TO ARBITRATE OR NOT TO ARBITRATE –
IS THAT THE QUESTION?!
March 20, 2009
Kenneth P. Carlson, Jr.
Constangy
100 N. Cherry Street, Suite 300, Winston-Salem, NC 27101
(336) 721-6843; kcarlson@constangy.com
With apologies to William Shakespeare, the question that troubles many employment lawyers and their clients is not simply whether to be or not to be. Rather, it’s whether to be or not to be in arbitration – and since virtually all employment arbitration agreements are written by employers, the key question is whether employers want to arbitrate. If so, the next question is will the agreement successfully bind employees to the same desire in a manner that courts should uphold if challenged?
This article addresses the pros and cons of employment arbitration, gives a snap shot of applicable court decisions and statutes as they affect employment arbitration in North Carolina, and suggests practical advice to both litigants and arbitrators involved in arbitrating employment disputes.
I. PROS AND CONS OF EMPLOYMENT ARBITRATION
Conventional wisdom says that arbitration is faster, cheaper and more confidential than litigating employment cases in court. Faster in that disputes can be addressed and rulings made in a more timely manner than the traditional court process. Cheaper in that arbitration usually has a quicker timetable and is less involved than lawsuits in the court system. More confidential in that arbitration hearings are private while court cases are generally public.
But that’s conventional wisdom. Ask many employment lawyers and they will say that, depending on the dispute and the arbitral forum, arbitration can actually be (or at least seem) as time-consuming and expensive as regular litigation. If so, that can negate any cost or timeliness advantage a party might find in the arbitration process, although confidentiality – whether you’re for or against it – is usually a definite.[1]
Most employers consider the pros of employment arbitration to not only be this “conventional wisdom,” but also and perhaps primarily the added advantage of avoiding juries. By avoiding juries, employers and their attorneys often believe they stand a better chance of prevailing on the merits, or if found liable, avoiding larger verdicts. Their thought is that a single arbitrator or panel of arbitrators are not as likely to be swayed by sympathy or other non-legal factors in making a liability or damages decision, especially regarding non-economic compensatory and punitive damages.[2]
Most employees don’t even consider the pros or cons of arbitration agreements with their employers, usually because they have no choice about signing. Rather, their only meaningful choice is whether they want to work for an employer that requires mandatory arbitration – if so, they will normally have to sign the agreement. If not, they can certainly “choose” to apply elsewhere and hopefully obtain employment with another company. Nevertheless, conventional wisdom for employees is that they are (or should be) against mandatory arbitration because, if nothing else, it waives their right to a jury trial. And rightly or wrongly, most employees and their attorneys think they have a better chance of prevailing on the merits if they can reach a jury. Another concern for employees is that while arbitration may be faster it is often not cheaper for them, as depending on the agreement the costs of arbitration might be allocated differently than in court, including any potential award or payment of attorneys’ fees and costs depending on who wins.
Finally, it should also be stated that two other concerns regarding employment arbitration often trouble employers and their counsel. The first concern involves the Solomonesque (is that a word?) perception that arbitrators tend to “split the baby.” In other words, rather than make a tough legal decision and rule for an employer over an employee like courts will do through dispositive motions, an arbitrator will tend to find ways to try and please both parties. For example, an arbitrator may rule for the employee on one or more claims, but award much less damages than requested. Whether this baby-splitting is accurate or more of a defense bar urban legend is not known, but the perception exists and undoubtedly has affected many employers in deciding whether to require arbitration agreements with their employees.
Second, employers and their attorneys may also voice a concern that an unintended consequence of employment arbitration is that it can turn every dispute covered by the agreement into a serious issue that must be resolved through a formal legal proceeding. Especially depending on how the costs and attorneys’ fees of arbitration are allocated, the so-called “nuisance” claims that employers traditionally ignore, or which disappear after a successful defense through the EEOC or other administrative agency, suddenly assume new significance. Now the affected employee or former employee can demand arbitration as a matter of contract, and the employer must honor this demand or initiate the proceeding on its own when faced with a covered dispute. In short, the very agreement intended to expedite and limit legal exposure has effectively “bought” a legal proceeding that might not have occurred if the agreement had never been executed.
