and subsequent cases’ parties, even if they’re the same parties as those with whom the comparisons are sought, cannot cite the factual situations of those prior parties in order to seek application of the Clause. Secrecy of prior arbitrations and the governing arbitration agreements makes comparison to prior decisions of the same arbitrator, the same arbitration organization, or any of the same parties impossible, finding these documents in court files generally requires knowing the names of parties under which the documents would have been filed and prior decisions need not even be retained even in secret (except when filed with a court and perhaps (I don’t know the law on this point) a court might seal them from public inspection or destroy them after a report of fulfillment of all terms and after any right of direct appeal and all stays have been exhausted), the employer would be motivated to destroy records of arbitral proceedings as soon as legally allowed, and the arbitral award may require the employee to destroy their records, so that consistency is possible only by accident, whereas the Clause does not require only accidental equal protection. Therefore, secrecy of arbitration should be unconstitutional on its face.
Can a Lawyer Come In?
We can accept that an employee’s attorney will do what they can to assist their client, but it’s not much. Many attorneys offer good service, but many arbitration agreements are good agreements, so it’s easy to offer good service in general without knowing the situation facing one particular employee. If the agreement itself is skewed against the employee, the arbitrator has the upper hand in deciding if the attorney can do anything in the proceedings, and has the motivation, due to the employer’s payment, to apply that upper hand.
I am not clear even on the right to representation by an attorney in arbitration. It is not protected in the statute. If, by other law, it is a right, it is not a financially free right. Maybe an employer (such as a corporation) is required, by other law, to be represented by an attorney. The employer having an attorney and the employee not having one in the presence of a pro-employer arbitrator can quickly imbalance the whole proceeding, but the employee likely can’t afford to have an attorney and balance matters. The employer’s agreement to which I refused assent would have allowed me to consult an attorney outside of the arbitration proceeding, implying that I would not have that right inside it unless the arbitrator wanted to allow it. At any rate, an arbitrator can burden the employee’s use of an attorney such as by charging the employee a higher fee for the arbitration or rule against the employee on the ground that the employee is represented by an attorney and therefore is less credible, although the lack of a limit on what arbitration can cost the employee regardless of use of an attorney and the assurance to the employer of a virtual guarantee of victory may make the employee’s use of an attorney, while pointless, also essentially harmless. Paying the attorney may leave the employee less money with which to pay the arbitrator’s fee and the arbitration expenses before bankruptcy sets in; whether the sequence is good or bad is arguable.
Arbitrator’s General Powers
An arbitrator may find, assign, or deny jurisdiction of person, place, or subject so as to favor the employer and disfavor the employee.
An arbitrator may accept any complaint of violation of law and commencing a lawsuit and any allegation of fact in support of that complaint even if a court would have been required by law or easily persuaded to dismiss such a charge based on such allegation. I’m concerned that dismissal will be left by a pre-arbitration court to the arbitrator, in much the same way that courts defer to administrative agencies and mediation when those options are part of the case, and then that the arbitrator will rule on a petition or motion to dismiss consistently with the employer’s wishes. An example might be tortious interference with an advantageous business relationship with the core fact alleged being the minimum-wage employee having deliberately arrived one unpaid minute early for work one day for the purpose of personal gain, the early arrival per se alleged to have caused one million dollars in damages due to distraction of supervision for one minute for this amazing arrival; without arbitration, I think a court would treat this as too trivial for the court, perhaps awarding nominal damages of one dollar, but an arbitrator could be outraged at the one minute of earliness when evidently no one else came early without permission, awarding enough to make the employer rich. Another could be a claim that the employee sneezed on Monday in Boston thereby causing a stack of twenty-dollar bills of currency belonging to the employer to fall out a window in Los Angeles into a sewer, the scientific basis being chaos theory although a court without arbitration would rule that proximate cause is lacking. Courts often find themselves with cases in which violations are found although the violations are found to have caused so little damage that only nominal damages are awarded, not enough to compensate the winner for a filing fee for commencing the case. An arbitrator can find damages without limiting them to a nominal amount even for similar facts.
