Empirical Research and Arbitration

Turn the academics loose and the next thing you know they want to do something crazy -- like rely on research! I hope they realize how disconcerting that can be in the non-academic legal world.

First, from the ADR Prof Blog comes Empirical Arbitration Analysis Reveals Companies Prefer Litigation. Although the subject is Fortune 100 companies use of consumer, not employment, arbitration, the conclusion seems to be that for non-consumer agreements, the companies prefer litigation not arbitration. The conclusion drawn by Professor Cole is:

Firms’ use of arbitration for consumer contracts but not for nonconsumer contracts suggests that, ex ante, many firms prefer litigation over arbitration, at least for disputes with other repeat players. Moreover, the authors suggest, the use of arbitration clauses in consumer contracts may be an effort to preclude class actions — either in arbitration or court — rather than an effort to promote a fair and efficient dispute resolution mechanism for consumer disputes.

Although going back to employment arbitrations, I can suggest another reason for making sure that arbitration agreements exclude class actions, the 4th Circuit's decision in Long John Silver's Rests. Inc. v. Cole, No. 06-1259 (4th Cir., Jan. 28, 2008). The short version -- in an FLSA "class action" arbitration rather than requiring potential plaintiffs to opt-in, the arbitrator held it should be an opt out class action, and the 4th Circuit upheld the action. See Bryan Peterson's "Long John Silver's Says Arrrbitrator Disregarrrrded the Law" for the long version.

And not to be trumped, the academics over at Workplace Prof Blog have quoted the abstract from an article by Alexander Colvin of Penn State, Empirical Research on Employment Arbitration: Clarity Amidst the Sound and Fury?

Whereas past research often concluded based on more limited datasets that outcomes from employment arbitration were generally similar to those from litigation, results of the present study, which is based on a larger dataset focused on cases involving employer promulgated agreements, indicate that both employee win rates and damage awards in employment arbitration are significantly lower than in litigation. By contrast, results of the present study confirm previous research findings that time to hearing is generally shorter in employment arbitration than in litigation. As with past research, the present study finds evidence of a repeat player effect, though with some uncertainty as to the causal explanation for this effect. Self-representation of employees is found to be associated with significantly worse employee win rates and damage awards, particularly where the case involves by a repeat employer-arbitrator pairing. Lastly, the article reviews research indicating some positive impacts of employment arbitration on the adoption and operation of internal organizational dispute resolution procedures.

The easy take away is that arbitration is not good for employees, but the last two sentences make it sound as if the findings are much more nuanced.

The fact that the Workplace Prof guys posted about the article means it will be seen, as I can personally attest from the increase in hits on my blog each time they happen to link to one of my posts.

One of the reasons all of this research is significant is that under consideration in Congress is legislation that would ban the use of pre-dispute arbitration agreements in consumer and employment situations. Which, not to put too fine a point on it, basically would mean the end of both employment law and consumer arbitration. See the Arbitration Fairness Act of 2007. [pdf].