Finally, another aspect of arbitration that could be a “pro” or “con” depending on the circumstances is that arbitrators can essentially do what they want regarding legal standards, regardless of any federal or state law to the contrary.[3] In short, the risk is on the parties as to whether established law will be followed. See, e.g., Faison & Gillespie v. Lorant, 187 N.C. App. 567, 654 S.E.2d 47 (2007) (reminding the parties that “an arbitrator is not bound by substantive law or rules of evidence, [and] an award may not be vacated merely because the arbitrator erred as to law or fact”). This freedom can also have the effect of not awarding fees and costs in a manner contemplated by any applicable statute regarding discrimination, harassment, retaliation or other employment disputes. See also Hall Street Assocs., LLC v. Mattel, Inc., ___ U.S. ___, 128 S.Ct. 1396 (2008) (holding in part that clear legal error by an arbitrator could not be used by a court to set aside the arbitration award, even if the parties expressly agreed to allow the court to review it on that basis; rather, parties to an arbitration agreement cannot expand the courts’ power to review private arbitration awards as granted by the FAA).
II. EMPLOYMENT ARBITRATION AGREEMENTS – ENFORCEABLE OR NOT?
Three fairly recent United States Supreme Court cases are generally cited as opening, and then slightly closing, the door to arbitrating employment disputes. First, Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647 (1991) refused to invalidate an employee’s written agreement with the New York Stock Exchange to arbitrate all employment disputes, including his claim under the Age Discrimination in Employment Act. The Court clarified that employees cannot waive their right to file discrimination charges with the Equal Employment Opportunity Commission (“EEOC”), and that even if a claimant “is not able to institute a private judicial action” he or she “will still be free to file a charge with the EEOC.” A critical distinction was the difference between an arbitral forum versus the substantive issues addressed in that forum – and as long as the substance and potential remedies of a discrimination claim remain, arbitration can preclude a lawsuit. Id., 500 U.S. at 28-29, 111 S.Ct. at 1653-54.[4]
Gilmer left open the precise issue of whether employment arbitration agreements are “contracts of employment of . . . workers engaged in foreign or interstate commerce” excluded from and therefore not arbitral under the Federal Arbitration Act (“FAA”). This issue was decided 10 years later in Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 121 S.Ct. 1302 (2001). In Circuit City, the Court said that with limited exceptions regarding certain transportation workers, the FAA exclusion does not contemplate excluding employment disputes from arbitration. The decision was widely hailed by most employers as validating arbitration agreements required as a condition of employment, and the practical application of the opinion opened wide the door to arbitration agreements for all types of employment claims, whether based on federal or state law.
The third recent seminal case for employment arbitration is Equal Employment Opportunity Comm’n v. Waffle House, Inc., 534 U.S. 279, 122 S.Ct. 754 (2002). In summary, Waffle House tempered employer enthusiasm for pre-dispute, mandatory arbitration agreements by leaving open a litigation door for the EEOC due to its independent, statutory authority to investigate and prosecute claims as an enforcement agency of the United States government. According to the Supreme Court, a private, mandatory arbitration agreement between an employer and an employee that does not involve the EEOC as a party not only fails to preclude an individual from filing or the Commission from investigating a discrimination charge, it does not stop the EEOC from prosecuting a civil action against the employer that is within its statutory authority. In Waffle House, that included an action seeking victim-specific relief (such as back pay, reinstatement and damages) which went far beyond the broader injunctive remedies that primarily address the EEOC’s overall purpose in enforcing anti-discrimination statutes. Id., 534 U.S. at 290-98, 122 S.Ct. at 762-66. As a result of Waffle House, employers seeking to tie all of their potential liability into a single arbitration bow were greatly disappointed – but especially coming in the wake of Gilmer, they should not have been surprised. Nevertheless, employers who think the benefits of arbitration still outweigh any disadvantages do not appear dissuaded from requiring it as a condition of employment, even when they recognize that the EEOC can pursue an independent legal action regardless of an employee being bound to arbitrate through a separate agreement.[5]
When determining if an arbitration agreement is valid, basic contract law principles apply. Futrelle v. Duke Univ., 127 N.C. App. 244, 248, 488 S.E.2d 635, 638 (1997). Courts will refuse to enforce an arbitration agreement by examining whether it is “unconscionable” based on procedural or substantive grounds – and will find it unconscionable only if “the inequality of the bargain is so manifest as to shock the conscience of a person of common sense, and where the terms are so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other.” Brenner v. Little Red School House, Ltd., 302 N.C. 207, 213, 274 S.E.2d 206, 210 (1981) (citations omitted) (no inequality of bargaining in action to recover school tuition; plaintiff’s child could attend other schools if wanted, and making tuition payments non-refundable was reasonable given school’s expense to reserve space and prepare to educate child).
