What is  Arbitration?

In private, binding contractual arbitration:
There is no court, no court judge, no jury, and as amazing as this sounds, NO RULES.
A dispute is decided by one person, a private party, typically a lawyer.
In California, the arbitrator's fees are paid by the employer, NOT by your taxes.
Since there are few rules in private arbitration "anything can happen."  
The decision rendered by a private arbitrator is "99.9 %" binding and neither party can appeal the result.  Even "an error of law apparent on the face of the [decision] that causes substantial injustice does not provide grounds for [an appeal]." California Supreme Court in the Moncharsh decision (1992).  In other words, if the arbitrator adds 2 + 2 and says that totals 5, too bad, his or her decision cannot be appealed to the courts to correct the error.
NOTE:  If there exists an arbitration agreement between the parties, both parties may choose to ignore the agreement and proceed with court litigation.  Why would one choose to ignore enforcing an agreement to arbitrate?  One or both parties may conclude that the case is too complex or extensive to allow or trust it to go through the less rigid and unpredictable arbitration process.  In a situation where both sides desire court litigation, neither side makes a peep that an agreement to arbitrate exists.  In effect, both sides have implicitly " modified" the agreement to arbitrate by proceeding to court.
If there exists an agreement to arbitrate and one side wants to avoid arbitration, the other party can petition the court to compel enforcement of the arbitration agreement. 
WHOA... I Never Agreed to Arbitrate!

Oh yes you did.  Generally, without your knowledge or understanding [but nevertheless with your "consent"], you most likely have agreed to arbitrate disputes and claims, in more situations than you think.  You can be sure that your insurance carriers, bank, Internet Service Provider, telephone company, cable TV, software companies, etc., have all obtained your "agreement" to arbitrate claims.  Don't believe this? 

Look through any consumer contract, insurance policy, etc. that you have signed or been given by the companies providing services to you.  The agreement to arbitrate is in there, typically buried somewhere deep in the papers, folder, mail insert, policy, application, contract, license, or other materials.

How Does Employment Arbitration Come About?

In the employment context you can "agree" to arbitration in a number of ways:
You apply for a job and the employer requires that as a condition to getting the job you must sign a document [or contract] agreeing that all employer/employee disputes will be resolved through private, binding arbitration.  Or.... the agreement to arbitrate may be one clause on the employment application, or perhaps on one page in an employee handbook.  You really need the job, so you sign the arbitration agreement.  According to the appeal courts, you have just voluntarily agreed to contractual arbitration of all disputes.


You have been happily working on the job for six years.  Today, Human Resources tells you to sign a document [in reality a contract] agreeing that all employer/employee disputes will be resolved through private, binding arbitration.  You are told that if you do not sign the contract, you will be fired.  Fearing being fired, you sign it.  You have just voluntarily agreed to contractual arbitration of all disputes.


You are busy working away on an important project.  An HR representative interrupts your work, hands you a form and says "sign this document, just another form."  The rep does not explain the form to you.  You are too busy to ask questions, so you sign it.  The form you just signed is an Agreement to Arbitrate carefully prepared by your employer's lawyers.  Since the form was clear, since you could have asked questions, and since you could have retained your own lawyer to review the document, you have just agreed to binding arbitration of all disputes.

This page is really long.  It's kind of boring stuff. Feel free to take a break.
OK, I'm Stuck With Arbitration:  How Does It Work?

Since there are no rules, one can only generalize how things might work.  Keep in mind that employers have overreached in this area and successfully implemented "rules" or "procedures" that make arbitration difficult for the employee or otherwise "stacks the deck" in the employer's favor.  While legislators and courts have dealt with trying to deal with unfair tactics, time will tell if the "anything goes" aspect of arbitration will be the exception rather than the rule.

That said, here is how things might work:

First, the employee must request to arbitrate within the time limit specified by the employer.  What time limit? Well, consider that a federal appeals court recently upheld the employer requiring the employee to notify it within 6 months of any claims, otherwise the right to pursue a claim is lost.  So, this means that hundreds of years of precedent on statutes of limitation [which all lawyers know about and which generally range from one to four years] can be rendered inapplicable by the employer obtaining the employee's "consent" that lesser limitations can apply.  So what's the time limits? Six, eight, ten months, who knows.  

