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Recent developments have created the likelihood of increasing numbers of class action arbitrations in the employment context. There is, however, limited guidance from the courts, professional arbitration services, and statutory law as to how such actions should proceed. Employers and practitioners faced with the possibility of such actions will no doubt be looking for guidance. OVERVIEW: CLASS ACTIONS AND ARBITRATION After a period of relative quiet in employment-related class actions, there has been quite an upsurge of cases in recent years. In 1999 about 75 classes were certified in employment actions, and the Equal Employment Opportunity Commission (EEOC) and its state counterparts brought additional cases on behalf of classes of employees. The broadening web of workplace protective statutes and the potential profitability of such actions for lawyers make it quite likely that there will be an increasing number of class, consolidated, or collective actions. While there are some procedural differences between these actions (such as whether an “opt-in” or an “opt-out” class is involved), for purposes of their use of ADR, all are virtually identical and all will be referred to here as class actions. In addition, condition-of-employment (also sometimes called mandatory, cram-down or imposed) arbitration provisions recently have become more popular, although hard data is difficult to come by because there is no reporting system for such matters. A seemingly inevitable result of this class action resurgence and the increased use of such arbitration provisions is class action arbitrations. A further factor affecting the use of such arbitrations is that, despite the costs, employers may see class arbitrations in many instances as a viable voluntary alternative to going to court. If you think about it, with any employer it is very likely that wage and hour or other condition-of-employment allegations will be very similar for a significant part, if not all, of the work force. For employers with dispute resolution plans covering all employment disputes, including vacation and overtime disputes, the situation is very similar to a group grievance in a unionized setting. In those cases it may well be the employer that wants all affected employees to be bound by one, or at most a few, arbitration decisions determining the parameters of any given policy. The alternative — many individual arbitrations about such policies, yielding differing and possibly inconsistent results — would be a nightmare for the employer to administer. Although there may be situations where employers would like similarly situated employees to be bound by one arbitration decision, there are few arbitration provisions that provide for class action arbitration. In fact, most simply do not mention class actions. In spite of the fact that arbitration clauses typically do not address class actions, however, class action litigants often use arbitration or mediation at some point in the proceedings or as part of a settlement. For example, responding to allegations of pattern and practice discrimination or sexual or racial harassment, numerous courts recently have certified one or more classes. Additionally, the EEOC and its state counterparts have brought suit on behalf of a class of employees. Although some of these actions proceeded in court, others have proceeded in arbitration. But regardless of whether a case is arbitrated or litigated, nearly all employment class actions eventually settle — very often with provisions for the mediation and arbitration of some issues or of all the class members’ claims for damages. For instance, a gender discrimination class action was settled for $508 million in March 2000 after 48 of the 1100 class members’ claims were tried individually. [FOOTNOTE 1]Another example involves three related class actions in Michigan that settled with a provision for the arbitration of damages. The arbitration, conducted in October 1999 by a tripartite panel of one retired judge, a plaintiff-side lawyer, and a defense-side lawyer, resulted in an award of $45 million to the three classes of discrimination victims. [FOOTNOTE 2]Individual claims were determined by a different tripartite panel and a group of pastors acted as the neutrals. WHAT THE AUTHORITIES SAY ABOUT CLASS ACTION ARBITRATION There is little indication that class action arbitration is not permissible. The Federal Arbitration Act (FAA) is silent on the subject of consolidated or class actions, and no state statute appears to prohibit class action arbitrations. Some state statutes are silent on the subject; others permit case consolidations of various kinds. Some state courts have found that class action arbitrations are permitted even absent a contractual provision. Others have found they are not permitted unless specifically provided for in the arbitration agreement. No court, to my knowledge, has permitted a class action arbitration that was specifically prohibited by the arbitration agreement. A fairly recent California case, Ramirez v Circuit City Stores, Inc., [FOOTNOTE 3]refused to enforce a condition-of-employment arbitration agreement and found it “suspect” in part because Circuit City’s employment dispute resolution policy specifically prohibited class claims. The court cited an earlier, non-employment, California Supreme Court case which stated that the class suit both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress for claims which would otherwise be too small to warrant individual litigation. It is common knowledge that arbitration clauses frequently appear in standardized contracts of adhesion. A primary consideration which has led courts to uphold such clauses, despite the adhesive nature of the contract, is the belief that arbitration is not oppressive and does not defeat the