In making its inquiry, courts will consider “all the facts and circumstances of a particular case.” However, a contract will be found procedurally or substantively unconscionable only when its provisions are seen as being “so one-sided that the contracting party is denied any opportunity for a meaningful choice.” Id.; see also Crowder Constr. Co. v. Kiser, 134 N.C. App. 190, 206-13, 517 S.E.2d 178, 190-94 (1999) (citing Brenner) (defendant’s arguments that his employment was terminated in order to inter alia deprive him of a full return on his stock purchase agreement failed to demonstrate the agreement was “unconscionable”).
A. Whether A Dispute Is Subject To Arbitration
Whether a dispute is subject to arbitration depends on a two-part inquiry: First, did the parties have a valid agreement to arbitrate? Second, is the dispute at issue within the substantive scope of that agreement? If the answers to both questions are “yes,” then arbitration applies and a court has no jurisdiction to resolve the dispute. Hobbs Staffing Servs., Inc. v. Lumbermens Mut. Cas. Co., 168 N.C. App. 223, 225, 606 S.E.2d 708, 710 (2005). This is true regardless of whether the agreement is actually “negotiated” in terms of meaningful opportunities to revise its form and content. as case law repeatedly makes clear. See, e.g., Brevorka v. Wolfe Constr., Inc., where the court ruled in favor of arbitration when the agreement to arbitrate between individuals and a company met the required standards, regardless of the fact that the company wrote the agreement and presented it to plaintiffs for executing without negotiating. Brevorka v. Wolfe Constr., Inc., 155 N.C. App. 353, 573 S.E.2d 656 (2002), rev. denied, 357 N.C. 61, 579 S.E.2d 385, rev’d on other grounds, 357 N.C. 566, 597 S.E.2d 671 (2002).[6]
B. Whether An Arbitration Agreement Is “Unconscionable”
An often-heard argument supporting unconscionability arises when its choice of rules (such as those of the American Arbitration Association [“AAA”]) or allocation of fees and costs – also called “fee-splitting” provisions – makes it prohibitively expensive for the individual. The North Caroline Supreme Court in Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 655 S.E.2d 362 (2008) used this argument at least in part to invalidate a boilerplate arbitration clause in a non-negotiable loan application, finding that its terms and practical effect rose to the unconscionable level required by Brenner and its progeny. Especially given that Tillman is a relatively rare decision on arbitration by our state’s highest court, and its decision on what constitutes an unconscionable agreement applies to arbitration in North Carolina regardless of the setting, it is worth further discussion for our purposes of the employer-employee context.[7]
In Tillman, plaintiffs were presented with loan applications for credit life, disability and/or involuntary unemployment insurance – with “credit” insurance being a particular type of product that pays off the borrower’s loan if he or she dies, becomes disabled, or becomes involuntarily unemployed. (They signed the loan agreements in 1998, one year before this type of credit insurance was outlawed by the North Carolina legislature effective July 1, 2000.) Both plaintiffs had difficult personal situations with limited financial resources, with their homes as their primary assets. They were presented with Commercial Credit’s standard loan agreement that included an arbitration clause, and as with other borrowers of the company were not given any opportunity to “negotiate” its terms. Some of the key terms included requiring the loser to pay all arbitration costs, prohibiting class actions, keeping other parties from joining in any legal action, invoking FAA jurisdiction and AAA rules, and providing certain exceptions to arbitration that the Court found operated only to Commercial Credit’s benefit (such as either party being able to foreclose on the property and transfer title through civil court, or to use civil court in actions where the aggregate amount of monetary damages is $15,000 or less).
Plaintiffs sued in 2002 alleging unfair and deceptive trade practices and a number of other claims, essentially basing their suit on a contention that they did not want or need single premium credit insurance, that Commercial Credit did not say the insurance was actually optional, and that Commercial Credit was the sole beneficiary of insurance policies for which fees were charged that were “deceptive, unfair, duplicative, imposed without adequate commercial justification or disclosure, and in excess of the fees permitted by North Carolina law.” They sued for damages based on the amount of premiums they paid Commercial Credit and its affiliated companies, all of whom were defendants in the action. Commercial Credit filed a motion to compel arbitration, the trial court denied the motion based on unconscionability, defendants appealed, the Court of Appeals reversed and remanded, one judge dissented and plaintiffs appealed by right to the Supreme Court.