An arbitrator may agree that the statute of limitations has not expired and so agree due to the offense being a continuing one or allegedly so.
An arbitrator may allow discovery of more of the employee’s evidence including by deposition and less of the employer’s evidence by applying standards of pertinence and materiality (see 9 U.S.C. 10(a)(3) (“[an] arbitrator . . . [shall be] guilty of misconduct . . . in refusing to hear evidence pertinent and material to the controversy . . . [if such misconduct is a] misbehavior by which the rights of any party have been prejudiced”)) and accordingly can negotiate with the parties on a subpoena. Thus, if, for example, the employee wants production of the employer’s records of tasks assigned and performed, the arbitrator can decide that such a subpoena would be too vague and can lead only to an unlawful fishing expedition. If the subpoena is to be made specific enough, the employer may tell the arbitrator in an ex parte session (with the other party absent) that it will not challenge a subpoena for a “Record of Tasks Assigned and Performed” because what it does not tell the arbitrator is that’s not what such records were titled. Then the subpoena can be issued for a “Record of Tasks Assigned and Performed” and nothing else and the employer can then truthfully say that they have nothing responsive to the subpoena. Under those circumstances, it would no longer be the employer’s or arbitrator’s concern that the employee originally had hoped for something more.
An arbitrator may require submission of the employee’s documentary evidence to the arbitrator for advance consideration and safekeeping and if it is then lost deny any relief for that loss, on a ground of evidential triviality, and refuse to recognize any legitimacy for the employee’s copy of that evidence or offer of alternative evidence proving that of which the lost evidence was offered as proof on the ground that the alternative evidence was not submitted when all of the documentary evidence was to have been submitted.
An arbitrator must “hear” certain evidence (9 U.S.C. 10(a)(3)); however, the arbitrator need not agree with the evidence. That permits an arbitrator to believe all of the employer’s evidence and none of the employee’s evidence by going to the edge of the arbitrator’s discretion in finding facts, if there is such an edge. Example: The employer could allege that an employee had worked only one hour all last year, while the employee could counter as having worked 40 hours a week all year and show a Form W-2 and a recent pay stub with a year-to-date total of pay that reflects the minimum wage having been paid for all those hours. The arbitrator could question the employee about details of the work until there is some detail the employee does not remember, such as who signed a certain receipt the employee is no longer allowed to see or which is illegible. The arbitrator could then rule that the employee’s testimony is untrustworthy, conceal evidence of partiality by conceding two additional hours of work for the whole year, declare that the employer has made an otherwise unrebutted prima facie case that the employee had worked only three hours all year, and order the employee to reimburse all of the pay except for the pay for three hours, remit interest at a rate to be set by the arbitrator, declare that the employee violated the employer’s rights by not revealing the overpayments as soon as each one occurred, and order the employee to pay the employer damages for the failures to report an overpayment every week. As long as the arbitrator was listening to the employee’s testimony even while rejecting most of its substance and as long as the arbitrator applied the correct law, a court would have to approve the arbitral award. It could easily look silly on the evening TV news and there may be no court where such a prejudicial proceeding would occur without arbitration, but neither of those would matter to the law and the decision would be sustained in favor of the employer. Perhaps an employer would back off from being too extreme because perhaps a court would nullify the arbitration agreement in the face of a case so outrageous although lawful, but one could hardly count on that and that might be reversed on appeal, again favoring the employer.
