AAA Employment Arbitration: A Fair Forum at Low Cost

By Hill, Elizabeth | Dispute Resolution Journal, May-July 2003 | Go to article overview

AAA Employment Arbitration: A Fair Forum at Low Cost


Hill, Elizabeth, Dispute Resolution Journal


The debate over whether mandatory employment arbitration forces employees to give up civil rights has raged for more than a decade virtually without empirical support on either side. Elizabeth Hill recently completed a statistical study of employment arbitration under the auspices of the American Arbitration Association. Her results indicate that mandatory employment arbitration is not biased in favor of employers and that it is fair and affordable to lower-income employees. The author summarizes the major findings of her study in this article.

The debate over "mandatory" employment arbitration is one of the most important issues in arbitration and employment relations today. It has been the subject of three major Supreme Court decisions in the past decade, including a 2001 decision which held that "mandatory" arbitration agreements are generally enforceable.1 Mandatory employment arbitration has also been the subject of a vigorous national lobbying effort aimed at limiting its use.2 Surprisingly, the debate over the propriety of mandatory employment arbitration has been waged for a decade largely without the benefit of hard data describing it. Both critics and advocates of mandatory employment arbitration acknowledge the dearth in empirical research and agree that there is a need to fill the gap.3 This article describes my recent attempt to begin to fill that gap with a study of 200 employment arbitration cases, which were decided under the auspices of the American Arbitration Association (AAA), the largest independent provider of arbitration services in the United States. My research was not intended to prove a hypothesis, but to provide a comprehensive statistical description of AAA employment arbitration based on the data derived from the 200 individual awards. At the end of the day, my findings, which are detailed below, indicate that AAA employment arbitration is affordable and substantially fair to employees, including those employees at the lower end of the income scale.4

The Controversy Over "Mandatory" Employment Arbitration

What are commonly known as mandatory arbitration agreements are found in arbitration clauses in employment agreements or employment applications or in the arbitration policy of an employee handbook. A person who is seeking employment is required to sign an arbitration agreement, or an express acknowledgment of an arbitration policy in an employee handbook, before being hired. In this way, a prospective employee gives up the right to take employment-related disputes to court and agrees instead to arbitrate these claims with the employer. Consequently, once an employee is hired, disputes must be arbitrated, if they are not settled first. Most often, the arbitration agreement provides that the arbitrator's decision is final and binding. Thus, it is enforceable in the courts and there is limited appeal.

The use of private employment arbitration has grown dramatically over the past decade. The percentage of employers in the private sector using employment arbitration increased from 3.6% in 1991 to 19% in 1997.5 Studies mdicate that by 1998, 62% of large corporations had used employment arbitration on at least one occasion.6 Further, in just four years between 1997 and 2001, the number of employees covered by employment arbitration plans administered by the AAA grew from 3 to 6 million.7

Just as strong as the growth in private employment arbitration has been the opposition to it. Employees' advocates, civil rights' advocates and the plaintiff's bar strongly oppose the practice as unfair. In their view, employers unfairly take advantage of superior economic power to force prospective employees to sign away their constitutional rights to due process and trial by jury-hence the term mandatory employment arbitration.8

Employers have maintained that employees have sufficient economic power to voluntarily negotiate the terms of their employment. Moreover, employers believe that arbitration provides employees with a generally fair forum at relatively low cost, because most employees cannot afford to take their cases to court due to the high cost of an attorney. …

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AAA Employment Arbitration: A Fair Forum at Low Cost
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