In its opinion, the Supreme Court explored the procedural and substantive aspects of unconscionability in detail, using a “sliding scale” approach which allowed for the greater egregiousness of one aspect to offset any lesser egregiousness of the other. (E.g., “The harsher the [arbitration] clause, the less ‘bargaining naughtiness’ that is required to establish unconscionability.” (quoting Tacoma Boatbuilding Co. v. Delta Fishing Co., 28 U.C.C. Rep. Serv. (CBC) 26, 37 n.20 (W.D. Wash. 1980).) Here, plaintiffs were “rushed” through the loan closing process, there was no mention of credit insurance or the arbitration clause, and Commercial Credit admitted that it would have denied the loan rather than negotiate over the arbitration agreement’s terms. Combined with the fact that plaintiffs were “relatively unsophisticated consumers” and defendants drafted the agreement, the Court quickly found procedural unconscionability.
Substantive unconscionability, however, took more time. Through a lengthy discussion, the Court analyzed this issue within the context of a three-part inquiry: (1) whether the potential arbitration costs are “prohibitively high” for the borrowers; (2) whether the arbitration clause is “excessively one-sided and lacks mutuality”; and (3) whether the clause prohibits joinder of claims and class actions. Citing uncontested facts, the Court found that the arbitration costs were so excessively high as to be prohibitive – in particular, plaintiffs’ limited financial resources, a provision that required the loser to pay for any arbitration that lasted more than eight hours, a de novo appeal before a panel of three arbitrators (again, with loser to pay), the expected cost of arbitration under the AAA’s administration and rules, and other factors that placed the expense of arbitration at a potentially much greater level than what plaintiffs could face in civil litigation. (In the process, the Court rejected on a number of grounds defendants’ argument that the cost analysis was irrelevant because the arbitration terms had been superseded by the AAA’s Consumer Rules that became effective in March 2002.)
As for the second concern over excessive one-sidedness and lack of mutuality, the Court cut defendants a slight break by saying “the arbitration clause is not as egregious as some” (in particular, those that allow the agreement’s drafter alone to pursue collective actions in court). But then it continued: “Practically speaking, however, the exceptions [to arbitration] appear to be designed far more for the benefit of defendants than for plaintiffs.” In particular, the Court noted how since 1996, when Commercial Credit starting using the loan agreement, defendants had brought over 2,000 collection actions with an average “payoff” of less than $7,000, and not one of the actions had led to arbitration in North Carolina. This apparent avoidance of their own arbitration clause strongly contributed to the Court’s finding. And when combined with the next analysis of how the arbitration clause prohibited class actions and joinder, the final nails were placed in the proverbial coffin of this arbitration clause since both prohibitions deterred potential plaintiffs from bringing and attorneys from taking low damages cases. Which in turn contributed to the one-sidedness of the clause and further tended to benefit only Commercial Credit.
As a result, the plurality of Justices Timmons-Goodson, Brady and Hudson found the arbitration clause unconscionable and reversed the Court of Appeals.[8]
The extent of Tillman’s reach has yet to be determined, but at least currently cases that support North Carolina’s repeated public policy of strongly favoring agreements to arbitrate are still in place – a sentiment that was even recognized in Tillman itself.
III. THE NORTH CAROLINA REVISED UNIFORM ARBITRATION ACT
Arbitration agreements in North Carolina made on or after January 1, 2004 are governed by the North Carolina Revised Uniform Arbitration Act, N.C. Gen. Stat. § 1-569.1 et seq. (the “Revised Act”). The Revised Act may also apply to earlier arbitration agreements upon agreement of the parties “on the record.” N.C. Gen. Stat. § 1-569.3(a)-(b).[9]
If an arbitration agreement does not select any specific rules or arbitration service (called an “arbitration organization” by the Revised Act) to administer the proceeding, then the parties will follow those provisions of the Revised Act which address procedural issues. These provisions are quite general and broad in nature, giving significant freedom to the parties and the arbitrator(s) in determining the manner and course of the arbitration, and to the arbitrator in making rulings that may or may not conform to applicable law or rules of procedure or evidence.[10] See, e.g., N.C. Gen. Stat. §§ 1-569.8 through 1-569.17, 1-569.23 through 1.569-24. A court reserves authority only for certain aspects of the process, including such matters as determining the validity of an arbitration agreement if contested, ruling on any motion to compel or stay arbitration, appointing an arbitrator if the parties cannot agree on selection, consolidating arbitration proceedings, and confirming, vacating, modifying or correcting an award in the manner allowed by statute. N.C. Gen. Stat. § 1-569.1 et seq.[11]
IV. PROCEDURAL OUTLINE, TIPS & TECHNIQUES FOR EMPLOYMENT ARBITRATIONS
Assuming that a valid arbitration agreement exists, and as needed a demand or application for arbitration is made, the following procedural outline, tips and techniques may help in prosecuting or defending a claim as a party – or in serving as an arbitrator.