An arbitrator facing an employee’s claim that the employer subjectively acted unlawfully could apply subjectivity against the claim. For example, I was briefed by an employer’s executive about the arbitration agreement to which I had refused to agree. Had I subsequently agreed to it and then contended to an arbitrator that the employer’s briefing was so materially misleading that it induced me so to agree when otherwise I would not have, because the condition of statements being misleading necessarily relies on some subjectivity that in court might have been resolved by a jury relying on its life experiences or a judge relying on legal precedents, the arbitrator could ignore anyone’s life experience and most legal precedents and then simply fail to find enough evidence that the briefing was materially misleading at all. The possibility that no evidence from any employee would ever be enough for that point could only be moot speculation, as each arbitration case would presumably be limited to the claims of one particular employee, other employees’ claims being held by the arbitrator to be irrelevant. Thus, while no evidence might ever be enough, that would not be evident in the arbitrator’s findings and conclusions and would not be of interest to a court petitioned to enforce the arbitrator’s judgment against the employee.
An employee’s testimony may be subject to impeachment by the arbitrator. Impeachment is used in courts; apparently, Einstein, if alive today, could be impeached on relativity, since he admitted to a large blunder that he admitted to and corrected. (Einstein being so extremely famous and extremely highly respected as a scientist, impeachment might not work against him but would likely work against someone not so famous with a similar blunder.) It’s a good thing Einstein’s testimony is not needed now, but an employee’s testimony might be needed tomorrow and then be impeached. The arbitrator might then decide that the impeached testimony is not credible despite its content. This can occur with certain historical events in the employee’s life, even preceding employment, such as conviction for a crime or use of illegal drugs. (One police department reportedly had to stop asking officer job applicants if they had ever used illegal drugs when the result was that the department didn’t have enough applicants left; the department changed its question to ask if applicants had used illegal drugs in the past year; an arbitrator might have no such one-year constraint.) This could lead to an employer preferring to hire people whose testimony would likely be impeached, possibly a good idea in getting some hard-to-hire people jobs, although I doubt that many employers will think that way, given other reasons influencing an employer, like insurance costs. If an arbitrator asked if the employee testifying had committed a crime for which arrest is still possible and the witness declined to answer on the ground of the Fifth Amendment to the Constitution, which protects against forced self-incrimination, the employer hearing this might fire the employee and still sue the now-former worker to return to arbitration on some claim or other. Impeachment could also occur due to a contradictory pre-arbitration statement by the worker, even if the contradictory statement was made in compliance with the employer’s order, such as in business records or to a customer to keep their business, especially since the arbitrator could disbelieve that the employer would ever order anyone to tell a lie, just like the employer would never hurt a flea (perhaps the employer considers the employee to be less than a flea). If the worker as witness refused to answer any question without offering a lawful ground for the refusal, with the lawfulness of any ground in the case being judged by the arbitrator and the proceeding unrecorded except in the arbitrator’s notes or recall or edited audio recording with the witness foridden from making notes due to arbitral secrecy, the arbitrator might be able to obtain a court order to compel the testimony and, if the refusal continued, a contempt-of-court citation with prison time attached. While some of that is reasonable as law, perhaps the law on impeachment should be tightened so more testimony would be accepted and judged for truthfulness and not on the testifier’s history that is not relevant to the facts at issue in the arbitration and perhaps all parties should be permitted to make audio and video recordings despite secrecy, but these reforms would be meaningless when the statute gives as much discretion as it does to the arbitrator in applying the law.
An employee claiming being required to act unlawfully by the employer could find the arbitrator concluding that the employee is not an attorney or, even if an attorney, does not possess the confidential knowledge that the employer’s attorney possesses and that the employer would not have required any unlawful act and therefore either that the employee acted unlawfully without authorization from the employer, thus that the employee is liable, or that the employee refused to act as lawfully required by the employer, thus that the employee was insubordinate and thus is liable. If the employee claims that the employer did not legally justify an assignment that the employee had challenged as unlawful, the arbitrator could rule that the employer had no such duty and that, challenge or no, justification or no, the employee had a duty to carry out the employer’s assignment.
An arbitrator may rule that an employee had a duty to mitigate any damages by seeking and accepting a new job with another employer paying the same or more.