Assuming a claim is filed on time, the parties [employer/employee] pick an arbitrator.  The parties select an arbitrator through a method typically spelled out in the agreement to arbitrate.  What agreement?  Remember, it's in the handbook you got 5 years ago, or it's at the bottom of  that employment application you signed 10 years ago.  Note:  controversy exist between legislators, employers and employees over whether the employer-specified arbitrator selection process is actually designed to assure a "pro-employer" arbitrator will decide the case.  

Arbitrators are typically lawyers acting individually or for a professional for-profit "dispute resolution service".  Arbitrators, for now, are unregulated and anyone can hold him or herself out as one providing arbitration services.  The arbitrator does NOT have to be a specialist on the issues in dispute and his or her competence to decide a case cannot be challenged.  

The selected arbitrator then informs the parties what discovery rules will apply and when the matter will be heard.  The arbitrator typically tells the lawyers what discovery methods can be used.  The arbitrator also sets a time limit within which to complete discovery. 

The arbitrator may not have to follow any rules or law when determining how discovery will work [although courts have now said that some discovery has to be provided for in employment disputes]. 

The law and procedural rules applying to disputes in civil court do not apply to private arbitration!  The arbitrator can rule, for example, that each side gets to conduct two depositions and each deposition shall last eight hours.  If you have a key witness whose deposition should reasonably take three days, you are out of luck.  If you need to depose four or five witnesses, but the arbitrator says you are limited to two depositions, then two, NOT five, is all you get.

After discovery is completed, the parties present the case in front of the arbitrator [this is the "trial," so to speak].   Typically the arbitration is held at the arbitrator's law office [or at the private, for profit "dispute resolution service," at its offices].  The "courtroom" is typically the office conference room, in which the parties sit on opposite sides of a conference table.  Cookies, coffee and tea are sometimes available [you won't see that in a real courtroom].  Each side presents their respective case to the arbitrator [note:  arbitrators typically give each side a limited number of hours, not days, to put on a case].

After the arbitration, a month or two later, the scariest part of the whole process takes place:  the arbitrator issues a binding decision that is typically mailed to the lawyers' offices.  

How binding is the arbitrator's decision?  Well, absent absolute proof of fraud [meaning, e.g., you have a video tape of the arbitrator eating lunch with the opposition and taking a bribe to rule a certain way], the arbitrator's decision CANNOT be appealed to a real court.  

How bad can this be, you ask?  Well, don't forget that the California Supreme Court has ruled that even if the arbitrator makes a mistake on procedure, law, reasoning or decision, a party cannot appeal on these bases.  So if you get an incompetent as an arbitrator, or one who always rules in the employer's favor, absent proof of fraud you cannot appeal the decision.

More on Employment Law and Arbitration:

Federal and state appellate courts have over time promoted, favored and ruled that employers and employees can "agree" to resolve all employment law disputes through private, binding, and nonappealable private arbitration.  Over the years, the appeal court battles pitted employers who wanted disputes arbitrated against employees who have argued that private binding arbitration is unjust and favors employers.  Employers have trumpeted the efficiency, certainty, economy and finality of arbitration.  Employees have argued that arbitration cuts off their rights by railroading them through a system biased in favor of the employer.  

Employers want private arbitration because:

While an employer cannot "buy" justice in a real court, private arbitration provides numerous opportunities for the employer to do so.  

Business favors business:  Arbitrators are private, for-profit businesses or individuals, employers stand a better chance of getting an arbitrator who favors their side [statistics have shown employers give repeat business to arbitrators who have ruled favorably for employers and avoided arbitrators who have awarded plaintiffs money].   

Blacklisting:  Statistics have shown that arbitrators who have awarded employees significant damages are "blacklisted" by employers.  During the arbitration selection process, employers attempt to avoid selection or appointment of the blacklisted arbitrators.  Arbitrators know this.  Query: will the arbitrator award the employee much money knowing employers will not use him or her again because the arbitrator ruled in the employee's favor or gave the employee "big money?"  As an arbitrator how would you rule when knowing that repeat business, NOT your conscience, is what will pay for the tuition, the house, food and car? 

Limiting Proof:  A private arbitrator is allowed to decide what discovery will take place in a case [again, "discovery" is the process through which each side obtains evidence to prove or defend a case].  Arbitrators typically severely limit the time to complete and methods of discovery.  Since an employee has the burden of proof in a case, most time and method limitations weaken the employee's ability to prove a case.  What follows is that the employee will lack sufficient evidence to support his or her claims; this typically results in the employee losing the case due to lack of proof.

