Impact of due process protocol principles on arbitration of statutory employment cases

This reviews the impact of  “A Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship” (Protocol) (1995).

In response to the development of pre-dispute employment arbitration and at the prompting of the National Academy of Arbitrators (NAA), a Task Force on Alternative Dispute Resolution in Employment was created. The Task Force consisted of representatives of the American Bar Association, American Civil Liberties Union, Federal Mediation and Conciliation Service, National Academy of Arbitrators, National Employment Lawyers Association, and Society of Professionals in Dispute Resolution.

On May 9, 1995, the Task Force issued its “Protocol” recommendations. The Protocol addresses arbitration of statutory employment disputes. It encourages arbitration of statutory disputes that are conducted under proper due process safeguards to provide expeditious, inexpensive, and fair private enforcement of statutory disputes. The Protocol did not achieve consensus on the issue of the timing of an agreement to arbitrate statutory disputes. Nevertheless, the Protocol achieved consensus concerning some due process issues.

Representation by Counsel

The Protocol provides:

1. Employees utilizing arbitration procedures should have the right to be represented by a spokesperson of their own choosing and this right should be included in the arbitration agreement; 2. Payment for representation should be determined between the claimant and the representative. The employer should reimburse a portion of the employee’s attorney fees, especially for lower paid employees. The arbitrator should have the authority to provide for fee reimbursement, in whole or in part, as part of the remedy in accordance with applicable law or the interests of justice.        

Neutral Arbitrator

The Protocol provides that:

1. Arbitrators should have hearing procedure skills, statutory issue knowledge, and “familiarity with the workplace and employment environment.” Arbitrator rosters should be established on a nondiscriminatory and diverse basis to assure the parties that their interests and objectives will be respected; 2. Arbitrators whom both parties trust should be selected. The arbitrator must be unbiased. Arbitrators should decline cases if they believe the procedure lacks requisite due process; 3. Upon request of the parties, the designating agency should utilize a procedure such as that of the American Arbitration Association. The selection process could empower the agency to appoint an arbitrator if the striking procedure is unacceptable or unsuccessful; 4. The arbitrator has a duty to disclose any relationship that might reasonably constitute or be perceived as a conflict of interest. The arbitrator should be required to sign an oath affirming the absence of such present or preexisting situations; 5. Arbitrator impartiality is best assured by the parties sharing the arbitrator fees and expenses. If economic conditions do not permit equal sharing, the parties should agree on an appropriate split. In the absence an agreement, the arbitrator should determine the payment allocation.

Discovery:?The Protocol provides for access to information and encourages adequate but limited pre-hearing discovery. Employees should have reasonable pre-hearing and hearing access to all information reasonably relevant to their claims. Necessary pre-hearing depositions consistent with the expedited nature of arbitration should be available.

Fair Hearing:?The Protocol provides the arbitrator should be bound by applicable agreements, statutes, and procedural rules, including the authority to determine the hearing time and place; permit reasonable discovery; issue subpoenas; decide arbitrability; preserve hearing order and privacy; rule on evidentiary issues; determine the close of the hearing; and procedures for post-hearing submissions. The arbitrator should be empowered to award whatever relief would be available in court.

Written Opinion: The Protocol further recommends the arbitrator should issue an opinion and award resolving the submitted dispute. The opinion should contain: a summary of the issues, including types of disputes, damages and other relief requested and awarded; a statement of any other issues resolved; a statement regarding the disposition of any statutory claims.

The Protocol recommends that the arbitrator’s award should be final and binding and the scope of review should be limited.

According to the AAA, the Protocol seeks to ensure fairness and encourages arbitration of statutory disputes, provided there are due process safeguards. AAA Employment Arbitration Rules and Mediation Procedures, November 1, 2009 (AAA Rules).

The AAA Rules provide for:

1. The right to representation by counsel or another authorized representative. Rule 19; 2. Appointment of neutral arbitrators, party appointed arbitrators, chairperson, disclosure, disqualification of arbitrator, communication with arbitrator, and arbitrator vacancies; 3. Employer payment of the arbitrator’s compensation for disputes arising out of an employer-promulgated plan. Rules 12-18, and 44; 4. Reasonable discovery, including discovery of witness information and discovery authority. Rules 8-9; 5. A fair arbitral hearing, including providing for administrative conferences, arbitration management conferences, hearing locale, stenographic record, oath requirements, order of proceedings, evidence requirements and closing of hearing. Rules 7-8, 10-11, 20, 25, 28, 30, and 33; 6. A written award and opinion. Rule 39. 