reasonable expectations of the parties. [citation omitted] If, however, an arbitration clause may be used to insulate the drafter of an adhesive contract from any form of class proceeding, effectively foreclosing many individual claims, it may well be oppressive and may defeat the expectations of the nondrafting party. [FOOTNOTE 4] An excellent discussion of many of the legal issues involved in deciding whether to permit class action arbitrations can be found in Blue Cross of California v. Superior Court. [FOOTNOTE 5] Blue Crosswas a non-employment case that consolidated a class of policyholders’ arbitral claims under California state procedural law. Its discussion of class action arbitrations, however, is equally applicable to employment disputes. While there are a variety of statutes and rules that address the use of arbitration in employment disputes, none seem to preclude the use of class action arbitration. The Due Process Protocol for the Arbitration and Mediation of Statutory Employment Disputes (Due Process Protocol), which was negotiated by many stakeholders in employment dispute resolution (ABA, NELA, SPIDR, FMCS, NAA, AAA), requires that the parties be allowed to participate in the selection of their arbitrator(s). This requirement must be met in both opt-in and opt-out class action arbitrations. The Fair Labor Standards Act (FLSA) requires that wage and hour disputes be opt-in collective actions. [FOOTNOTE 6]Title VII and the other federal legislation prohibiting discrimination in employment encourage the use of ADR. Such legislation does not, per se, prohibit the arbitration of class-wide claims of discrimination, although the EEOC continues to argue, with mixed success, that condition of employment arbitration of discrimination claims is prohibited. THE ROLE OF THE COURTS AND PROFESSIONAL GROUPS The courts’ role in class action arbitrations is not yet settled. It is probably necessary, and certainly appropriate, however, for the courts’ role to extend beyond merely compelling class action arbitration to overseeing that arbitration, including the propriety of the class. The American Arbitration Association (AAA), for example, has taken the position that it will not accept a class action arbitration filing absent a court order, although AAA’s National Employment Dispute Resolution Rules are altogether silent on the subject. Other administering agencies likely have a similar requirement. The additional question as to when an administering agency should accept a class action arbitration filing is not a minor issue. Class action arbitrations require a high level of administration that may be beyond the practical capability of independently selected arbitrators, regardless of their backgrounds. While there are a number of qualified groups around the country that administer the various ADR steps of a class action settlement, most are not presently equipped to handle the pre-settlement stages. ISSUES THAT ARISE IN CLASS ACTION ARBITRATIONS A number of issues arise in the arbitration of a class action. Some of these issues have been addressed in cases that have tried this type of arbitration; others will require a more creative approach. (a) Selection of the arbitrators Selection of the arbitrator(s) is a key issue in class action arbitrations, as it is in all arbitrations. In a relatively simple case regarding the proper application of an employer’s policy, a single neutral arbitrator jointly selected by the class representative(s) and the employer is practical. Because of the amount of work involved, however, and because the stakes affect so many in class actions claiming discrimination, wage and hour violations, and other potentially large awards, it makes sense for class actions to be tried by a panel of three neutral arbitrators. A classic tripartite panel (one neutral arbitrator sitting alongside each party’s partisan arbitrator) certainly is one possibility. But this arrangement would increase exponentially the difficulty of managing the process because the neutral arbitrator will be unable to have any meaningful ex parte contacts with either of the other arbitrators. The classic tripartite approach also ultimately leaves the final decision in the hands of the sole neutral arbitrator, which may be a less desirable approach where there are very limited grounds for appeal and usually no appeal of mistakes or fact or of law. The parties may either jointly select the panel, or each party may select one arbitrator and then the parties may jointly select the third arbitrator. In such cases, there should be a written understanding that all three will be neutral and the party-appointed arbitrators won’t have any further ex parte contacts with the side nominating them to the panel. Obviously, this allows the parties to select arbitrators who are knowledgeable in employment law and who also have other valuable qualifications that meet the needs of a specific dispute. It is helpful if at least one of the panel members is a retired judge (experience in handling a class action being a desirable, but not necessary, qualification). Employing a three-person panel greatly increases the costs and complexity of scheduling, but no class action is cheap or easy. The trade-off is worthwhile if the stakes are significant. (b) Determining procedures There are no separate written rules for the arbitration of class actions. Absent such rules, the parties are free to create procedures tailored to their needs, assuming the final process meets the level of fairness required by the Due Process Protocol and wins the approval of the court and the arbitration panel. In some cases that have addressed the procedural issue, there is agreement that either state or federal class actions procedures will be followed, with some appropriate modifications for the arbitral forum. Occasionally, the parties draft their