An arbitrator may record or refuse to record such portions of the proceedings as the arbitrator decides with the result of creating a skewed record and, if judicial practice is a guide, call it verbatim.
An arbitrator may rule differently on many or all of these points in future arbitrations between the same parties without being bound by any other arbitrations, none being precedential.
An arbitrator may not misdescribe a “person, thing, or property” that is referenced in the arbitral award (9 U.S.C. 11(a)), but even an arbitrator who completed only elementary school ought to be able to fulfill that responsibility and, if not, a correction is permitted, so the benefit of that proscription to the employee is not more than one to the employee’s ego.
An arbitrator may not exceed their powers (9 U.S.C. 10(a)(4)), but they have plenty already, too much for the employee to have any chance of victory except by accident and such an accident can be overcome by the employer commencing new arbitrations until the employer achieves the result they desire.
Due process need not exceed that which is prescribed by the statute and the arbitration agreement, and the arbitration agreement need not prescribe more than the statutory law does. If the employer is not part of a government, then the requirement for due process as a precondition to deprivation of property and that is provided by the Fifth and Fourteenth Amendments to the Constitution is not applicable. The requirement for due process would include that a right to be heard is to be heard by an impartial tribunal, but, where that Constitutional provision is inapplicable, then the statutory requirement for an absence of evident partiality is what is assured to the employee, and that, as stated above, is not an absence of partiality. Constitutional due process is thus unavailable in arbitration, and that is of dubious Constitutionality especially where the arbitration system is forced on the employee.
Precedents Favoring Employees as Meaningless
Arbitral precedent is not binding on the employer and need not even be persuasive of the employer, because judicial precedent on arbitration is of limited scope (it is generally limited to what courts may approve or disapprove as allowable in arbitration and may depend on the terms of each arbitration agreement) and arbitral precedent is generally not preserved. It is possible that some arbitrators or employers preserve some arbitral precedents but I don’t know of any that have been and preservation is not required except possibly under some arbitration agreements, albeit none I’ve seen (I’ve seen very few). If any arbitral precedents have been preserved, they may bind no one and may not even be advisory for anyone, even if secrecy was not a feature of many arbitrations and even if the parties and the governing arbitration agreement are the same.
Nevermore Creating Precedents, Opportunity Lost, Progress Slowed
Education comes from courts’ opinions to the many lawyers who are not involved in a case but may get involved in one and need to know what the court thinks is recognized in law.
Arbitration almost never provides that educational service. Even if an arbitral decision is reasoned and is public, which would be rare if secrecy usually controls, it can have value as precedent guiding future cases only if the relevant arbitration agreements are alike in relevant part, if it is published where uninvolved lawyers will likely find its text, and if a subsequent arbitrator agrees that it is precedentially binding or informative. No requirement exists by which a court will force an arbitrator to accept an arbitral precedent as binding.
The U.S. Supreme Court decades ago decided a civil rights case, Brown v. Board of Education. It established a remarkably new position as law. A lower court four times issued orders that were contrary to the Supreme Court’s intention. The Supreme Court put an end to that. Had an arbitrator written an opinion and offered it as precedent-setting as the Supreme Court did, a subsequent arbitrator or court could have ignored it, nothing could have been done about it, and, in effect, there would have been no precedent. If Brown and later parties had had to go through arbitration instituted by the school authorities already practicing segregation, we’d probably still, today, officially have state-wide kindergarten-through-university school segregation.
Judicial Review and Appeal
Court review is possible. However, besides the scope of review being limited in arbitration review cases, the employee may have to pay for the arbitration before paying for the court review and the lack of a prebankruptcy limit on what arbitration may cost means having no money left for court review. While the court may waive its fee and costs for an indigent party, a lawyer, except in a few cases which interest lawyers enough for them to proceed pro bono, is not free and nowhere near being free for an employee. With the lack of a lawyer, the end of the proceeding is generally with no court review. Without a reasonable prospect of court review, an arbitrator may decide that there is no legal risk in ruling in a way that a court would overturn, since it likely won’t even be addressed by a court.
