How Does AAA Arbitration Work?
The American Arbitration Association (AAA) is a non-profit organization formed in 1926 to "provide services to businesses and individuals who wish to resolve disputes out of court" according to their website. In 1996, the AAA began to focus specifically on employment conflicts. Specifically, the AAA’s Employment Arbitration Rules were introduced in 1997. The AAA now advertises the services of "over 7,000 neutrals who have experience with a wide range of industry and employment issues." Per the AAA’s website, individuals and companies voluntarily choose arbitration to resolve their conflicts instead of going to court. The arbitration process is designed to be "less formal and more efficient than litigation." Arbitration can be conducted in person, over the phone or in writing as determined by the parties or arbitrator . No matter which mode is chosen, the arbitrator applies the relevant substantive law and rules of the from the AAA and the customized rules developed by the parties or arbitrator. The arbitrator’s award can be enforced in court depending on the applicable law. (See, e.g., 9 U.S.C. ยง 9). The goal is to expedite the resolution of a case while eliminating the burdens of litigation such as discovery and filing motions. The AAA Employment Rules are intended to speed up the process of disallowing meritless motions and resolving discovery disputes. In keeping with this purpose, the rules require that the arbitration be concluded in an expeditious manner, typically within nine months after the answer is filed or following the first selection of an arbitrator in the case, whichever is later.
Common AAA Employment Arbitration Rules
The AAA Employment Arbitration Rules and Mediation Procedures (the "Rules") generally apply to most employment-based arbitration conducted under the auspices of AAA. These Rules govern all matters submitted to it under the Employment Arbitration Rules and are intended to apply only to resolution between the individual employee and employer and not a third party or class.
The Rules permit the parties to agree to modify the procedures therein and incorporate such modification as part of an agreement by reference. Otherwise, the parties can retain the procedures set forth in the Rules.
The Rules apply to AAA as well as all parties to the arbitration. If any party fails to comply with any time period set forth in the Rules without sufficient cause and failure or refusal is repeated, upon the application of any party, a new arbitrator can be appointed to hear the case.
The Rules do not apply to any arbitration administered under an industry-specific set of rules, such as AAA’s Commercial or Construction Arbitration rules, or where such other rule is made applicable to the process by a provision in the parties’ arbitration agreement. Similarly, where the parties agree to or are directed to apply the Federal Rules of Civil Procedure, the Rules do not apply.
Benefits of AAA Arbitration in Employment Disputes
The advantages of using AAA Arbitration include the fact that in most cases employment arbitration will be faster and drastically cheaper than litigation. The rules are more succinct and much more informal (AAA does not have rules for every contingency that may occur in litigation and will move to resolve issues, rather than delay in the courts). The arbitrators are experienced in employment matters and only need one individual to decide the issues. In sometimes cumbersome litigation often you will end up with several decision makers, often repeatedly, as appeals are filed by the losing party. While the procedures for parties are available, the Arbitrator has full skills to excuse any deficiency in these procedures and treat the parties equitably. For most disputes where an immediate resolution is needed, having a shorter period of time to realize relief is important. Costs are also impacted here as the sum of the savings from any significant appeal process is forfeited in these types of proceedings. In some instances, litigation creates an unnecessary strain on the management structure of a company. In these situations an arbitrator can resolve the case on its own in a timely manner. For parties where this is not deemed an issue, these procedures offer an even greater advantage. In this instance, costs are alleviated even further as both sides will not spend the litigation discovering procedures that the other side should expect as they prepare the matter and present it to the arbitrator. It is important to note that parties may still appeal on a very limited basis and the AAA rules do provide a mechanism for this process. Confidentiality is also an important factor for many employment disputes as the allegations can be damaging (to include additional litigation issues added from claims counsel needs to disclose the claim in future insurance contracts). All of the matters in arbitration are confidential. Finally, for the parties that would prefer not to disclose their positions before a jury, an AAA proceeding provides a favorable venue.
