Chapter 3 – Alternative Dispute Resolution
3.6 Public Policy, Legislation and Alternative Dispute Resolution
Alternative dispute resolution can be a very useful alternative to litigation. There are many advantages to parties, such as expediency, cost savings, and greater privacy than litigation. In business-to-business (B2B) disputes, alternative dispute resolution (ADR) often makes sense.
The Federal Arbitration Act (FAA) is a federal statute that the U.S. Supreme Court interpreted as a national policy favoring arbitration in Southland Corp. v. Keating. According to the Southland Corp Court, state power to create judicial forums to resolve claims when contracting parties enter into a mandatory arbitration agreement has been preempted by the FAA. However, not all disputes are well suited for ADR. This is an area in which Congress could make substantial changes in public policy through the creation of new law to ensure fairness between unequal parties and to ensure the protection of civil rights. Congress could do this by making ADR optional, rather than mandatory, for some types of disputes. It could also exclude certain types of disputes from being bound to arbitration through mandatory arbitration clauses.
For example, the proposed Arbitration Fairness Act of 2009 (AFA) would invalidate mandatory arbitration clauses in employment and consumer disputes, as well as in disputes arising from civil rights violations. The AFA is a proposed bill to amend the FAA. Under the Commerce Clause, Congress has the power to limit the use of mandatory arbitration, just as it has the power to enforce mandatory arbitration clauses under the Commerce Clause through the existing FAA. By passing a new law that excludes certain types of disputes from being subjected to mandatory arbitration, Congress could set new policy regarding fairness in dispute resolution. Likewise, if it fails to act, Congress is also acceding to the U.S. Supreme Court’s broad interpretation of the FAA as a national policy favoring arbitration. Either way, policy regarding mandatory arbitration exists, and Congress has a central role in defining that policy. Recent Congresses have considered many Bills that would create more options and choice surrounding arbitration under the FAA, but thus far they have failed to receive enough votes to make it to the President’s desk for a signature.
In 1925, when the FAA was originally passed, records indicate that Congress intended that mandatory arbitration clauses be enforced in contracts between merchants, rather than between businesses and consumers or between employers and employees. In the latter relationships, the parties have vastly unequal power. Moreover, despite the existence of mandatory arbitration clauses in contracts, the FAA was not contemplated as a means to preempt state power to provide judicial forums for certain types of disputes. However, the U.S. Supreme Court has greatly expanded the FAA’s applicability since then.
If Congress passed the AFA, this would be an example of one branch of government “checking” another branch’s power as contemplated by the U.S. Constitution. Specifically, the legislative branch would be checking the judicial branch’s power by passing a law to counteract the U.S. Supreme Court’s broad interpretation of the FAA in Southland Corp. v. Keating.
This is how our government is supposed to work. One branch checks another branch’s power. This “checking” of power maintains relative balance among the branches. Because people have different points of entry into the lawmaking process, this system ultimately balances the many special interests of the American people. For example, some businesses and employers that do not wish the AFA to pass may wonder what recourse they have. After all, the U.S. Supreme Court’s interpretation of the FAA currently favors their interests. Since the AFA has not yet passed, they could lobby lawmakers against its passage. Note too that if the AFA becomes law, these interest groups are not simply shut out of the government’s lawmaking process. They continue to have access to lawmaking. One point of entry is through the legislative branch. For instance, they could return to Congress and ask it to pass a new law to counteract the AFA, or to repeal the AFA altogether. They also have a point of entry to the lawmaking process through the judicial branch. Specifically, once a case or controversy arose under the AFA in which they had standing, they could ask the courts to interpret the statute narrowly, or they could ask the courts to strike down the statute altogether.
On the other side of the issue, consumers and employees who do not like the FAA’s current broad interpretation can work within our government system to change the law. For instance, they can ask Congress to pass a new law, such as the AFA. They could ask Congress to repeal the FAA. They could also wait for another case to arise under the FAA to try to get the relevant holding in the Southland Corp. case overturned. This is perhaps more difficult than the first two options, because any U.S. Supreme Court case produces many progeny at the circuit court level. Each decision at the circuit court level also produces binding precedent within that jurisdiction. It is very difficult to get a case before the U.S. Supreme Court. Even if that happened, there would be no guarantee that the Court would overturn a prior opinion. In fact, the opposite is usually true. Precedent is most often followed rather than overturned.
In the United States, the policy process is open for participation, though changes often take much work and time. People with special interests tend to coalesce and press for changes in the law to reflect those positions. This appears to be what is happening in the world of ADR now. After many years of mandatory arbitration requirements that have yielded perhaps unfair processes or results, groups that believe they should not be forced into ADR by mandatory arbitration clauses are building momentum for their position in Congress. If the AFA passes, that will not be the end of the story, however. New interest groups may form to support the previous law, or a new law altogether.
Activity 3C
Debate: Unbinding Arbitration
Randall Fris was employed by Exxon Shipping Company as an able-bodied seaman on an oil tanker called the Exxon Long Beach. Fris worked under a union agreement that required arbitration of employment disputes. Exxon had a policy against working under the influence of drugs or alcohol on its tankers, and the agreement with the union provided for the use of a breathalyzer test ‘for cause’ with a Blood Alcohol Content (BAC) of .04 or above considered intoxicated for purposes of working on an Exxon tanker. The agreement stated that the penalty for such intoxication “… may result in discharge from the vessel and subject the employee to further discipline up to and including termination.” Around midnight one night, Fris reported for duty on the tanker appearing to several officers to be intoxicated. A breathalyzer was administered and resulting in a BAC of .15. The next day, Exxon Shipping discharged Fris, and the union filed a grievance. The grievance was submitted to a panel of arbitrators and after a hearing, the panel found that Fris should be reinstated to his position, stating that the policy did not require dismissal, and considering the totality of the circumstances, including the length of employment and Fris’ good record, termination was not the appropriate remedy.
Question: As a rule, arbitration is mandatory and binding and cannot be appealed. What does this mean for a case like the Exxon Shipping case?
Question: Would you be in favor of a law that prevented arbitrations from being binding in certain situation? What situations?
Question: Should Exxon Shipping be able to appeal this decision even though the arbitration clause in the union agreement is for binding arbitration?
Debate the Case: Find and review a source of information on the benefits and drawbacks of binding arbitration. If arbitration was non-binding would this change the utility of this type of alternative dispute resolution? Would arbitration still be a valuable alternative to litigation?
a sector of business activity that focuses on commerce performed between businesses
a catchall term that describes a variety of methods that parties can use to resolve disputes outside of court, including negotiation, conciliation, mediation, collaborative practice, and the many types of arbitration
a federal statute under which parties are required to participate in arbitration when they have agreed by contract to do so, even in state court matters
government policies that affect the whole population