How AAA Employment Rules Work
Over the last century, the American Arbitration Association ("AAA") has become the largest private alternative dispute resolution (ADR) organization in the world. It not only administers programs for international arbitration, domestic arbitration, and mediation, but it also oversees specialized dispute resolution institutions and provides dispute resolution services for numerous different industries. The AAA oversees over 300,000 new cases on average every year.
The AAA boasts that it has helped resolve a staggering 4.5 million disputes since its inception and has made great strides in advancing dispute resolution in modern society. It continues to work diligently at improving the integrity and efficiency of dispute resolution. Its powerful mechanism for settling disputes outside of court has empowered companies and individuals to pursue their claims in a safe and secure manner while ensuring that their dispute is resolved in a timely and effective manner.
The AAA has also contributed to policy concerns by speaking out against the overreaching of the Judicial Panel on Multidistrict Litigation and similar federal and state court initiatives. The AAA is fiercely devoted to its mission of delivering high-quality, efficient dispute resolution services to corporate entities and consumers.
The AAA employment rules provide a neutral forum to resolve disputes that arise between employers and employees . This forum is available to individuals, governments, associations, and other legal entities. It is well established that the scope of arbitrable disputes is significantly broader than what is typically considered appropriate for a judicial forum. Courts have held that the Arbitration Act can be used to provide arbitration for all but those disputes that the law specifically excludes from its coverage, such as claims that are statutorily non-arbitrable. In general, the courts have held that arbitrators should have the authority to develop a record and to make determinations of fact and law. As such, such employment-related claims have fallen under the purview of the AAA.
These rules set forth the procedures and rules that govern the arbitration of disputes related to employee matters. They do not, however, amend or amend any substantive law. Rather, they set forth procedural rules. Arbitration under these rules must be conducted by a neutral party and must be administered in accordance with procedural rules and administrative processes that are established by the AAA.
One of the major objectives of the AAA employment rules is to ensure that the parties get a fair opportunity to resolve their dispute in an efficient manner. In efforts to achieve this objective, a number of resources are available to individuals during the process. These resources include a library of relevant information, access to exhibits, and data bases.
The Organization of Employment Arbitration Under the AAA
The AAA employment arbitration process begins with a preliminary step that usually involves a response to a complaint filed with the Equal Employment Opportunity Commission or the state agency equivalent. At that stage, the employer already has determined that the matter is suited for arbitration. The employer files a notice of arbitration with the regional office of the American Arbitration Association in either Atlanta or San Francisco. The formal notice required is set forth in Rule 7 of the Employment Arbitration Rules and Mediation Procedures. Companion rules governing the selection and appointment of arbitrators are set forth in Employment Arbitration Rules 11 through 20. In most cases, the parties will have previously agreed to these rules by incorporating them into an employment agreement or a policy handbook directing disputes to arbitration. Upon receipt of the notice of arbitration, the AAA notifies all parties involved with the name of the regional office where the arbitration will be administered. The parties then have 14 days to select one arbitrator from the separate list of arbitrators maintained in each regional office. They will have consulted with any method of appointing arbitrators provided in a written employment agreement or policy handbook when deciding on an arbitrator. If the parties have failed to select an arbitrator and proceed to the end of the 14-day period, the AAA will follow the method for appointing an arbitrator set forth in the rules of the specific regional office. The regional reference is important because it determines the time deadlines which will govern the process once the arbitrator is appointed. For the Mid-Atlantic, New England, Southeast, and Southern California regions, the clock begins ticking 14 days after the arbitrator is appointed. The parties must provide an initial list of issues for arbitration and any necessary documentary information within that 14 day period. For other regions of the United States, from the time the initial list is provided, the parties have only 14 days to submit any additional information necessary for the arbitrator to complete his initial determination of what factual issues will be arbitrated. In the Central, Great Lakes, Northwest, Southwest, and West regions, the parties then have 20 days to submit their opening statements. During those 20 days, the parties can exchange documents, ask for other documents to be produced, and take witness depositions. In the two remaining regions (the Northeast and the Verdugo regional office in the Los Angeles area) the parties have 21 days to submit their opening statement, and document discovery and witness depositions are not permitted during this period. For all regions of the United States, the AAA is responsible for scheduling the arbitration hearing by distributing an agenda from which the parties can mutually agree on dates.
Provisions of AAA Employment Rules
Although the American Arbitration Association rules were substantially revised in 2007, the vast majority of provisions remained unchanged. The following are some of the most critical provisions relating to the rights and responsibilities of the parties in the arbitration:
- Service of Documents: The parties are required to make every attempt to ensure that all documents are served on opposing counsel contemporaneously with the filing.
- Location of Arbitrator: The "place of business" of the party who files has the option of choosing the place where the arbitration will be conducted.
- Fees: There are a number of fees associated with AAA arbitration.