The Arbitration Process: Breaking It Down
The arbitration process generally begins when an employee files a claim with the AAA. All claims are given an AAA case number and a paralegal assigned to the case. The paralegal promptly sends notification to the respondent stating that a claim had been filed.
After the paralegal’s notice to the respondent, the AAA offsets the initial filing by claiming their fee in partial payment for the claims filing. The AAA charges the claimant a filing fee and for all other services, including, administrative fees, arbitrator fees, travel expenses and hearing room costs. The filing fee is due 14 days after the claim has been filed, otherwise the AAA dismisses the claim.
After the filing fee has been received, the AAA sends the claimant a list of potential arbitrators based upon criteria submitted by the claimant and respondent once the claimant suggests a wrench is included in the process by claiming an "employer friendly" claim as a matter of right. The parties then strike the names of up to 4 arbitrators from the list, initially providing the AAA with their three favorites in the order of preference. If all 4 names are struck and the parties cannot agree, the AAA gets to choose the arbitrator for them.
The arbitrator will then select the place and time for a hearing and set the rules for the process. These rules usually differ but in general are as follows:
After the hearing is over, the arbitrator will issue the legally binding award. Any party facing a claim is advised to contact legal counsel immediately.
Common Issues in AAA Arbitration Employment
One common criticism of AAA employment arbitrations is the inherent imbalance in bargaining power between the employer and the employee. In many instances, the disparity in sophistication and knowledge of the parties is so pronounced that the arbitration agreement may have been entirely drafted by the employer. This lack of bargaining power may leave the employee vulnerable to a less favorable outcome. Employers are also known to draft provisions which can be perceived as generally unfavorable to the employee. Some of these provisions include prohibiting class and collective actions, limiting relief to plaintiff’s actual damages, and requiring arbitration before an Administrative Agency. Employees, however, do not usually possess the resources to pursue their claims individually in court. Thus, there is advocacy for the idea that these provisions may consistently reduce payouts for individuals.
Some arbitration provisions mandate the arbitration to take place in a set location or in front of a specific arbitrator. For example , employers may draft provisions requiring the arbitration to take place at the employer’s corporate headquarter in Virginia, even if the employee is located in California. Similarly, the specific arbitrator selected may have a bias towards the employer, whether or not the parties are aware of it. The result may be a biased decision in favor of the employer.
Enforceability is a primary issue when it comes to arbitration. Some recent cases have examined the enforceability of arbitration clauses. The Arbitrary Act provides that arbitration clauses in employment contracts are enforceable provided that they do not conflict with other laws. Several recent court decisions review the legality of certain provisions such as those governing class and collective action waivers and limitations on attorney fees, and limits on time to file. The general consensus is that while these provisions are generally enforceable, if overly restrictive, they may be found to be unconscionable as to all claims.
