Statistics Show Arbitration Unfair To Employees

A case currently being argued at the Fifth Circuit Court of Appeals alleges (correctly I think) that arbitration is heavily slanted in favor of employers (or more precisely, employer-side lawyers).   

In Samantha Diggs v. Citigroup the plaintiff  alleges that that the American Arbitration Association (AAA) is systematically "biased" against employees in employment disputes. To prove it, the plaintiff cites to a study performed by Cornell University labor law professor Alexander Colvin. 

Using data from reports filed by the American Arbitration Association (AAA), Colvin's study  analyzes 3,945 arbitration cases, of which 1,213 were decided by an award after a hearing, filed and reaching disposition between January 1, 2003 and December 31, 2007. This includes all the employment arbitration cases administered nationally by the AAA during this time period that derived from employer-promulgated arbitration procedures. The study concluded:

  1. The employee win rate amongst the cases was 21.4%, which is lower than employee win rates reported in employment litigation trials (36.4% in federal court and 43.8% in state court);
  2. In cases won by employees, the median award amount was $36,500 and the mean was $109,858, both of which are substantially lower than award amounts reported in employment litigation ($384,223 for federal court litigation and $595,594 in state court litigation.);
  3. The study results provide strong evidence of a repeat employer effect in which employee win rates and award amounts are significantly lower where the employer is involved in multiple arbitration cases where the same arbitrator is involved in more than one case with the same employer, a finding supporting some of the fairness criticisms directed at mandatory employment arbitration.

Colvin's study is no surprise to employment lawyers.  My friends on the employer side of the bar will candidly admit that arbitration is primarily beneficial to the defense bar.  While the odds of being hit with a big verdict are substantially lower for employers in arbitration, the litigation costs are often quite a bit higher.  Defense attorneys certainly are not going to bill clients less in an arbitration than they would in a litigation.  Costly motions for summary judgment are still filed even though they are granted much less frequently in the arbitration setting than by traditional judges.  Then you have to add to that the $15,000.00 to $30,000.00 charged to the employer by the arbitrator.  As a result, the employer often pays more to arbitrate a case than it would litigating the same matter in a traditional court.

The real winner is the defense attorney, who gets to rack up the same amount of fees as if the case were in litigation but with less risk of losing big at trial and potentially losing the client as a result.  

Mandatory arbitration in the employment context is simply wrong. It isn't an arms-length transaction and therefore is an unfair and unconstitutional denial of employees' rights to a jury trial.  Statistically it often results in unfair results as a result of arbitrators who are consciously or (more likely) unconsciously motivated to rule against employees by the hope of repeat business from employers. It saves employers little cost-wise and is a tremendous boon for the lawyers of the defense bar.  

Mandatory arbitration needs to be done away with and Samantha Diggs v. Citigroup is the perfect case for the Fifth Circuit to begin to take a hard look at this issue.  I hope they will.

Download Colvin's Study Here


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