Navigating the American Arbitration Association’s Employment Rules
The Basics of AAA Employment Arbitration
The American Arbitration Association ("AAA") is an independent, not-for-profit service that is designed to provide conflict resolution services for individuals and organizations. The AAA administers a number of different sets of Rules for various areas of legal dispute resolution; one such set is specifically geared towards employment disputes. The employment arbitration rules are designed to be flexible, in order to accommodate the fact-finding needs of the parties and to tailor the process to their particular needs. The AAA’s Model Employment Arbitration Rules are included as Appendix A to this guide.
Most often, the employer will choose to apply the AAA’s employment rules to the arbitration, and indeed, the use of the AAA rules is preferred by most employers and employees. First, the AAA as a neutral party helps avoid the potential bias or perceptions of bias that may arise in arbitration before the arbitration begins . Additionally, the AAA sets the rules for and selects the arbitrators. The arbitrators selected by the AAA are bound by the AAA’s "Code of Ethics for Arbitrators in Commercial Disputes" and must abide by the relevant Model Employment Arbitration Rules. The Code of Ethics for Arbitrators states that an arbitrator shall "be independent and impartial and shall so act."
While some may argue that before an arbitrator is selected the process is inherently biased toward the employer, this comment is based on the theory that the process is inherently biased in favor of the party that selected the arbitrator. This is simply not the case when the arbitrator is selected by the AAA.
Rather, the process is designed to be fair to all parties, from the process of selecting an arbitrator to the final arbitration hearing.
FAQs: Features of AAA Employment Rules
The American Arbitration Association (AAA), the nation’s largest private dispute resolution provider, has adopted a streamlined set of rules specifically applicable to employment disputes (the "Employment Rules"). Most business litigation attorneys and many employment lawyers already have some familiarity with the AAA’s Commercial Rules, Rules for Consumer Arbitration, and/or Construction Industry Rules, but may not have previously reviewed the Employment Rules. Unlike the Commercial Rules, the Employment Rules are not voluntary but mandatory for any claim involving employment disputes(s) arising out of an agreement that incorporates the rules by reference. While some of the Employment Rules may look familiar to many employment lawyers, some do differ significantly from those found in the Commercial Rules, so when entering into employment arbitration agreements, the parties would be wise to carefully review the full set of rules.
Here are some of the key features of the AAA’s Employment Rules:
Pros and Cons of Pursuing a AAA Claim
The American Arbitration Association has been used in employment disputes for many years. The organization is quickly recognized as a respected source of dispute resolution expertise. A significant amount of the AAA’s work is devoted to employment cases, including unions and collective bargaining.
One of the most appealing benefits of the use of AAA in employment matters is their administrative experience. With countless hours resolving matters between opposing parties, the AAA provides a large pool of neutral experts. If a specific industry is involved in your employment matter, the AAA can suggest one. The use of the AAA generally provides a faster resolution. The selected arbitrator may have pro bono days set aside. Even if that isn’t currently the case, the administration of the program will move forward more quickly than litigation. A small business may not have the legal staff to be involved in litigation for long periods and would need an attorney at an hourly rate. The same amount of money and time spent for the selection process and hearing would allow the dispute to move much faster toward resolution.
Cost savings are also a major benefit to the use of the American Arbitration Association. Most of the costs are predictable. The arbitrator has the ability to decide on premotions, and the number of witnesses involved based on what is needed for a just result.
Preparing for an AAA Arbitration Hearing as an Employee
The first step to preparing for an AAA arbitration as an employee is to review your employment contract and its arbitration clause. An employer would be foolish to enter a contract with an employee that did not contain an arbitration clause, because of the significant benefits offered by arbitration over litigation. Therefore, the odds that you will have to prepare to arbitrate in front of a AAA arbitrator, rather than a judge, are probably substantially higher than 50 percent. The next step after you have determined that you are going to arbitrate your employment claim is to examine what "rules" are going to apply to your arbitration. There are essentially two levels of rules that might apply.