- Arbitrator Compensation: This is stated as being agreed to and is more difficult to discern than the regulations state.
The Purpose of Arbitrators in Employment Arbitration
In American Arbitration Association ("AAA") employment disputes, arbitrators selected for the cases are usually either subscribed to AAA’s list of employment arbitrators (whereby the AAA provides a list of qualified arbitrators to the parties and gives them an opportunity to reject certain candidates, or to opt in to AAA’s mutually acceptable service whereby they can each propose a list of qualified arbitrators, and then have an opportunity to concur with one another in selecting one) or they are AAA arbitrators who have been selected by the parties because of their special expertise in certain employment-related issues. The arbitrator is the decision maker after gathering evidence and hearing the parties. The arbitrator has the authority to decide any preliminary procedure requests, like ordering disclosures or motions regarding discovery. They can also decide the timeliness of the claim, preliminary issues regarding statute of limitations, what evidence and experts will be used, etc.. The importance of the composition and selection of the panel which will hear the arbitration is irrefutable. It should be taken very seriously. Selecting the arbitrator can be critical, and may be determinative of the outcome.
Advantages of Using AAA in Employment Disputes
The American Arbitration Association ("AAA") provides a streamlined process, procedural guidelines, and a panel of arbitrators with subject matter expertise to efficiently resolve employment disputes. Employment disputes resolved through AAA arbitration have the distinct advantage of being confidential, cost-effective, efficient, and flexible.
First, cost-effective – in many instances, resolving employment disputes through AAA arbitration is more cost-effective than litigating in federal or state courts. The parties generally bear the costs of filing fees associated with AAA arbitration. In addition, the parties can negotiate and agree to share the costs of a transcript (should one be needed), AAA administrative fees, and arbitrator compensation and expenses* in its arbitration agreements.
Second, confidential – the AAA rules mandate confidentiality. Generally speaking, parties involved in AAA arbitrations are required to keep the proceedings confidential, barring statutory or legal exceptions. For example, under Rule 30 of the Employment Arbitration Rules and Mediation Procedures, "no party may disclose the proceedings or any part thereof, including any preliminary hearing, to any person not connected therewith . . . ." Moreover, unless the parties stipulate otherwise, the AAA rules impose confidentiality on the award, which shall be released only on notice from the AAA to the parties, unless housekeeping or non-substantive details in the form change. The danger in discovery abuse founded on illusory allegations of trade secret misappropriations, unfair competition, and other business torts can be mitigated by arbitration . The law does not permit discovery related to discovery in arbitration. Discussion at pre-arbitration meetings, between co-workers, and in court filings to the extent allowed by judicial economies, are all shielded from public access.
Third, expedited – AAA arbitrations are typically completed in approximately six to twelve months, depending on the backlog of arbitrators, availability of parties, procedures, and arbitrator availability. The expedited timeline allows an arbitrator to immediately address the employer’s business interests, such as wrongful termination, discrimination claims, stole trade secrets, etc.
Fourth, flexible – the AAA arbitrator has the flexibility to rule on substantive and procedural issues, and not be hamstrung by technicalities and procedural rules governing litigation in courts. The AAA arbitrator can determine whether a particular claim or defense is ripe for arbitration, manage the discovery process, and resolve substantive issues of liability and damages in the same proceeding.
In sum, the AAA offers parties commencing arbitration an efficient and versatile procedure for resolving disputes without incurring increased litigation costs. Compared to the litigation process, the AAA ensures inexpensive, confidential, speedy, and flexible arbitration.
* Like federal and state court actions, the parties are responsible for the arbitrator’s fees (i.e., arbitrator compensation). Unfortunately, an arbitrator’s fees cannot be awarded by a court. Fees may only be awarded under certain limited circumstances, such as where statute or a contractual agreement would authorize such an award.
Disadvantages and Problems with The AAA
Despite the fact that employment arbitration is generally accepted and supported by courts, these agreements and their enforcement have not been without their challenges. One of the most common issues arising from employment arbitration agreements are whether they are truly fair and neutral, and whether the AAA can really fit into the role of a neutral enforcer of supposedly neutral contracts. In Dukes et al v. Wal-Mart Stores, Inc., the U.S. Supreme Court recently ruled that an employment arbitration agreement can not be used to defeat thousands of plaintiffs’ class action claims. This Nation-wide ruling questions the enforceability, legality and neutrality of individual arbitration agreements, as in these class actions, the very purpose of such agreements is to avoid unlawful discrimination, ensure equal pay and assume consistent employment practices. If thousands of employees are excluded from a helpful class action because their employer has an invalid arbitration agreement, the purpose of the agreements themselves may be questioned.
There is also the concern that underfunded employees may not be able to afford the arbitral fees required by the AAA, which would mean that even valid arbitration agreements would be worthless as long as people could be denied access to the court system by the conditions required by the AAA.