The Final Loss
The result, the dangerous result, is that the arbitrator can decide a case almost regardless of law. Few constraints remain. Among the laws likely to be ignored or, insofar as arbitration applies, nullified are those on hours and compensation, on working conditions such as meal breaks, on expense reimbursements, against discrimination including by harassment, on use of genetic information, on use of personal financial information including credit, on occupational safety and health, on family and health leave, on trade secrecy, on intellectual property of the employee’s creation, on organizing labor, on whistleblowing, on not competing against the employer after termination, on what constitutes defamation of the employer or a person of interest to the employer, against commercial use of a likeness of the employee without permission, on retirement and pensions, and against retaliation for a prior claim or outcome. State and tribal law would fall by the wayside when in contradiction to the scope of Federal arbitration law. While the arbitration system does not render all contracts between that employer and that employee null and void as depriving them of mutuality of promise, it does weaken them in favor of the employer, so that the employer is only limited in that the employer may not thereby render the contract unconscionable, and that constraint is usually not difficult to meet. If the principle of mitigation of damages likely disqualifies the employee from relief by the arbitrating employer, an employer need never reform its practices that are otherwise unlawful. Should an employee exercise a legal right to use another avenue for relief, such as a small claims court or by applying to a government administrative agency for enforcement of a law granting relief, the employer can retaliate through arbitration, albeit perhaps having to disguise the new suit or proceeding leading to arbitration as being for an unrelated cause of action so as to deprive anyone on the other avenue of the power to sanction retaliation. The Constitution is a limit on arbitration but how the Constitution is to be interpreted may be re-opened in arbitration, whether stare decisis (the rule of precedents) was properly applied not being testable.
That kind of possible result is precisely why an employer will reject the employee’s nomination of an arbitrator. The employee-chosen arbitrator can, without regard to facts, bankrupt the employer and, if the bankruptcy can result in the employer being dissolved (such as if the employer is a corporation), turn the employer into history, soon to be forgotten. But that power is not equal in both directions. The owner of the former employer can go into a new business (as an employee or owner) and thus need not be poor for the rest of their life. Even so, an employer usually will want to preclude the prospect of its own bankruptcy from that cause and thus will reject, early on, an employee’s choice of arbitrator.
More generally, should an employee win an arbitration or, in the employer’s perception, lose it insufficiently, the employer can institute another suit or proceeding leading to arbitration, perhaps having to disguise the suit or proceeding as unrelated but perhaps not even having to disguise it, and use that to recover all that the employee won or kept after the prior arbitration. It appears that the judicial principle of res judicata (that you generally get to try only once, whether you like the result or not) does not apply to arbitration, but even if it does the employer’s main goal is usually financial, so one route to that goal is likely as good as another. And secrecy attaching to the prior arbitration could justify the arbitrator in the new case in refusing to allow the prior case to be discussed in the new arbitration (except insofar as the employer wishes to discuss it, perhaps without rebuttal or correction being allowed).
An arbitral award must be “mutual” (9 U.S.C. 10(a)(4)), but I don’t know how much that requires. Mutuality is not equality. It may simply mean imposing at least some requirement on the party of which less is required, i.e., generally the employer, but there may not be much that is thus to be imposed.