First, there might be a specific arbitration provision in your contract that requires you to arbitrate under either the Employment Rules or the National Rules. If your contract specifically requires you to use the Employment Rules, and the claim involves an allegation of an employment discrimination, there are two options for selecting the arbitrator. First, you can select an arbitrator from a "listing" provided by the AAA. Second, you can select a mutually agreeable arbitrator. The general criteria for arbitrators under the Employment Rules are that the arbitrator must be impartial and independent, and have substantial experience as an employment law attorney. In contrast, if your contract required you to arbitrate using the National Rules, you would have the choice of selecting an arbitrator on either a listing or "mutually agreeable basis" that is competent in the subject matter of the dispute and independent and impartial. And, if the selection of an arbitrator is not mutually agreeable, then the parties would be required to select arbitrators who are experienced in the commercial or construction area.
Next, the AAA also places limits on the length of the materials that can be submitted to the arbitrator for the hearing. If your ("employee") pre-hearing submission exceeds 20 pages, the AAA will charge each side $1,000 for each additional 25 pages. The employer’s (or "respondent’s") pre-hearing submission is limited to the lesser of 20 pages or $5,000 per AAA rule 35(c). Accordingly, if you expect your materials to be quite lengthy, it is a good idea to review your expected points and evidence with an attorney that is experienced in the relevant area of law. This may allow you to better focus on the issues that are truly in dispute, and eliminate issues that require a more formal presentation to conclude that a party did not establish that issue.
Real World Examples of Resolved Claims
The diversity of the parties who opt-out of litigation and choose to arbitrate is a key area where the AAA’s Employment Rules shine. The following are a couple of examples, based on real AAA employment arbitration cases, where parties from different employment backgrounds successfully resolved their disputes through arbitration.
Case Study – Private Employer
A small business manufacturing company and its former employee arbitrated pursuant to the terms and conditions of the Employment Arbitration Rules and Mediation Procedures for Employer and Individual Employee Disputes (the "Employer Rules") to resolve a dispute arising out of a workplace separation.
The Claimant lessor (the "Claimant") filed a demand with the AAA alleging the Respondent-lessee unlawfully terminated his lease agreement and charged him for damages. After filing his demand for arbitration and paying the $200 filing fee, the Claimant properly appointed his co-arbitrator pursuant to the Employer Rules and waited for his Respondent to appoint her co-arbitrator.
Noting the Respondent failed to appoint a co-arbitrator, Claimant filed a motion before his single arbitrator – requesting he be allowed to select an arbitrator of equal stature in accordance with the Employer Rules. Claimant’s arbitrator granted his motion. Importantly, the Claimant amended his demand for arbitration to replace the two-pronged nominal filing fee paid by employees – with payment of a $1,500 filing fee (matching his former employer’s administrative processing fee).
Case Study – Public Sector Employer
In a somewhat similar fashion , an individual employee alleging wrongful termination submitted a demand for arbitration against a public entity-employer pursuant to the rules governing administration of a claim against a governmental entity. The parties in this case seemed to encounter some of the shortcomings discussed above when addressing the circumstances of their dispute. For instance, the parties’ communications to the AAA seemed to indicate an initial agreement on the governing rules and procedures – only to depart from them subsequently.
The parties did not file any documents pertaining to their arbitration services contract and no filing fees were addressed at the commencement of the arbitration. Accordingly, both parties submitted their statement of claim (Defendant as counter-claimant) without fully addressing the issues contemplated in Section 6 of the AAA’s Supplementary Rules for Non-Title VII Employment Dispute Resolution. While one issuer for the parties to address in their arbitration was their failure to state the applicable Administrative Fee for claims under the Supplementary Rules for Employment Disputes Not Covered by the Fair Labor Standards Act (FLSA), they took action in accordance with the guide to management released by the AAA (Section 8).