Claimant or Respondent
1. Determine if the agreement requires a specific arbitral forum, or the use of any specific arbitration rules. Remember that even if an agreement requires the use of certain rules, this does not necessarily mean it also requires using the arbitration service which promulgated the rules.[12]
2. Read any applicable arbitration rules and follow them throughout the arbitration proceeding.
3. The claimant must serve an initial claim on the respondent, or if applicable file an initial claim with the designated arbitration service which will then have procedures for serving the claim on the respondent. Any applicable rules should be followed, including the payment of any appropriate filing fee of the service.
4. The respondent must serve or file a response to the claim in accordance with any applicable procedures. If any counterclaims or cross-claims apply, they should also be alleged and served, using any applicable procedural rules.
5. If an arbitration service is involved, you will normally be assigned a case manager who will handle most of the arbitration administration. Ask how the case manager prefers communications to be conducted (e-mail, fax, regular mail, telephone, etc.), and the type of verbal and written communications he or she expects to be included in or receive.
6. A scheduling notice or order will generally issue from an arbitration service, following the timing established by its rules unless the parties and the case manager agree otherwise. Absent an arbitration service, the parties simply agree on the initial steps and timing.
7. Select a single arbitrator or panel of arbitrators in accordance with the agreement’s requirements and any applicable rules. If you are bound by a particular arbitration service, you will generally choose from its list of proposed arbitrators.
8. Research proposed arbitrators to determine any preferences – usually through private research services and/or by asking other attorneys who have used a particular arbitrator. If you are choosing from an arbitration service list, and no one on the initial list is satisfactory, ask for additional arbitrators from which you can choose.
9. Make sure you discuss and understand the fees and expenses charged by an arbitrator, which may also be governed or at least affected by an arbitration service. Also that you discuss and understand the fees and expenses charged by any applicable arbitration service.
10. Once an arbitrator is selected, an initial arbitration management conference will be scheduled and held – usually by telephone – to review those aspects of the arbitration process that will encourage an efficient and effective process. Areas covered usually include matters such as:
· An overview of the issues being arbitrated;
· Appropriate rules of evidence or other legal standards that will apply;
· Written discovery, depositions, expert witnesses;
· Whether affidavits will be allowed as evidence at hearing, and if so the weight given or not given to them;
· Any confidentiality or protective orders (especially if trade secrets are involved);
· Any preliminary stipulations;
· Whether dispositive motions are expected;
· Whether the parties want to try mediation;
· Deadlines;
· Form of any submissions to the arbitrator;
· Expected date and location for the arbitration hearing;
· Allocation of fees and costs (from attorneys’ fees to the arbitrator’s compensation and any administrative charges by an arbitration service);
· Form of award (“reasoned” or “non-reasoned”, with reasoned awards giving the rationale behind the ultimate decision, citing relevant evidence presented at the arbitration hearing and usually supporting case law).[13]
· Whether pre-hearing and post-hearing briefs will be served (sometimes not determined until the final pre-hearing conference).
11. Be thoroughly prepared for this initial management conference and all other conferences with the arbitrator or case manager. The best preparation is not only to know your case, but to first discuss the process and key issues being addressed by the conference with your client and with opposing counsel for any preferences. As a general rule, the more the attorneys agree on procedural, discovery and certain substantive matters (such as through stipulations), while still of course maintaining their roles as advocates, and the more they simply cooperate and get along with each other, the more efficient and effective the arbitration.
12. Follow any requirements for the form and manner of notices, subpoenas, service of discovery requests, production of documents and other discovery responses, and other communications. Make sure that agreement is reached on the extent that e-mail and scanned correspondence or other documents are acceptable or even preferred, and that copies are sent to the arbitrator or case manager as appropriate.