The NAA Guidelines for Standards of Professional Responsibility for Arbitrators in Mandatory Employment Arbitration (2014) are intended to assist arbitrators in deciding whether to take a case and how to fairly conduct a case. The Guidelines provide for: adequate rights of representation; a  fair manner for the selection of a neutral arbitrator and compensation of the arbitrator; arbitrator authority to ensure reasonable discovery; a fair arbitral hearing. This includes arbitrator remedial authority equal to that provided by statute, and no unfair hearing restrictions; a written opinion and award.

Although the National Association of Securities Dealers (NASD) [consolidated with Financial Industry Regulatory Authority (FINRA) July 2007] previously required arbitration of statutory employment claims, FINRA no longer requires arbitration of such claims. Hooters v Phillips, 39 F Supp 2d 582, 621 (D SC 1985); FINRA Rule 13201. Statutory employment claims may be arbitrated only if the parties have agreed to arbitrate it, either before or after the dispute arose. If the parties agree to arbitration, the claim will be administered under Rule 13802. The FINRA Rules provide for: right to representation by counsel. Rule 13208; neutral public arbitrators. Rule 13802.; Discovery. Rules 13505-13514; fair arbitral hearing, including any relief that would be available in court. Rules 13600-13609, 13802 (e); the arbitrator must issue an award setting forth a summary of the issues, including the types of disputes, the damages or other relief requested and awarded, a statement of any other issues resolved, and a statement regarding the disposition of any statutory claims. Rule 13802(e).

JAMS has promulgated its Policy on Employment Arbitration Minimum Standards of Procedural Fairness (JAMS Policy). JAMS supports application of the Protocol and intends that its Employment Arbitration Rules and Procedures be consistent with the Protocol. The JAMS Policy provides for: the right to representation by counsel.
Standard No 3. Rule 12.; arbitrator neutrality. Standard No 2. Rule 7; discovery. This includes providing for exchange of core information and some depositions. Standard No 4; a fair arbitral hearing, including all remedies available in a court, presentation of evidence, hearing location, and mutuality. Standard No’s 1, 5, and 6-7. Rules 19, 20, 21, and 22; a written opinion. Standard No 8. Rule 24.

Initially, some courts cited the Protocol in considering arbitration due process issues. Jacquelin Drucker, “The Protocol in Practice: Reflections, Assessments, Issues for Discussion, and Suggested Actions,” Beyond. The District Court in Hooters v Phillips, 39 F Supp 2d 582 (D SC 1985), aff’d 173 F3d 933 (4th Cir 1999), alluded to the Protocol as part of the plaintiff’s contentions. The District Court cited the Protocol in Rosenberg v Merrill Lynch Pierce Fenner & Smith, 995 F Supp 190, 208 n 23 (D Mass 1998), aff’d 170 F3d 1 (1st Cir 1999).

Cole v Burns Int’l Security Services, 105 F3d 1465 (1997), cited the Protocol in dissent 9 concerning the arbitrator fee payment issue. Id at 1490-1491. Cole held that an arbitration agreement must: provide for neutral arbitrators; provide for appropriate discovery; require a written award,; provide for all relief available in court; and not require employees to pay either unreasonable costs or any arbitrators’ fees as a condition of access to the arbitration tribunal. Id at 1482.

The Michigan Supreme Court had previously reviewed arbitration due process issues in Renny v Port Huron Hosp, 427 Mich 415; 398 NW2d 327 (1986). In Renny, the Court held: where an employee has expressly consented to submit a complaint to a joint employer-employee grievance board established by the employer with the knowledge that the resulting decision is final and binding, the decision shall be final unless the court finds as a matter of law that the procedures used did not comport with elementary fairness. Id at 418.