In sum, the parties appearing before the ADA for management of their initial dispute went on to administer their arbitration and Form 1 in accordance with the supplementary rules outlined above. After a full written exchange of pleadings, exhibits and arguments before a single arbitrator – the claimants in this arbitration concluded with a monetary award but no accompanying opinion from the arbitrator.
While it is impossible to anticipate all of the variables in the circumstances of a given employee/arbitrator dispute – the above claims provide some insight into the decisions, opinions and expectations that inform the ultimate resolution of disputes resolved through AAA proceedings.
Drawbacks and Controversy of AAA Employment Rules
Challenges and Criticism of American Arbitration Association Employment Rules
While many employers and employees choose to use the AAA’s rules to resolve their employment disputes, there is a significant body of research that shows, in some employment cases, the assumptions about neutrality, bias, and flexibility are not being met.
For some of the frequent criticisms of AAA arbitration are:
Profit motive – Employers who insist on arbitration clauses may be doing so because they expect the process to be less expensive and less formal than court. But because the AAA is a private company and not a federal or state agency, the arbitrators are paid by the parties to the dispute. The more complex the dispute, the more hours the arbitrators will spend and the more they will be paid. There is even concern that the more a case has the potential for appeal, the more the arbitrators will charge because of the greater length and strain such litigation puts on their schedules.
Procedural abuse – Some participants in the AAA process have found that the procedural choices and rules favor the employer, because the arbitration agreement was drafted by the employer. More specifically, arbitrator selection is difficult for the party that is not familiar with the process, such has the employee or claimant. In addition, the rules do not always allow for joinder of multiple parties when they are not part of the same arbitration agreement. To be clear, it is also possible for the rules to favor the employee or claimant, but research has found that procedural constraints are most commonly disadvantageous for employees.
Lack of transparency and accountability – One of the most significant criticisms of AAA arbitration is the lack of transparency and accountability built into the process. While courts are required, by law, to publish much more of their process, the AAA only makes public those decisions it deems a "reasoned award," which basically means the arbitrator did not decide in favor of the employee. There is also the concern that as the number of claims or awards increases, so too does the perception that the AAA has a qualitative interest in the awards it issues.
Parties that want to avoid these concerns can:
- Inform the arbitrator at the outset of the hearing that you expect him to take extra time to ensure that he gets the procedure right — it is very common for both sides to request that the umpire allocate extra time for this purpose at the start of the hearing.
- Carefully consider the costs associated with the arbitration and plan accordingly.
- Take advantage of all opportunities to share research with the AAA, such as the AAA’s online resource center, reports they publish, information on drafting, and telephone and email assistance from the AAA.
- Avoid being too attached to form and instead focus on being fair — sometimes the reality of the system requires compromises to ensure that the process overall runs smoothly.
Emerging Trends in Employment Arbitration
The AAA will continue to expand its employment rules and provide new products and services, such as its new panel of Neutrals and panelists who are senior labor employment attorneys and/or unbiased neutrals. There will also be growth in the availability of confidentiality agreements as well as provisions for appointing arbitrators with expertise in confidentiality. The future will also be to expand the "AAA Rules for Resolution of Employment Disputes (June 1, 2005)" to all claims not covered by the National Labor Relations Act. There may also be growth in the use of corporations, agencies and professional associations as entities to administer employment disputes.
There will also be steady growth of case volume and increased complexity of employment disputes. This may involve particular types of workforces where a single workplace is comprised of both employees and independent contractors. There will also be more racial , ethnic, and religious diversity in the workplace. There might be improvements in class action waivers, so that employment disputes are not automatically resolved in multiple arbitration proceedings. A great deal of study might surround research into the efficacy of employment dispute resolution programs, to understand what role mediators and arbitrators play in employee retention through improved communication between employers and employees. What is the role of workplace ombuds in the United States and how do they interact with other ADR processes? Will there be more evaluative mediations using artificial intelligence? How will the AAA and its affiliates respond to all these changes in workplaces?