Unlawful acts could be ordered by an employer and if the employee refuses the employer could terminate for insubordination and sue the former employee for damages resulting from the insubordination. The arbitrator could not rule as if ordering the unlawful acts was legally acceptable but could interpret the orders as lawful and the relevant facts as differing from the employee’s account even though a court would disagree. An example would be requiring the employee to tell other employees that the law on a subject is contrary to what it is; this could be the law of arbitration but it could also be any law. A more complicated conflict could arise from an arbitrator’s unwritten order to the employee to do an act that would violate law within the employee’s responsibility but not within the arbitrator’s responsibility except for the unlawfulness of ordering the commission of a crime and probably of any unlawful act. For example, one area of conflict might arise over an employee being provided a benefit from the employer which the arbitrator says should not be reported as part of taxable income to the Internal Revenue Service when not reporting would be a violation of law. (In the s, I was told by a nonprofit’s bookkeeper that certain of my income was too small to have to be reported to the IRS; she was wrong but may have thought that her nonprofit did not have to report having paid it to me and therefore that I did not have to report having received it.) In some situations, whether to report to the IRS an item as income is legally unclear. If it is unclear and the arbitrator verbally orders nonreporting, for the employee so not to report may require proving that the arbitrator gave that order, often impossible for unwritten orders, but to report may be treated by the arbitrator as a willful violation (a tax filer is required by the IRS to keep a copy of the filing and the arbitrator could order the employee to produce that copy). On the other hand, the ability of the arbitrator and the employer essentially to order life-long bankruptcy and poverty of the employee nullifies the arbitrator’s ability to impose any further cost.
I do not know how much an arbitrator can demand of the employee beyond the employer–employee relationship, responses to discovery and subpoenas against the employee, and money from the employee. For example, whether the arbitrator can forbid the employee from instituting in the future a suit or proceeding that could lead to arbitration at least with that employer, order that the employee make a particular statement to a future employer, order voiding of a government-issued license that was issued to the employee, order anything of a member of the employee’s family who is not an employee of the employer, order that the employee give a license to intellectual property to which the employer would not otherwise have a claim, or order the employee to travel where the employee can afford the cost thereof to the destination but not for the return or to a destination for which the employee will need a passport the employee does not have and may not be able to get is something I do not know.
Financial Wipeouts Forever
The employer’s agreement to which I refused assent had no limit on what it could cost the employee to arbitrate, for the arbitrator’s fee and the expenses, even if the employee, somehow, won. That might require the employee to enter bankruptcy, jeopardizing some of the employee’s means of economic needs fulfillment, such as the employee’s home (in many or most jurisdictions it is not difficult for a homeowner to evict a tenant on short notice, although a pretextual reason may be necessary to that end).
A consequence of the employer’s right to render an employee bankrupt, indeed to render all of the employees bankrupt, followed in all cases by the employer’s right to initiate more suits and proceedings leading to arbitration and new bankruptcies of the same employees, is to force employees into being, colloquially, judgment-proof, or virtually poor, for the rest of their lives. While being judgment-proof and being poor are not identical, if some assets and parts of some income streams are protected from claims due to judgments, the two are financially very close. While the employer driving employees into bankruptcy could give an employer a bad reputation, that may not matter to the employer, especially if the bad reputation comes mainly from employees and prospective employees, and the number of prospective employees may be quite large in comparison to the number of employees to be hired, so that reputation may not matter to the employer’s profitability. It may also not matter if the employer is going out of business and wants to pursue arbitrable cases to maximize its final profit or minimize its final loss.
An employee forced into life-long poverty may not have any relief. As long as the bankruptcies were the result of decisions that did not contradict the letter of the arbitration agreement, there’s no available judicial or arbitral remedy and a Federal legislative remedy is unlikely to be enacted anytime soon, if ever. The employer could generously give a gift and then arbitrate to take it back or generously let an arbitrator rule for the employee and then re-arbitrate to achieve the opposite result plus compensation to deter repetition of the cost to the employer from any future ruling resembling the prior ruling, i.e., compensation to deter that employee or any other from seeking a favorable arbitration in the future.
Can This Be Fixed?
Repair is necessary. Democracy acts partly by enacting law, which requires the rule of law, which requires adjudicators to have independence from parties. A party being able to assign disputes to its own judges (such as those called arbitrators) shifts power from the relatively already-powerless to the relatively already-powerful and denies several features of the existing system of independent adjudication, including promotion of honesty of testimony and consistency of treatment of similarly situated persons.