In Renny, the employee was not permitted to have counsel present or see the complaint against her, and was not informed of the identity of witnesses testifying at the hearing. She was not present during the testimony or during opening remarks. No records or transcripts of the discharge hearing were made, and the tribunal made no finding. No witnesses could be called without the tribunal’s consent. A witness’s appearance was voluntary. An employee had no right to cross examine or rebut testimony or to make closing arguments. Id at 423-424. The court concluded that the grievance procedures did not comport with elementary fairness. Id at 437.

Renny held essential elements necessary to fair arbitration proceedings are: adequate notice to persons who are to be bound by the adjudication; the right to present evidence and arguments and the fair opportunity to rebut evidence and argument by the opposing argument; a formulation of issues of law and fact in terms of the application of rules with respect to specified parties concerning a specific transaction, situation or status; a rule specifying the point in the proceeding when a final decision is rendered; and, other procedural elements as may be necessary to ensure a means to determine the matter in question. ... . Id.

A Conflicts Panel of the Court of Appeals subsequently reviewed arbitration due process issues in Rembert v Ryan’s Family Steak Houses, Inc, 235 Mich App 118; 596 NW2d 208, lv dn, 461 Mich 923 (1999).

Rembert did not cite the Protocol although it came close when it cited the AAA National Rules for the Resolution of Employment Disputes. Id at 160 n 32. Rembert indicated:  While our decision upholds the principle of freedom of contract and advances the public policy that strongly favors arbitration, it does so subject to two conditions generally accepted in the common law: that the agreement waives no substantive rights, and that the agreement affords fair procedures. Id at 124.

Rembert noted Renny and Cole, as well as leading ADR organizations, “suggest certain baseline fundamentals to ensure fairness in an arbitral process for discrimination claims.” Id at 161. Rembert held that to satisfy Renny and MCR 3.602, the arbitration procedures must provide:clear notice the employee is waiving the right to adjudicate claims in court and is instead opting for arbitration; the right to representation by counsel; a neutral arbitrator; reasonable discovery; a fair arbitral hearing, and written awards containing findings of fact and conclusions of law. Id at 163-165.

Saveski v Tisco Architects, Inc, 261 Mich App 553, 556; 682 NW2d 542 (2004), indicated the Rembert record requirements are “more stringent” because a court reviewing a “civil rights claim” must have a means of analyzing whether the arbitrator properly “preserved” the employee’s statutory rights.

No other published Michigan cases discuss the Rembert due process requirements. In Miller v Miller, 474 Mich 27; 707 NW2d 341 (2005), the Supreme Court ruled that in an arbitration under the Michigan Domestic Relations Arbitration Act, MCL 600.5701 et seq, a hearing does not have to be a formal hearing if “the parties and the arbitrator” agree that it does not have to be. Id at 33. Any possible tension between Miller and Rembert is probably inconsequential in employment arbitration cases since parties are unlikely to agree to an informal hearing.

The Michigan Uniform Arbitration Act (MUAA), MCL 691.1681 et seq., governs an agreement to arbitrate whenever made. MCL 691.1683. A party may be represented by counsel. MCL 691.1696. The arbitrator may award attorney fees if authorized by law or by agreement of the parties. MCL 691.1701. An individual who has a known, direct, and material interest in the outcome of the arbitration or a known, existing, and substantial relationship with a party shall not serve as a neutral arbitrator. MCL 691.1691 and .1692. MUAA contains provisions for subpoenas, depositions, and discovery. MCL 691.1697.

The arbitrator may award punitive damages or exemplary relief if authorized by law and the evidence justifies the award; may order remedies that the arbitrator considers just and appropriate under the circumstances; and the fact that such a remedy could not or would not be granted by the court is not a ground for refusing to confirm an award. MCL 691.1701. An arbitrator shall make a record of the award. MCL 691.1699.

Conclusion

Michigan case law is largely consistent with the Protocol recommendations. Rembert did not adopt the Protocol theory of the employer paying part of the employee’s attorney fees, absent statutory requirement. Miller’s permission of an informal hearing, if agreed to by the parties and the arbitrator, has not affected the Rembert due process rules. The Michigan Uniform Arbitration Act is not inconsistent with the Protocol and codifies some of the Protocol recommendations.