Monthly Archives: December 2012

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Is Arbitration Lawless?

W. Mark C. Weidemaier, Judging Lite: How Arbitrators Use and Create Precedent, 90 N. C. L. Rev. 1091 (2012), available at SSRN.

Ever since the Supreme Court, in Gilmer v. Interstate Johnson/Lane Corp., 500 U.S. 20 (1991), and Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), gave employers the green light to require their employees as a condition of employment to waive their right to sue for violations of employment statutes and to mandate arbitration of any claims that may arise, debate has flared over whether such employer-imposed arbitration mandates should be prohibited, allowed or regulated.  The debate intensified after the Supreme Court’s decision in 14 Penn Plaza, LLC v. Pyett, 556 U.S. 247 (2009), held that unions may waive employees’ rights to sue and require that they pursue their statutory claims through the collective bargaining agreement’s grievance and arbitration procedure.  The criticisms include the concern that widespread arbitration mandates will lead to a privatization of public law, with arbitrators that are not bound by public law authorities producing awards of no precedential value.

W. Mark C. Weidemaier’s article, Judging Lite: How Arbitrators Use and Create Precedent, provides empirical insight into the concerns regarding the privatization of public law.  Weidemaier worked from a database of 206 class action arbitrations, every class action award available through the American Arbitration Association (AAA) between 2003-2009; 203 randomly selected securities arbitration awards issued between 1995-2009 available through FINRA and its predecessors; 231 AAA employment arbitration awards randomly selected between 1999-2008, available on Lexis; and 208 labor arbitration awards rendered between 1980-2009, randomly selected from among awards published in the BNA Labor Arbitration Reports.  He analyzed these awards to gauge the extent to which arbitrators cited and engaged with precedent.

Weidemaier, not surprisingly, found very little citation to precedent in securities awards because reasoned opinions accompanying those awards are extremely rare.  Among labor awards, 48.6% cited to at least one precedent, as did 66.7% of employment awards, and 71.8% of class action awards.  Within those groups, 14.9% of labor awards cited only to judicial precedent; for class action awards it was 83.8% and for employment awards it was 98.7%.  On the other hand, 76.2% of labor awards that cited precedent cited arbitration precedent and 35.6% cited only arbitration precedent.  In contrast, only 15.5% of class awards cited arbitral precedent and only 1.4% of those awards cited only arbitral precedent.  Only 1.3% of employment awards cited arbitral precedent.

Weidemaier attributed the differences in types of authorities cited to the different nature of each type of arbitration.  Labor arbitration is concerned predominantly with interpreting and applying collective bargaining agreements and is frequently fact-based, making it more likely that arbitrators will not cite any precedent and more likely that when they do cite precedent, it will be other arbitration awards.  Employment awards are much more likely to be adjudicating statutory claims, resulting in arbitrators looking to judicial authority interpreting the statute.  Arbitral authority is far less relevant.  Class awards look more to judicial authority but many deal with whether class arbitration is permitted under the contract and, consequently, in Weidemaier’s view, they are more likely than employment awards to look to arbitral awards interpreting similar contracts.

Weidemaier randomly selected 25 cases in each group, excluding the securities arbitrations.  He analyzed in each case whether the arbitrator’s citation of precedent was “strong,” which he defined as whether it quoted more than a single word or phrase from the cited authority whether it devoted more than two sentences to discussing the authority, and whether it explicitly relied on the cited authority.  He found that 33.3% of citations in labor awards were strong, as were 30.1% of citations in class awards and 20.7% of citations in employment awards.  He found that 5.4% of citations in labor awards, 9.1% in class awards and 9.2% in employment awards distinguished the authority cited.

Finally, Weidemaier randomly selected 25 U.S. district court opinions from among those found in a Westlaw search looking for discrimination, harassment and retaliation cases, and compared them to the arbitration awards.  He found that district judges cited more precedents and had more strong citations than arbitrators. Hence the title of his article, Judging Lite, suggests that arbitrators are engaged with the public law but not with the same intensity as judges.

Candidly acknowledging many limitations to his study, Weidemaier found no evidence outside of securities arbitration that arbitrators were deciding cases in an ad hoc fashion.  Rather, he noted, the process has become highly legalized and arbitrators appear to be trying to follow the public law when it is at issue before them.  He also called on judges to engage with arbitral awards.  Recognizing that judicial review of arbitration awards is very limited, he suggests that judges discuss arbitral authority in their opinions, thereby providing valuable feedback to the arbitrator community.

W. Mark C. Weidemaier’s article is a valuable addition to the growing body of empirical studies of arbitration, particularly arbitration of statutory claims mandatorily imposed by a stronger party on a weaker party to a transaction.  It is part of a body of work that should be required reading for all participants in the on-going debate over arbitration mandates.