13. Similar to a court, an arbitrator usually does not want or receive copies of any discovery requests, responses or deposition transcripts during the discovery phase absent an issue for which the arbitrator’s ruling is sought.
14. As a general rule, no ex parte communications with the arbitrator are allowed. In addition, no substantive ex parte communications with a case manager should occur, although clarifying certain procedural or similar issues does not have to involve other parties.
15. Any motions or requests for specific action, including any request for relief from an order, should be directed to the arbitrator or the arbitration service, as may be appropriate in a given situation.
16. Remember that if using an arbitration service, there may also be applicable fees for various requests, motions, objections or other specific aspects of the arbitration proceeding.
17. Before the actual arbitration hearing, there is usually a pre-hearing telephone conference to cover various aspects of the hearing – such as time, location, expected number of witnesses, arranging for a court reporter, exchange of exhibits and any exhibit notebooks for opposing parties and the arbitrator, use of any electronic technology at hearing, and similar procedural matters. The parties should also confirm or decide on whether prehearing and post-hearing briefs will be served, and whether a reasoned opinion is desired.
18. By a certain date before the arbitration hearing, the parties will normally exchange a list of all witnesses expected to testify (often including a summary of their testimony), a list and description of all exhibits expected to be introduced into evidence, and a copy of all documents and a description of any tangible evidence to be introduced. Affidavits, admissions or stipulations establishing the authenticity of any documentary exhibits are also usually done.
19. Any objections to a party’s prehearing exchange of information, or any evidentiary or procedural rulings that need to be made, should be immediately served on the opposing party and the arbitrator, following any applicable arbitration service rules. (Similar to the motion in limine process in civil court.)
20. A typical arbitration hearing lasts one or more consecutive days, and sometimes breaks for a recess before reconvening days or weeks later for the conclusion of evidence. Hearings often involve the following elements:
a. Introduction by arbitrator.
b. Claimant and respondent give opening statements (respondent may reserve until its own case in chief).
c. Claimant presents testimony, exhibits into evidence.
d. Respondent presents testimony, exhibits into evidence.
e. Any rebuttal evidence is presented.
f. Claimant and respondent give closing arguments (also called “summation”).
g. Arbitrator makes final remarks to close the hearing, and gives expected date of issuing a decision or ruling – normally called an “award.” If post-hearing briefs are submitted, and a reasoned opinion has been requested by the parties, the date will generally be longer than if no briefs or reasoned opinion apply. Further, the arbitration agreement or any applicable statute may provide a deadline for issuing the award, which is usually subject to change by agreement of the parties and the arbitrator.
h. Especially if post-hearing briefs are submitted, transcripts of the arbitration hearing testimony are usually ordered from the court reporter and referenced as appropriate in the briefs.
i. If applicable, post-hearing briefs are written and submitted to the arbitrator.
j. Arbitrator issues the award and serves the parties with a copy.
k. Winning party seeks to confirm the award in a court of competent jurisdiction, and in accordance with applicable court rules and any arbitration statute. Losing party may petition the arbitrator for reconsideration, or may move to modify or correct the award. Losing party may also oppose confirmation and move to vacate the award – usually on one or more limited grounds as enumerated by statute, such as corruption, fraud, evident partiality, misconduct, exceeding the arbitrator’s powers, or challenging the agreement to arbitrate (assuming an earlier objection was preserved). Significantly, the arbitrator’s mistake or even clear “error” in interpreting law or facts based on evidence at the hearing is normally not sufficient grounds to oppose confirmation. See, e.g., N.C. Gen. Stat. § 1-569.20 through 1-569.24 (confirmation and post-award procedures).
l. A party may appeal a final court determination regarding an arbitration award to the appropriate court of appeals. Grounds for appeal are limited, and are normally governed by statute. See, e.g., N.C. Gen. Stat. § 1-569.28 (enumerating six grounds for appeal).
21. Remember that an arbitration hearing is similar to a bench trial in civil court, and the arbitrator will encourage most steps that contribute to a streamlined presentation of evidence. As a general rule, impassioned appeals to emotion, unnecessary cumulative evidence to repeatedly emphasize a point, “grand-standing” as if to impress a jury and other tricks of the trial lawyer’s trade – whether as plaintiff or defendant – make little impression upon the arbitrator and could have an opposite effect. That being said, appropriate emotion, impassioned argument and corroborating evidence may have a place in any given arbitration, but be circumspect and remember your audience.