Note:  As a first line of defense against an employee's case, the employer's lawyers will argue that your case is baseless, so discovery should be extremely limited.  The employer's motive in making the baseless argument [which is how they describe all employee cases] is to limit discovery so the employee cannot obtain evidence to prove a case.   Since most arbitrators believe there should be some limitation on discovery, the employer's "baseless" comments tends to lead to significant limitations on discovery.  Remember, the general rule is that limitations on discovery always hurts the party with the burden of proof in a case.

Low Awards:  Arbitrators statistically award employees far less damages than juries.  At best, an arbitrator might "split things down the middle" rather than award full damages the employee might be due.  Lastly, arbitrators are less inclined to award punitive damages to punish and make an example of employers.

Secrecy:  Private, binding arbitration is, well, PRIVATE.  In titillating or embarrassing cases,  employers are less likely to suffer public shame.  Since private arbitration proceedings are not open to the public [e.g., no news media access], business or organizations can avoid other cases from coming forward.   What is so bad about this, you ask.  Well,  think about all the harm caused to innocents by the Catholic Church engaging in schemes to keep private the sexual abuse by its clergy.  Employees in the workplace will continue to suffer in a system that allows employers to avoid public accountability.

Employees over the years have:

Unsuccessfully challenged the supposed "voluntariness" of binding arbitration agreements by arguing that the employees are being forced to arbitrate.

Unsuccessfully argued that arbitration agreements are not voluntary when the employer says "sign this or you are fired" or "sign this if you want a job here."  

Unsuccessfully argued that injustices occur because private arbitration decisions are not subject to appeal [for example, even when the arbitrator clearly made a mistake of law].

Successfully stopped, to a limited degree, employers attempts to use arbitration clauses to avoid all liability for any unlawful action [including discrimination], to strip employees of all rights, to limit employee damages to a few months wages, or to otherwise stack the deck in favor of the employer.   

In  2001-2002, the end result is that subject to very few exceptions, most employment law disputes will be subject to private contractual arbitration [in cases where the employer has required the employee to "consent" to arbitrate all disputes].  In other words, predictions are that in the near future, as more and more employers require employees to "agree" to binding arbitration, just about all employment disputes in California will be subject to private, binding arbitration.  To put it another way, after years of battles, the employers have won the war.

Comments From Atop The Soapbox: 

In our opinion, the lack accountability and appeal [or judicial review] of allegedly bad arbitration decisions is perhaps the most ludicrous aspect of forcing employment disputes into supposed voluntary binding arbitration.  

For over 200 years appellate processes have existed because everyone know that juries, judges, legislators, and lawyers make mistakes.   Law libraries are filled with books containing judicial decisions correcting mistakes made by litigation participants.  For hundreds of years there have existed courts of appeal to review events that occurred during litigation of the case at the trial level.  Additionally, there have been state and federal high courts to review court of appeal decisions [e.g., Supreme Courts], in a sense a system that provides review of the reviewers.

So what is wrong with grossly erroneous binding arbitration decisions not being subject to review?  Well, consider that there has been in place for 200+ plus years a system to correct errors made by judges.  If experienced, accountable and regulated judges have made mistakes, it does not make sense to conclude that fewer or no mistakes will be made by less-sophisticated, unaccountable, and for-profit private arbitrators.  This being the situation, how is it fair to force employees into private, binding arbitration with no right to review of erroneous decisions made by private arbitrators?

If society has seen fit for over two hundred years to maintain a system to correct judicial error and injustice, why is it proper to now turn a blind eye to our established judicial "checks and balances" system under the guise of expedited dispute resolution?     


There are numerous articles posted on the Net discussing the pros and cons of binding arbitration.  

Typically, sites that are pro-employer post articles trumpeting the advantages of binding arbitration.  Such sites toot the same old horn about costs savings, keeping baseless claims out of real courts, prompt resolution, etc.   

Sites favoring employee rights and fairness express positions against binding arbitration.  

You are encouraged to search the Net for articles so to gain a further understanding of the issues.  Moreover, if you believe the law should be changed or modified, contact your state and federal legislators to express your position on the subject.




Copyright 1996-2007 Michael Mortimer.  All rights reserved.