To support this idea, consider the situation in Blanton v. Maxim Healthcare Services, Inc., in which an employee sought to challenge the enforceability of her arbitration agreement on the grounds that it violated public policy and unlawful discrimination. Ultimately, in September 2011, the court in this case ruled that the employee could not be compelled into arbitration because the rules set forth by the AAA were "injurious to employees." These rules had been designed to mitigate the impact of litigation expenses by reducing the fees an employee would be required to pay in order to participate in arbitration. Instead, the fees were unnecessarily high and the guidelines were irrational. Such high fees would have a disproportionate impact on plaintiffs such as Blanton, who earned low wages compared to those who would have been able to afford the fees. Blanton’s argument was that the fees and the AAA rules effectively limited and restricted her and others like her, from pursuing their claims in an arbitral forum. The court also criticized the common practice of relying on a lengthy set of guidelines as opposed to trying to codify the conduct that is expected from parties when pursuing claims with the AAA.
The standards set by the AAA and the courts to uphold employment arbitration agreements as fair and neutral is limited by the failure to consider the impact on the employee as an individual, not as a group.
Trends and Changes Within the AAA
Based on the foregoing, it is no surprise that AAA employment arbitration rules were selected as a DOL model. In fact, the AAA also was selected as one of four authorized providers of ADR services in August 2000, for the Department of Defense, ultimately being awarded a $30 million contract to administer the ADR program. (81)
The foregoing selection of the AAA as an ADR provider for both the DOL and the Department of Defense supersedes the selection of FINRA (then NASD) as the exclusive ADR provider for the DOL.
Since the reinvention of its employment arbitration rules in 1992, the AAA has not made any major revisions to those rules until recently.
In 2013, the AAA amended its Commercial Rules, Consumer Arbitration Rules, and Labor Arbitration Rules. Now, the AAA has again amended its Employment Rules. In addition to provisions regarding consolidation similar to those found in the Commercial Rules, the new Employment Rules address application and appointment procedures, disclosure requirements, arbitrator immunity, interim measures, selection of hearing dates and location, determination of fees and compensation, and arbitrator authority. Although the AAA’s Administrative Fees Schedule applies to each employment matter filed at the AAA, a cost-sharing formula now applies to "any claim or counterclaim of at least $5,000" – essentially, all employment claims up to $100,000 are subject to an equal sharing of administrative costs (hundreds of dollars). (82) For claims or counterclaims in excess of $100,000, the cost-sharing formula caps at $30,000 for a neutral arbitrator and $40,000 for a panel of arbitrators. (83)
By comparison, the AAA charges $250 per hour of service for payment of each arbitrator in a labor case and has no limits on the number of hours an arbitrator may work on a labor case. It also charges fees comparable to the cost-sharing formula for employment cases. (84)
With these changes, the AAA is levying significantly lower fees on employment arbitration compared to labor arbitration, which appears to be the target of the AAA’s revisions to its Employment Rules.
Interestingly, the DOL’s proposed rule on ADR did not address arbitration, but instead focused on the availability of a jury trial in the one institution it regulates , the EEOC. Like the AAA standard for employment disputes with value less than $100,000, the DOL’s NPRM also capped the ADR program to the same $100,000 limit for EEOC cases with other agencies. Finally, the DOL’s NPRM also applied the same cost-sharing formula proposed by the AAA. As of this date, however, the DOL’s NPRM has not resulted in the new final rule – and DOL’s support of ADR appears to have ended there.
The AAA recently has published its Annual Employment Arbitration Surveys which, for the first time, contains information on the demographics and the information practices of the arbitrators and mediators used by the parties. These statistics are designed to further promote the effectiveness and quality of the AAA’s services. For instance, 93% of surveyed arbitrators and mediators had law degrees and an even larger percentage of sampled neutrals participated in continuing legal education and professional organizations. (85)
Based on the foregoing, it is important to realize that while parties have been provided with more options for arbitration through the AAA’s administrative rules, parties to employment disputes must still turn to the courts to seek review of arbitration awards where the arbitrator’s decision is widely viewed as a close question. (86)
For example, in Allen v. Citigroup, the Fifth Circuit Court of Appeals vacated an arbitrator’s decision which granted a race discrimination claim without any mention of the employer’s evidence or arguments – a violation of the neutrality requirement. (87) Similarly, in Blanton v. Dominguez, the Fifth Circuit vacated an award because the arbitrator refused to recuse himself after a direct challenge to him (on the grounds of lack of impartiality) was made by the losing party, even though the challenge was untimely. (88)
Because of the rarity that review is granted to arbitration awards, it is more important than ever that parties to employment disputes select qualified arbitrators, in the hope that the case will not be turned over to judges, like the AAA’s proposed fee increase will allow defendants to do, just to preserve their Constitutional right to have a neutral adjudicator reserve judgment in their favor.