22. As most arbitrations occur in relatively informal settings, such as in conference rooms rather that courtrooms, expect a somewhat relaxed atmosphere where civility and professionalism are expected and voices are rarely raised – at least not by the lawyers.
Arbitrator
1. Read the arbitration agreement.
2. Read and follow any applicable rules governing the arbitration.
3. If an arbitration service applies, communicate with the assigned case manager and determine the best manner to coordinate with the manager and the service.
4. Have an agenda – or at least a plan – for administrative and pre-hearing conferences, whether by telephone or in person, and consider at least informal time limit goals for each topic to be covered. Although you need to allow for a certain degree of flexibility, try to stay on course with your agenda/plan.
5. Encourage and expect attorneys to be professional, courteous and to try and work together in order to resolve disagreements over issues related to the arbitration before seeking help from the arbitrator. But also recognize that arbitration is still an adversarial proceeding, and sometimes disagreements simply must be submitted to you for resolution.
6. Be well-prepared, thoroughly read and consider any written briefs or other memoranda prepared for your review, and be properly interested in and engaged in all conferences and the arbitration hearing. At all times return the same respectful professionalism to the parties that you expect from them. Remember, you are the arbiter of their dispute, and with that comes significant responsibility.
7. Be willing to make difficult decisions presented to you by the parties. And when one party actually deserves to fully win or lose – whether as to a preliminary motion or the ultimate issue at hearing – be willing to rule as appropriate without some type of “baby-splitting.”
8. Schedule the final pre-hearing conference at least 30-60 days in advance of the hearing. Encourage the parties not to submit any dispositive motions unless there truly are no material issues of facts being made, and to submit any motions in limine sufficiently in advance of hearing to where a ruling can be taken into account for trial preparations.
9. For documentary evidence at hearing, consider the following:
· Ask how documents will be presented at the hearing (separately, in notebook binders, electronically, etc.);
· Consider asking the parties to agree on common documents and coordinate exhibit numbers for them;
· If the parties can’t agree on documents being entered, consider not having pre-numbered exhibits (unless you’re fine with numbered exhibits seemingly in random order);
· If the parties are using multiple notebook binders of documents, consider asking them to use different colored binders to help differentiate between the parties and expedite locating exhibits;
· Make sure there is a separate notebook or set of applicable documents for the witnesses;
· Consider having parties submit their lists of exhibits, and where all are using the same exhibit ask if they will stipulate as to its admissibility;
· Consider asking whether one common notebook of exhibits would be appropriate to help expedite the hearing.
10. Other “time savers” may also be appropriate at the hearing, such as timelines, summaries of witnesses and their expected testimony, and limiting the length of supporting briefs.
11. Issue all rulings and awards in a thoughtful, timely manner that honors the agreed upon scheduling.
12. Be fair, impartial, and able to set aside any preconceived notion or your own historical emphasis as an attorney in a specific practice area.
[1] Various studies have been made in recent years supporting the conventional wisdom rather than the reality check by employment lawyers. See, e.g., “Employment Arbitration – What Does the Data Show?”, The National Workrights Institute, 2004 (supporting view that arbitration is faster and cheaper for the litigants); Mark Fellows, “The Same Result As In Court, More Efficiently: Comparing Arbitration And Court Litigation Outcomes,” The Metropolitan Corporate Counsel, July 2006 (examining data from California consumer arbitration cases that show a faster, cheaper process than court litigation).
[2] See, e.g., “Employment Arbitration – What Does the Data Show?”, supra (recognizing that the median and mean size of jury awards appear to support the position that arbitrators award plaintiffs less compensatory and punitive damages than juries do, at least in large cases, while acknowledging that in smaller cases and even certain larger ones the awards might actually be higher in arbitration, especially if post-trial motions and appeals are considered); see also Fellows, “The Same Result As In Court, More Efficiently: Comparing Arbitration And Court Litigation Outcomes,” supra (citing California statistics showing that individuals prevail at similar rates in consumer arbitration as they do in court).
[3] Courts have increasingly examined the allocation of actual or potential arbitration costs to employees in determining whether an arbitration agreement is enforceable. Case law shows that any arbitration agreement which makes or has a reasonable potential of making arbitration a much more expensive process for employees than the court system runs a significant risk of being declared “unconscionable” and therefore void and unenforceable. See, e.g., Tillman v. Commercial Credit Loans, Inc., 362 N.C. 93, 655 S.E.2d 362 (2008) (holding consumer arbitration agreement unconscionable and therefore unenforceable based in large part upon provisions that required the loser to pay all costs of arbitration, which made the potential expense to the individual consumer “prohibitively high” and therefore substantively unconscionable as a matter of law).
