What are the AAA Employment Arbitration Rules?
What are AAA Employment Arbitration Rules ?
Appearing in more than twenty-five countries, the American Arbitration Association ("AAA") is a not-for-profit organization and the world’s largest dispute resolution organization. Administering over 136,000 cases in 2010, the AAA provides the tools to resolve disputes through arbitration uniquely suited to address the needs of both domestic and international commercial parties, as well as employment, labor, construction, insurance, and consumer parties. Governed by federal and state statutes, the AAA creates rules for its arbitration proceedings – the AAA Employment Arbitration Rules and Mediation Procedures are found in a publication called the "National Rules for Resolution of Employment Disputes."
More specifically, the AAA Employment Arbitration Rules ("Rules") govern the resolution of employment disputes. The Rules help resolve workplace disputes from the onset of the employment relationship, in company policy manuals and agreements . Generally, the Rules are applied in disputes involving workplace tort and contract questions. The Rules call for parties to provide notice to one another regarding any dispute. Thereafter, if the parties do not resolve their dispute amicably, either party may request a neutral arbitrator to resolve the dispute. The AAA will appoint a given arbitrator from its panel of arbitrators; the Rules also list screening and qualification standards for arbitrators. Employing a bilingual staff, the AAA ensures that arbitrators are bilingual (in English or Spanish) and possess the requisite experience in employment issues. The arbitrator, in turn, establishes hearing dates and pre-hearing conferences, if necessary, and issues discovery enforcement orders. In addition, the Rules provide that arbitrators have discretion over prehearing matters, hearing procedures, fees, and costs. Any arbitration award may be appealed if it is alleged that the award was procured by fraud, the arbitrator was guilty of misconduct, the award is imperfect, or the arbitrator exceeded his/her power.
Essential Features of AAA Arbitration
The AAA arbitration system and process for employment arbitrations have a number of distinct components that are worth summarizing. While there are of course many similarities to other types of arbitration systems, there are at least a couple key distinguishing features, one of which is very important both for employers and employees who need to be aware of their rights if employing the AAA rules.
The first key feature is that the AAA has a set of Employment Dispute Resolution Rules ("EDR Rules") for disputed claims arising out of workplace issues. These rules are distinct from the regular AAA Commercial Rules and are designed to address the very nature of employment relationships and claims – the reality that the power balance is not equal between the parties. Accordingly, the EDR Rules provide some extra protections and safeguards for employees to make the process fairer and more just.
The second key feature is that in light of the fact that employment cases are often complex and rapidly evolving in nature, the AAA provides an expedited arbitration schedule for employment disputes. The rules provide that after the appointment of the arbitrator, the parties shall confer and attempt to agree upon procedures and a timetable for the arbitration. However, if the parties are unable to agree, the default time limits for the various steps in the arbitration are as follows:
Unless the parties provide agreement to the contrary, this default schedule shall be adhered to by the parties and the arbitrator, though again, the parties can of course agree to extend this time limit.
Function of Arbitrators in AAA Employment Cases
Arbitrators, the neutral party to an arbitration, are selected pursuant to the American Arbitration Association ("AAA") Rules. The AAA provides a list of potential arbitrators for the parties to choose from and the parties can agree on an arbitrator or provide their rankings for the list of arbitrators. If, after following a few steps, the parties cannot agree on one arbitrator, the AAA picks for them. The AAA, however, does not have to follow the parties’ rejection orders, which calls into question how many opportunities for rejection the parties will receive before the AAA exercises its own selection power. Once the selection process is complete, the arbitrator’s duties commence. The arbitrator’s first duty is to follow the rules and schedule issued by the AAA. (See AAA Employment Arbitration Rules and Mediation Procedures ("Rules"), Rule 34). The arbitrator will enforce those rules by, for example: (a) deciding on any motions made during the arbitration; (b) determining what type of documents should be exchanged between the parties; and (c) making sure the parties follow the general schedule set by the AAA. These three items, along with many others not mentioned in this article, can be dispositive when pitching a case to either side and/or in figuring out the scope and damages to present. The concern here is not all arbitrators will rule the same way. There is a wide range of experience, knowledge and abilities from arbitrator to arbitrator that the parties must consider. Since a stated duty of the arbitrators is to make the rules enforceable, their decisions can derail an otherwise strong case or spur what could have been a settlement figure into a high six or even seven figures.