Employee’s Methods
Some methods of possible alleviation of the problems are not very useful. While the agreement, if it’s a contract, may be a contract of adhesion, the employer can draft it to try to remove ambiguities (which is all the law of contract of adhesion would redress), but at a cost to the employee of the contract being longer and probably less comprehensible. Terminating the employment has no effect; these agreements are “[generally] irrevocable” (9 U.S.C. 2), thus they survive employment terminations. Engaging the services of a low-priced attorney is not much help even for someone who can’t afford more, if an attorney can’t do much.
A settlement in arbitration may be up to a future arbitrator to interpret and apply in a future arbitration, with dire consequences for an employee planning to rely on the settlement. The settlement would thus be useless.
The transferability of an arbitration agreement, so as to transfer to a new party the rights and obligations of one of the existing parties, would seem clearly permitted as to the employer, since, for example, a corporation that is the employer may merge into another corporation and bring the agreement along with it as an asset. However, whether an employee can transfer their rights and obligations to another person might be an open question. When the agreement is, at least ostensibly, a two-way agreement, most likely a contract, each party must give some form of consideration for what that party gives up, so that making the arbitration system applicable by each party against the other obviates the need to identify another form of consideration for giving only one party a right to arbitration. Thus, an employer’s right to transfer its rights and obligations without a corresponding right for the employee would seem to be a legal contradiction in terms; thus, the employee has the same right of transfer that the employer has. (However, it is possible that this point has been litigated to a different conclusion.) But since the employer and the employee (at least if not in a union) are only ostensibly equal and in fact are nowhere near to being equal, the employer having, in practical terms, a guarantee of winning an arbitration, the employee can have little hope of finding a knowing and willing transferee.
The only viable strategy for the employee may be to refuse to agree to arbitration in the first place, not even awaiting an actual arbitration before refusing as that would be too late. That may not be a practicable strategy, however, as an apparently increasing number of employers impose arbitration as a condition of employment and, in some circumstances, refusing an offer of employment is unlawful.
Legislative Strategy
Arbitration being permitted by Federal statute, amending the Federal statute is a legally viable solution. A good legislative amendment would be a requirement for near-equality between the parties before agreeing to an arbitration system, subject to a useful definition of that kind of equality, but arriving at that definition would be politically difficult. Equality today may mean as little as all parties being capable of entering into a contract, which even children can do, but the statute should require more. One possibility would be to limit employment-related arbitration agreements to collective bargaining, but employers would likely object to not having a right that unions would have, approximately speaking; and most nongovernmental employers are nonunion. Another possibility would be to limit employment-related arbitration to highly-paid employees, on the assumption that being highly paid only comes after having gained some education, sophistication, and ability to negotiate such agreements. A provision sunsetting an arbitration agreement a certain number of years after termination of employment, long enough to encompass most claims were they to be brought into court without arbitration, would also help. Requiring parties to keep copies of arbitral records and sunsetting secrecy might help, by allowing old decisions eventually to become public if one party so desires and which would make them available for discovery in litigation involving other parties and causes, precisely why arbitrators and employers would likely object to any loss of secrecy. But, absent a scandal, and arbitral secrecy may prevent revealing most such scandals, I am not optimistic about legislative reform in the next decade.
Judicial Strategy
At the personal level, a rumor was that someone sued the company in question and won. Presumably, therefore, the court nullified the arbitration agreement, at least for some circumstances. However, it is likely that the employer simply wrote a new agreement and required that every employee agree to it or lose their job. Thus, while the result was good for the one plaintiff and maybe for all then-former employees who don’t return to work for that employer, it probably made little difference to any current or subsequent employee.
The best national strategy may be to seek future U.S. Supreme Court rulings distinguishing different arbitrations so as to recognize some as unconstitutional or, secondarily, as unauthorized by the intent of Congress. Doing so will require stripping away veneers of neutrality to show bias fundamentally favoring employers and other parties having power substantially greater by enough conclusively to skew arbitrations.