AAA Arbitration vs. Other Methods
When comparing AAA arbitration to other dispute resolution methods, one must consider mediation, litigation in the U.S. courts, and arbitration before other organizations. AAA arbitration, mediation, and litigation have such a variety of rules and procedures that it is helpful to think of them as falling along a spectrum. From the most flexible at one end to the most rigid at the other end, the spectrum could be laid out as follows: 1 – AAA mediation, 2 – AAA arbitration, 3 – AAA Commercial Rules arbitration, 4 – litigation, 5 – AAA standard arbitration, 6 – labor arbitration, and 7 – finally international arbitration. Looking first at the two ends of the spectrum, AAA mediation utilizes the most flexible rules that allow for the widest latitude in terms of procedure and outcome. Its sole focus is on reaching a resolution of the dispute. Any agreements that may be reached or any information that may be exchanged are encouraged to be confidential. It should also be noted here that there are various forms of mediation, many of which may involve more formal processes and outcomes than what is typically found in AAA mediation. The middle ground of this spectrum holds the AAA Commercial Rules arbitration, which is a hybrid between commercial arbitration and litigation in the courts providing more formality than AAA mediation, but less than AAA standard arbitration. It may have discovery and evidence more like litigation and some rules and processes like typical AAA arbitration. The standard commercial arbitration is even more formal, making the rules, procedures, and awards more like court litigation. One reason for this could be that in commercial arbitration, the parties may have a range of rights when it comes to challenging awards given by arbitrators, depending on the laws where the arbitration is based. In some cases, there may be no rights at all. Certain pieces of the Code of Civil Procedure specify that AAA arbitration awards are final and binding. Therefore, apart from the limited review rights found in the Commercial Rules, there may not be any way in which to challenge an award. The nature of AAA standard arbitration makes it similar to labor arbitration. In both, the parties have a very limited review of the awards rendered. The major difference here is the subject matter of the dispute. While AAA standard arbitration typically involves business transactions between parties, AAA labor arbitration usually involves disputes between employees and employers. International arbitration, one of the recent areas of growth in arbitration, also falls on the other end of the spectrum. In all these options of dispute resolution, there is one thing all have in common, they all may be found in trade agreements. Where parties are located in different states or countries, and where those parties have an ongoing business relationship, they may use any of these methods of dispute resolution, spelled out in trade agreements, to try to resolve their disputes. When that is not possible, they may go to the courts or try the more formal arbitration options mentioned above.
Trends And Recent Legal Developments
Past and continuing trends, as well as recent and developing legal issues affecting AAA arbitration, have created a more advantageous atmosphere for parties compelled to arbitrate employment disputes through the AAA. Recent evidence shows merely in the composition of arbitrators that the Association is less likely to issue decisions in favor of employers than in past years. Additionally, the trend has been towards limiting the scope and number of AAA challenges to enforce arbitration agreements as well as enhancing the procedural rights of employees in these forums.
First, the pattern over the last few years shows that arbitrators’ decisions at the AAA are more favorable towards employees than employers. In 2010, arbitrators sided with employees in approximately 48% of cases. In 2006, arbitrators sided with employees in 58% of all cases. Throughout this past decade, in every year except 2007, arbitrators ruled in favor of employees more often than they ruled in favor of employers, with 2008 being the most lopsided year under AAA rules in the last ten, where employees prevailed in 61% of the cases.
Second, the numbers suggest that it is more difficult for employers to overturn adverse decisions, whether through the AAA or through the courts. In 2005, two years before the Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, many arbitrators’ decisions were vacated by federal courts. In that year, nearly one half of all AAA arbitration decisions in favor of employees were vacated, losing legal validity. Further, when judges did not vacate an AAA decision, they often set aside monetary awards. This past year, however, vacancies were rare, and the award decisions were overturned far less frequently . In 2013, there were only seven AAA awards (355 total) against employees that were vacated. Six years before, in 2007, there were 32 vacated awards (792 total). While the number of effective awards in 2013, 674, was markedly lower than the number of effective awards in 2007, 781, it is clear the trend illustrates a more employee-friendly AAA, as well as courts who more frequently uphold these awards.
Third, judicial and legislative trends towards enforcing arbitration pledges and limiting formal variables and variables that would subvert parties to arbitration processes have continued over the past several years. As we have written previously: "Courts have continually upheld arbitration agreements such as [those from the AAA] agreeing to submit to arbitration federal statutory employment claims, Title VII claims, and claims of age discrimination under the Age Discrimination in Employment Act (ADEA). That said, under ADEA, plaintiffs must receive detailed information about their arbitration rights prior to enforcing their arbitration provisions, including their right to be represented by counsel if they so decide." This is crucial for employees as it allows for adequate preparation to argue their side of the case at a hearing, and to rebut plaintiffs’ arguments as to why the case shouldn’t go to arbitration. The more stringent courts have become on issues such as these has also served to improve arbitration for employees.
In all, the combination of a more employee-friendly AAA and stricter judicial and regulatory trends has made recent years exceedingly advantageous for parties compelled to arbitrate through the AAA.