[4] Other courts have clarified that Gilmer’s principles also apply to administrative charges with state deferral agencies working in tandem with the EEOC. See, e.g., Equal Employment Opportunity Comm’n v. Ralphs Grocery Co., 300 F.Supp.2d 637, 639-40 (N.D. Ill. 2004) (recognizing that the statutory authority conferred upon the EEOC to investigate discrimination charges transfers to a state deferral agency operating as its agent, such as the Illinois Department of Human Resources, and therefore arbitration agreements do not preclude individuals from filing charges with the deferral agency as well).
[5] Whether any state or federal case allowing the arbitration of employment and certain other disputes survives the proposed Arbitration Fairness Act of 2007 (H.R. 3010; S. 1782) now pending in Congress remains to be seen. If passed in its current form, this Act would amend Chapter 1 of Title 9 of the U.S. Code to inter alia invalidate any predispute arbitration agreement concerning employment, consumer or franchise claims.
[6] Brevorka involved an arbitration agreement that not only referenced AAA rules, but also allowed the corporate drafter of the agreement to designate the arbitration service to be used, required plaintiffs to pay the cost of arbitration when filing their claim, and made plaintiffs indemnify defendants for any pre-dispute resolution litigation costs and fees. None of these conditions were placed on the corporate defendants, and none were sufficient to invalidate the arbitration agreement. Brevorka, 155 N.C. App. at 355, 573 S.E.2d at 658.
[7] See also Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 549 (4th Cir. 2001), which addressed an arbitration agreement that included a fee-splitting provision. In doing so, the court discussed general principles of when such provisions might be problematic, and recognized that jurisdictions are split over whether fee-splitting clauses by themselves render arbitration agreements unenforceable. Refusing to follow such a bright-line rule, the Fourth Circuit adopted a case-by-case analysis and determined that, at least in Bradford, it did not. Id. at 553.
[8] Note: The concurring opinion by Justice Edmunds, joined by Justice Martin, and the dissenting opinion by Justice Newby, joined by Chief Justice Parker, are also interesting reads. Justices Edmunds and Martin remind the plurality of the deferential standard that should have been given to the trial court’s findings, which held the arbitration clause to be so unequal as to “shock the judgment of a person of common sense” and its terms “so oppressive that no reasonable person would offer it on the one hand or accept it on the other.” Justice Newby and Chief Justice Parker question the practical effect of the plurality’s decision on the way in which business is conducted, and remind them of “bedrock principles of contract law which should not be disturbed in response to policy concerns over a disfavored industry” – as well as an argument of federal law preemption through the Federal Arbitration Act that strongly suggests that someone should test the federal courts on this issue.
[9] Arbitration agreements entered into before January 1, 2004 are governed by the North Carolina Uniform Arbitration Act, N.C. Gen. Stat. § 1-567.1 et seq., which was repealed when the Revised Act became effective.
[10] According to the Revised Act, the “rules of evidence shall not apply in arbitration proceedings, except as to matters of privilege or immunities.” N.C. Gen. Stat. § 1-569.15(f).
[11] See also Rule 12 of the North Carolina Rules Implementing Statewide Mediated Settlement Conferences and Other Settlement Procedures in Superior Civil Action, which provide rules for arbitration through the court system upon motion of the parties to utilize the process as a form of alternative dispute resolution.
[12] But be sure to read the applicable rules for any contrary requirement. For example, Rule 2 of the AAA’s Employment Dispute Resolution Rules (as amended November 1, 1993) provides the following: “When parties agree to arbitrate under these rules, or when they provide for arbitration by the AAA and arbitration is initiated under these rules, they thereby authorize the AAA to administer the arbitration.”
[13] Parties involved in any substantial arbitration proceeding normally want a reasoned opinion. That opinion may also be used in any subsequent motion to confirm, vacate, modify or appeal an award, although as discussed earlier in this article the grounds for doing so are usually greatly limited by statute regardless of whether the arbitrator properly followed legal precedent. Reasoned opinions also help educate the parties in their claims or defenses, and why the arbitrator ruled as he or she did – which helps the losing and prevailing parties understand the ruling, and may especially help employers in terms of avoiding similar disputes in the future.