Advantages of Choosing AAA Arbitration for Employment Disputes
Benefits of Using AAA Rules to Resolve Employment Disputes
The main advantages of both parties for entering into AAA arbitration are efficiency, privacy, and low cost. The United States judicial system is notoriously slow. In some states, trials can take upwards of one year to get a trial date and then the trial itself can take months. Issues likely to require appeal are even worse. The American Arbitration Association has streamlined processes that eliminate potential delays and inefficiencies in the traditional court system. This is beneficial for both the employer and employee. For employers, it tends to reduce litigation cost as it is essentially expediting the process. For employees, it provides closure. A court case can linger for years with multiple motions (potentially years) before a trial happens. Decisions can be appealed and the employees do not get the final closure soon enough. The earlier resolution is a benefit for employees who are seeking to get back to their daily lives or employment as fast as possible. The entire process for AAA employment arbitration is confidential. There are many benefits to this for both employees and employers. With respect to employers, it does not leave a public record destroying goodwill that it built up over many years. They also do not need to worry about any negative PR that comes with a public trial. Employees benefit from knowing that confidential information will not be discoverable by their former employer or any client they had worked with. It also allows the employee to get on with their life without having a public trial overshadow his/her life for years as they seek to put the matter behind them. The cost for arbitration generally is much lower than going through the court system. In some cases the arbitration can be free (such as when the employer has to pay both the arbitrator fee and the attorney’s fees) and in some cases, even if there are costs associated with arbitration, the cost of the lawyers can still be cheaper as there are no complex legal issues that need to be resolved through discovery.
Common Issues with AAA Employment Arbitration
As with any employment arbitration agreement, a potential downside of using AAA arbitration is the possibility that a court will find the agreement to be unfair or otherwise unenforceable. Likewise, an arbitration agreement may be challenged if it lacks sufficient specificity to allow for a neutral from AAA or JAMS to effectively apply the AAA rules (or JAMS rules). Although the courts have made clear that the enforceability of a waiver of the right to pursue a judicial forum depends not on the body of law which enforces the waiver but rather on the internal law of the employing state , questions about the enforceability of mandatory arbitration may arise both from issues affecting the validity of the waiver itself (for example, lack of mutuality, unconscionability and illegality) and issues affecting arbitration agreements specifically (for example, preemption of state law, limitations on percentage fee recoveries by arbitration providers, and invalidation of the opt out provision).
How to Initiate an AAA Employment Arbitration
Starting the Process
Arbitrations under the AAA Employment Rules are initiated by filing an arbitration Demand after the responding party’s rights to initiate arbitration have been extinguished by non-response or request for a stay. (AAA Employment Rule 3).
Demand Procedures
A party may initiate an arbitration under the AAA Employment Rules by serving or filing a Demand for Arbitration with the AAA. The parties may also serve or file with the AAA their contract and any other submission documents to the AAA.
Requirements for the Demands
The Demand must be filed within the appropriate statute of limitations, as discussed above, and must state the necessary jurisdictional information. In addition to this basic information, it must also contain certain requirements under the AAA Employment Rules.
Procedural Requirements
These procedural requirements for the initiation of an arbitrations pursuant to the AAA Employment Rules may seem overly broad; however, it is important to note that these procedural requirements are phrased in permissive language.
Recent Developments in AAA Employment Rules
In March of 2017, the American Arbitration Association announced significant changes to its rules for employment arbitration, the most significant of which is a change in the rules governing the determination of exemptions, equitable remedies and punitive damages – making it more difficult for employers to enforce pre-dispute agreements that prevent employees from seeking certain forms of relief. Prior to March 1, 2017, the AAA Employment Arbitration Rules (Rules), like most state and federal court standards, provided that the arbitrator shall rule on the merits of a dispute between the parties in accordance with the terms and conditions of the contract, and take into consideration all applicable provisions of law. The revised rules now provide that "[a]n arbitrator may not rely upon the terms of a dispute resolution agreement to deny or limit relief available to the employee under applicable statutes, including, but not limited to, statutory remedies or penalties," which in effect prevents an arbitrator from applying the terms of the contract to deny a claim for a statutory remedy, such as equitable relief or punitive damages , under Title VII or the Fair Labor Standards Act (FLSA).
The application of these "no waiver" rules has resulted in at least one district court refusing to stay an action to compel arbitration under an arbitration clause that includes "provisions that have the effect of waiving statutory remedies . . . because despite whatever the parties may have intended, such a provision would be unenforceable," which is, in essence, TSA Stores, Inc. v. Mackay, Civ. No. 5:17-CV-01181 (N.D. Cal. Feb. 6, 2017). The TSA Stores court further held that the defendant could not escape the statute of limitations on his FLSA claims because his arbitration agreement purported to waive the defendant’s right to seek liquidated damages under the FLSA, "which is ‘essentially a penalty’ that serves a dual purpose: to compensate the employee and to deter or punish the employer.’" As a result, the Court refused to compel arbitration even though the plaintiff was covered by the arbitration agreement because the agreement included a "no waiver" provision that violates public policy.
While the effects of these no waiver provisions are still being seen in 2017, it is more likely that such provisions will appear in industry-standard contracts in the coming years, which will prevent employers from compelling arbitration on such claims.