New Report Comparing Arbitration and Litigation in Employment Disputes Sparks Backlash

By Andrew Garcia

In May, the U.S. Chamber of Commerce affiliate, the Institute for Legal Reform, released a report praising the results of arbitration in encouraging settlement, providing more wins for employees, higher awards, and faster outcomes versus litigation in employment disputes.

The Chamber’s report, “Fairer, Faster, Better: An Empirical Assessment of Employment Arbitration,” authored by Nam D. Pham and Mary Donovan, researchers at Washington, D.C., consulting firm NDP Analytics, seemed awash in good news.

It was based on a five-year review between 2014 and 2018 of 10,000 employment arbitrations with data from arbitration providers American Arbitration Association and JAMS. The report compared the arbitrations with more than 90,000 employment lawsuits in federal courts between 2014-2018. It found that employees were three times more likely to prevail in arbitration than in litigation, arbitrations lasted on average 96 days shorter than litigated cases, and the average amount awarded was almost twice as much in employment arbitration, at more than $520,000,  compared to litigation.

Twitter erupted. Critics slammed the report saying that it ignored key data, failed to account for cases cut off by compulsory alternative dispute resolution processes, and flat-out cooked the awards data conclusions by using the mean to skew the size of awards, rather than the median.

More significantly, labor forces moved to debunk the Chamber’s  report saying it was designed for a May Congressional hearing, Justice Denied: Forced Arbitration and the Erosion of our Legal System, where it was the crux of the Chamber’s pro-arbitration argument.

A principle criticism is the report doesn’t cite the contrary significant data that emerged over the past decade from the Economic Policy Institute, a Washington, D.C., nonprofit that researches economic data from low- and middle-income workers’ perspective. The 2015 EPI report criticized arbitration as a litigation alternative in employment cases.

That December 2015 EPI report, “The Arbitration Epidemic,” authored by UCLA School of Law Prof. Katherine Stone, and Alexander Colvin, who is dean and the Martin F. Scheinman Professor of Conflict Resolution at Cornell University’s ILR School, argued that employees who are contractually bound to arbitrate disputes are less likely to receive favorable outcomes or substantial awards compared to employees that initiate disputes through litigation.

Stone and Colvin compared two separate studies that examined outcomes in arbitration and litigation actions, An Empirical Study of Employment Arbitration: Case Outcomes and Processes (2011), and Arbitration and Litigation of Employment Claims: An Empirical Comparison (2003).  They found that employee arbitration win rates were 59% as often as in federal court actions, and 38% as often in state court actions.

A subsequent 2015 study on employment litigations indicated that the employee win rates in federal court cases lowered to an average of 29.7%, while another 2015 study on employment arbitrations found that employee win rates in arbitrations also lowered to an average of 19.1%. The EPI report commented that even though the outcome gap narrowed in 2015 compared to the 59% gap in 2011, the employee win rate in arbitration was still 35.7% lower than in federal court actions.

A subsequent 2018 report by Alexander Colvin found that only one in 10,400 employees subject to arbitration files a claim, which is a rate 35 to 80 times less than employees who file claims in federal and state courts.

So the new Chamber Institute for Legal Reform report served to reignite fights that have taken place over the past decade in courts and legislatures over employment and consumer arbitration. Yet despite the recurring arguments, there may be middle ground. Myriam Gilles, a professor at Cardozo School of Law in New York,  stated in her testimony at the May Congressional hearing that advocates opposed to mandatory arbitration are not arguing that arbitration be banned altogether, but that mandatory arbitration in a consumer or employment context that bars class actions is unworkable.

In addition, the Stone and Colvin report offers an in-house ADR solution that companies can adopt. The report cites that the former TRW Inc. in the 1990s adopted successful internal dispute resolution procedures that included local management complaint procedures, peer review panels, and then mediation. A 2004 study by Colvin found that only 72 TRW cases even reached mediation over the first three years of the program, and only three of the cases reached arbitration. In addition, TRW set up the process to be binding on the company but not on the employee, who would then be able to go to court after arbitration if the employee was not pleased with the outcome.

* * *

The author, a Summer 2019 CPR Institute intern, is a law student at Brooklyn Law School.