Attorneys debate merits of arbitration agreements - Beckley, Bluefield & Lewisburg News, Weather, Sports

Attorneys debate merits of arbitration agreements

Posted: Updated:

Many people may not know what an arbitration agreement is, but chances are they have probably signed one.

"Have you ever bought an appliance with a major credit card? Did you look at the back of the receipt? You probably just signed a contract of arbitration," explained Jeff Stewart, an attorney at The Bell Law Firm.

This, of course, isn't the only type of arbitration agreement. There are different types in the labor and commercial sector.

So, what exactly is an arbitration agreement?

The American Arbitration Association describes it as a "time-tested, cost-effective alternative to litigation." 

"It essentially is a vehicle that parties can use to bypass the court system," explained Stuart McMillan, a partner at Bowles Rice. "Its purpose and objective is to facilitate and expedite and reduce the expense associated with good ol' fashioned litigation, as we know it."

Mark Carter and Kip Power, attorneys at Dinsmore & Shohl, explained labor arbitration has been around since the 1930s as an enforceable contractual obligation. It was developed under the Railway Labor Act.

"The process became very popular around World War II," Carter explained. "Today, virtually all collective bargaining agreements anticipate a grievance arbitration system."

Carter said there are distinctions with how to treat arbitration proceedings — those in labor agreements with a union and arbitration between an employer and employee.

In labor disputes, Carter explained, most arbitration will proceed under a collective bargaining agreement.  If an employee is covered by a collective bargaining agreement or a union thinks an employer violated that agreement, it will file a grievance.

The employer will then process the grievance, and if they agree there has been a violation, they will come up with a remedy, Carter said.  If employers say there isn't a violation, they can go through several steps to bring the case before arbitration.

Carter explained employers and unions can search for an arbitrator through the Federal Mediation Conciliation Service, which maintains a list of arbitrators broken down by geographic location. The American Arbitration Association also maintains a list of arbitrators.  

"Typically, five to seven arbitrators will be secured," Carter explained, saying unions and employers can then eliminate arbitrators until they arrive at the last few people, who will serve as arbitrators in that case.

The American Arbitration Association says arbitrators "possess years of industry-specific knowledge and experience" and their conduct is "guided by the Association's code of ethics for arbitrators in commercial disputes." 

In arbitration, there usually is not formal discovery beforehand and people won't argue in front of a jury.

"In arbitration, you go into a conference room and the way the case is presented is more relaxed," McMillan said. 

Carter said the timeframe depends on the type of case, but the general goal is to reduce costs and solve issues as expeditiously as possible.

"The parties essentially generally have to live with that decision," Carter explained. "Federal courts are reticent to vacate."

McMillan said besides a few exceptions, people may not have a right to appeal the decision.

"You can find fraud in an arbitrator, gross misconduct or a true mistake, but otherwise you don't have a right to appeal an arbitration award. And that's the quid pro quo with it. You lose appellate rights but get, in theory, quicker resolution and it's ideally less expensive."

Carter explained that there are the most court challenges in the area of commercial arbitration and employment contract.

"This is a newer area where courts are not as supportive of arbitration," Carter said. "It's almost as if they feel that jurisdiction is limited by private agreements to arbitrate. They require a lot more with regard to the standards of recognizing contracts to arbitrate as well as the type of remedies available."

Power explained the goal is to reduce the risk of a jury returning a high verdict.

In these commercial cases, courts can be sensitive to contracts of adhesion, Power said. Of course, not all commercial arbitration has these contracts of adhesion. In fact, many contracts may contain an opt out provision. 

"This refers to a contract where you may enter into a contract and didn't even know it," he said. "You can go to the drycleaners, drop off your clothes, get a ticket, come back and get your clothing. This is a classic contract of adhesion. You're providing us with clothing and you recognize that we are not responsible for damages. Did you negotiate? Absolutely not. It's relative to the bargaining power you're entering in that type of contract."

Power said the bottom line is "when the court is sensitive to whether a contract creating the arbitration agreement is a contract of adhesion, it is far more skeptical about enforcing that obligation and prohibiting someone from seeking relief."

That doesn't mean the court will never enforce an arbitration agreement in that case.

"They're going to want to scrutinize how it was formed and what the relationship between the parties is, what the contract says, the commercial arbitration agreement, and if the parties are more sophisticated, their experience in entering into these agreements," Power explained.

McMillan said some consumers can have a fear about arbitration because the concept is unknown. 

"I think with consumers, it's more not knowing what it means and the concept that they do know is, ‘I deserve and have the constitutional right to have a jury hear my grievance. It's my right to have my day in court.' … But sometime your days in court are not good days."