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Re-thinking Arbitration

(and Mediation)


Too pricey to be worth it?


It was supposed to be cheaper, simpler, and faster, but arbitration as the preferred mode of resolving employment or commercial disputes is losing some popularity.  “You still have to hire outside counsel so you’re not saving a lot of money.  Plus, arbitration is missing a key tool for defendants: the possibility of summary judgment,” observes Paul Adams, in-house counsel for the Gap stores.  His views and others expressed in the article “Clause for Alarm” in the November 2006 ABA Journal make for thought-provoking reading. 

Adams could have added that arbitration denies the loser what is taken for granted in the court system: an appeal.  David Vigilante of Turner Broadcasting, notes that arbitration “lacks the checks and balances that due process is supposed to afford,”  and that with arbitration, “you’re paying a lot of mouths - - - you have to pay three guys to think about it [referring to a panel of three arbitrators].  But a judge is already paid for.”

What’s going on here?  Isn’t arbitration supposed to be the rage, with management tripping over itself to get mandatory arbitration into all employee contracts and handbooks?  Aren’t organizations sleeping better at night, knowing the costs and runaway attorneys’ fees (and jury awards) of litigation in court are behind them now that they take everything in front of an umpire at a rented hotel conference room?

Venerable institutions like the American Arbitration Association efficiently bill for a large chunk of arbitration fees in advance of the hearing, and with some arbitrators’ hourly rates at $400 and much higher, the cost of tooling up for an AAA hearing can prompt management to wonder how courthouses could be worse.

Discouraged by an increasingly expensive, sometimes complicated, and often procedurally problematic “alternative dispute resolution” (the modifier “alternative” no longer makes much sense given the widespread use of arbitration), some organizations are pinning their hopes on private mediation.  Adams has scrapped arbitration in the Gap’s employment contracts entirely and shifted the dispute resolution process to settlement.  

Another choice – not addressed in the ABA Journal article - is to use an employee panel, as FedEx began to do about twenty years ago.  In this company’s procedure, three employees are chosen by the grievant and two by the manager who administered the personnel action.  FedEx early on became convinced that it was better off, in many instances, trusting the management of disputes to the employees.   It was willing to live with the adjustment required by the panel, and in the long term it found that panel members selected by the grievant were independent, and willing to be fair and uphold company policy and procedure, even if the grievance was determined against the grievant.