New California Data on Employment Arbitration

When California legislators decided to require arbitration providers to disclose certain information about their arbitrations, they were probably focused on helping individual people who faced the prospect of participating in an arbitration proceeding.  But the resulting data is also allowing us get an overall look at the status and effects of private arbitration, at least the forms of arbitration that are most likely to affect average citizens directly.  Public Citizen relied heavily on this data for its report on consumer arbitration.  (See previous blogs—“When Is the Temptation Too Much?” and “Credit Card Companies and Arbitration” about the report.)  Professor Alexander Colvin, in the Department of Labor Studies and Employment Relations at Penn State University, will soon report on employment arbitration based on his review of the California data. 

Professor Colvin examined AAA’s filings–particularly the organization’s filings regarding arbitrations that occurred as a result of clauses in employer-promulgated agreements—and found that employees won only 19.7% of their cases.  Employees did even worse when they faced employers who were repeat players, winning only 13.9% of these cases.  They won 32% of the time when they faced one-shot employers.  Employees’ odds were worst when their opponent was a repeat player-employer who used the same arbitrator more than once.  Then, employees won only 11.3% of the time, compared to a win rate of 21.2% in cases that did not involve a repeat employer-arbitrator pair. 

These findings are consistent with earlier research which has found that employees arbitrating pursuant to arbitration provisions contained in personnel manuals or handbooks have relatively low win rates.  In contrast, employees arbitrating as a result of individually negotiated contracts do quite well.  In one study, they won 68.8% of the time.  In another, they won 61.3% of their cases.  The employees arbitrating pursuant to individually negotiated contracts tend to be highly-paid managers and executives.  The employees arbitrating pursuant to personnel manuals or handbooks are likely to be lower-paid and lower-ranking employees. 

Professor Colvin estimates that 15-25% of all employers have now adopted employment arbitration.  Meanwhile, the rate of unionization in the United States was only 12% in 2006.  Professor Colvin notes that “employment arbitration is likely already a more widespread system for governing employment relations than collective bargaining and labor arbitration.”  It’s a big deal. 

It’s also important to follow the money.  Professor Colvin found that while the mean award for employees was $23,233 (including the many cases in which no damages were awarded to the employee), the mean arbitrator fee was $10,351 in  cases that involving a hearing and award.  These look like pretty substantial fees considering the size of the damage awards. 

What does all of this mean?  The simplest conclusion is that the employees arbitrating pursuant to clauses contained in their personnel contracts or manuals are not likely to win—and if they do win, they’re not likely to win much.  Meanwhile, the arbitrators will be paid.  Should employees nonetheless trust the process?  Should policymakers continue to allow employers to mandate arbitration of employment disputes?  Professor Colvin’s numbers do not answer these questions.  It’s possible that because employment arbitration is often free, more employees decide to use the process, even for claims that are frivolous.  It’s also possible that the employers who adopt employment arbitration are likely to institutionalize a continuum of other dispute resolution processes that screen out the strongest cases, leaving only the weakest to proceed to arbitration.  At the same time, it’s possible that employment arbitration has developed a structure that works to the disadvantage of employees.  And it’s almost certain that the sorts of numbers that Professor Colvin has uncovered will provide more ammunition to critics of employment arbitration who are skeptical that a mandatory, employer-controlled process that delivers low employee win rates and low damage awards should be trusted as sufficiently impartial. 

Professor Colvin’s article, “Empirical Research on Employment Arbitration: Clarity Amid the Sound and Fury?,” will be published in the Employee Rights and Employment Policy Journal. 

Nancy Welsh

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