RESEARCH Business Labor
EMPLOYMENT LAW
Merits of alternative dispute resolution debated by courts

Mark Reutter, Business Editor
(217) 333-0568; mreutter@uiuc.edu

4/1/02

CHAMPAIGN, Ill. — Alternative dispute resolution has become one of the most controversial areas of employment law.

Sanctioned by a 1991 U.S. Supreme Court decision, ADR has been hailed and denounced by commentators as the number of workers covered under the system has skyrocketed. ADR works like this: A company requires its workers, as a condition of employment, to sign an agreement waiving their right to sue the company over workplace disputes and instead submit any claims to an arbitration service picked by the employer.

In some ADR agreements, workers must pay 50 percent or more of the costs of the process. Agreements typically cap potential damages against an employer and often disallow fees for a worker’s lawyer.

Supporters claim that ADR is an efficient way to settle disputes and reduce the number of employment lawsuits clogging the courts. Critics charge that ADR stacks the decks against workers and imposes prohibitively high costs on employees, especially those earning low wages. Most of the arbitrations involve age or sex discrimination claims by workers fired or denied promotions.

To evaluate how the federal courts have responded to the controversy, two University of Illinois professors specializing in labor law analyzed 62 decisions in which workers sought to overturn ADR arbitrations on the grounds that they imposed unfair cost barriers.

Michael H. LeRoy and Peter Feuille found the courts almost evenly divided on the question of cost. Although district court judges ratified arbitration agreements in 77 percent of the cases analyzed, appellate decisions were evenly split, with half of the agreements ratified and half thrown out, thereby clearing the way for the workers to file a court challenge.

Federal judges appear to be increasingly concerned that employer ADRs have "minimum standards of procedural fairness" as well as reasonable fee structures. Because judges have taken "very different approaches" to the cost and fairness issues, the UI scholars predict that the Supreme Court will have to revisit the issue to resolve the developing conflict among the lower courts.

Such a review is liable to spark an "open ideological dispute" on the Supreme Court given the 5-4 votes in two cases last year (Circuit City Stores v. Adams and Green Tree Financial v. Randolph) that reaffirmed the concept of mandatory arbitration.

ADR is currently used by many large non-unionized employers, ranging from Wall Street brokerage firms to media companies and national restaurant chains. In union-represented shops, workers are not required to pay direct costs for arbitrating disputes over contract language. Unionized employees also have a more direct voice in the selection of arbitrators.

The working paper by LeRoy and Feuille is titled, "When Is Cost an Unlawful Barrier to Alternative Dispute Resolution?"