Mandatory Arbitration: Why Alternative Dispute Resolution May Be the Most Equitable Way to Resolve Discrimination Claims

Abstract

The number of employers that require employees to agree to mandatory arbitration of disputes as a condition of employment has increased in recent years. One particular motivating factor is an increase in the volume of discrimination claims, which has accompanied the expansion of the employee classes protected by state and federal anti-discrimination statutes. The employers' goals in requiring arbitration are to avoid the expense and time involved in litigation, as well as the specter of unreasonable jury awards. More cynically, critics of mandatory arbitration suggest that another reason that employers favor arbitration is the perception that arbitration works to the disadvantage of employees. Part of the difficulty in establishing whether one party or the other benefits more from litigation or arbitration is the inherent differences in the cases that reach one forum or the other. An analysis finds no support for the idea that arbitration necessarily favors employers. Indeed, the cost of litigation makes it unlikely that an employee with a legitimate, though small value claim would even be heard in court. Instead, contingent-fee attorneys would tend to stay away from a small claim, while state and federal agencies, notably the federal Equal Employment Opportunity Corporation, have a bias toward settling claims, regardless of the equity of that settlement. Considering that the best resolution is one that both parties achieve freely on their own, both litigation and arbitration represent a type of systemic failure. Current research has found that arbitration is faster in achieving a resolution than is litigation. There is no way to establish whether payments or damages are higher in litigation than in arbitration, and research has failed to show a bias toward either employees or employers in arbitration. Indeed, establishing bias begs the fundamental question, which is whether a system that favors one side, employees, for instance, is actually more fair than a system in which either side could prevail. Ideally, the system should provide damages for employees who actually have been hurt by discrimination, while at the same time it should provide speedy exoneration for employers who have been unfairly tarred by accusations of discrimination. The present system does neither.