Employers tend to like certain aspects of arbitration.  Often it provides a faster and more economical resolution to a dispute than litigation.  Parties can represent themselves, without the need for counsel, before an impartial decision maker chosen by them.  Most arbitrators have some level of experience or expertise in the subject matter of the controversy they will be deciding.  Courts and juries generally will have no such experience.  Employers also believe that an arbitrator’s economic self interest, the desire to be selected for future cases, will prevent an arbitrator from entering a “runaway jury” size adverse award significantly beyond the actual, documented losses and, where appropriate, prevailing party attorney fees.

The negatives of arbitration from an employer’s perspective are that arbitrators tend to court favor with both sides by rendering “split the baby” type decisions.  Additionally, in many instances, arbitrators are reluctant to sustain discharges, which they view as economic capital punishment, and their decisions are difficult to overturn on appeal because – as long as the decision is at least somewhat grounded on the parties’ agreement – you have to live with the bargain you made in agreeing to arbitration in the first place.

While arbitration itself is a mostly straightforward proceeding, complicated issues often arise about who gets to employ it, and when it is used.  Many arbitration agreements prepared by employers merely provide that all disputes arising out of or relating to the individual’s employment, termination thereof, or terms and conditions of employment will be resolved by binding arbitration, and provide a procedure for choosing the arbitrator.  Historically, little mention was made about whether the employee can only bring a claim on his own behalf or, if appropriate, may bring a claim both on his own behalf AND on behalf of all other similarly situated employees.  Today, one adverse arbitration award essentially could be the equivalent of hundreds or thousands of them, if the arbitration is permitted to go forward as a class.

When an agreement or contract is silent on whether class arbitrations are permissible, there have been frequent threshold disputes over who gets to decide that question – an arbitrator or a court.  Employers are often reluctant to have an arbitrator make such a decision because it is in the arbitrator’s economic interest to find that class arbitration is permitted, thereby creating for himself a significantly larger and more remunerative piece of work.

Arbitration is a matter of contract between the parties in that one cannot be required to submit to arbitration unless he has agreed to do so.  Whether the parties have agreed to submit a dispute to arbitration is generally a question for a court to decide.  Similar substantive questions usually more appropriate for a court are whether the parties are bound by a given arbitration clause or whether the arbitration clause applies to a particular controversy.  On the other hand, procedural questions such as waiver, delay or similar issues are for an arbitrator.  Thus, who resolves the question of whether an arbitration clause permits or does not permit class arbitrations when the subject is not addressed can depend upon whether this issue is found to be substantive or procedural.

This issue has been addressed in both the Third and Sixth Circuit Courts of Appeals.  Both courts have concluded that the availability of class arbitration is a question of substantive arbitrability for the courts to resolve.  Moreover, when a court does make that determination, it is usually guided by the presumption that silence regarding class actions generally indicates a prohibition against them.  Said differently, these courts have taken the position that a class action changes the substance of arbitration to such degree that it cannot be presumed that parties consented to it without specifically stating so.

Generally speaking, employers who wish to avoid the quagmire of the courtroom and uncertainty of decisions made by peers of its employees certainly may wish to revisit instituting arbitration agreements with their employees.  Federal courts have in the last 5-10 years often followed the lead of the United States Supreme Court in encouraging and supporting the use of the private justice system provided by arbitration as a vehicle to reduce court dockets.

However, in drafting those agreements, employers also need to be mindful of the National Labor Relations Board’s position on prohibiting class actions since – notwithstanding the fact that certain courts may feel differently – the Board is on record as saying it believes prohibiting class arbitrations in the employment context is an unfair labor practice.  In fact, the NLRB’s active involvement on this issue has put this issue on the radar of a lot more employers.  It simply is a very unsettled area of law right now.  That’s why the decision to implement and draft an arbitration agreement – including whether or not a class action prohibition should be included – should be the subject of consultation with competent counsel.