own rules of procedure and then fine-tune them in consultation with the arbitrator(s). Depending on the desires of counsel, the arbitrators, and the court, most of the process works without much court involvement or intervention. Arbitration management will require substantial hammering-out of hearing procedures and resolution of discovery disputes. Although the norm in smaller arbitration cases has been to handle arbitration management by conference call, class actions are more efficiently handled in the earlier stages by counsel sitting down at the table with the arbitrator(s). Class actions are exceedingly difficult to get off the ground solely by conference call, although conference calls work well to resolve narrow issues that subsequently arise. Counsel and the arbitrator(s) probably will have several management/ discovery conferences over weeks or months during the early stages of a class action. Often responsibilities can be shared between various members of an all-neutral panel. For example, one arbitrator may be assigned to resolve discovery disputes, another to oversee class notification, and the third to resolve additional issues as they arise. Once the arbitrators have been selected and the parties have agreed on the procedures, the remaining strategic decisions in class action arbitration are not significantly different than comparable decisions in class action litigation. There will probably be much greater informality and flexibility, however, in dealing with the decision-makers. If there is an administering agency, then it will need to be kept informed, but not necessarily involved, in the arbitration management. (c) Bifurcation It always makes sense to bifurcate the liability and damage issues because these cases invariably settle in arbitration, just as they do in court, usually no later than the finding of liability. The only additional wrinkle in arbitration is that the court likely will want to approve the settlement after the arbitrators have done so — essentially a double-check that the settlement is fair and reasonable. Additionally, one should keep in mind that many employment class action settlements involve items, such as diversity training, that do not involve the use of ADR and are beyond the scope of this discussion. If mediation and arbitration of individual damages are part of the settlement (an increasingly common combination), then the parties should consider a variety of models to determine which makes the most sense for their particular situation. The parties, however, never should seriously consider using the same arbitrators who decided the liability issues. The losing party very likely will question the liability decision-makers’ neutrality. Those original arbitrators, therefore, can be used more effectively to oversee the continuing process and to decide any additional global disputes related to the settlement agreement’s terms or class counsel’s fees. It is important for different arbitrators to determine liability and damages. An agreement to that effect will remove any fear that the arbitrators’ liability decision will be motivated, even unconsciously, by a desire to collect the subsequent extensive fees that will be charged to resolve individual class member’s claims. (d) Determining individual claims Various approaches, funded by the companies, have been taken in recent years to determine individual class member’s damage claims. Usually, the settlement either has a common fund to be divided among the class members or an open-ended amount to be paid by the company depending upon the resolution of individual claims. In a few recent discrimination cases involving a common fund, a single neutral was employed to evaluate the class members’ written claims and assign a category of seriousness. Each member of a particular category received the same level of damages (the amount being adjusted to fit into the fund total after all claims were assigned to a category), and the decision of the neutral regarding placement in a category was final and binding. The Michigan settlement described above adopted a similar approach. In that case a tripartite panel arbitrated individual claims after a relatively brief hearing. In recent cases that did not involve the common fund limitation, a three-stage system has been created that is administered by a neutral agency. The individual class member has submitted a written claim and received a settlement offer from the employer. If the class member rejected the settlement offer, then the dispute went to confidential mediation. In one case, the mediator was required to make a non-binding “mediator’s proposal” if the parties did not settle by the end of the day. If either of the parties rejected the mediator’s proposal, then the matter went before a single arbitrator who had not been involved in the mediation and who held an essentially typical evidentiary hearing, although there were a few evidentiary limitations. In still another class settlement without a common fund, there was a provision that if the parties were unable to reach agreement in a one-day mediation (and less than a day is probably insufficient for a high settlement rate), then the mediator would decide the appropriate amount. This is essentially arbitration by another name. It is a particularly problematic resolution because it is likely to compromise the integrity of both the mediation and the final resolution. Although it is more costly, parties always should provide for completely separate mediations and arbitrations, and they also should not use the same neutral for both processes. (e) Dealing with individual claims There are a number of issues that need to be addressed in establishing an arbitration system for individual claims. Whatever final procedures are selected, however, all the parties, and especially the individual claimant, must feel the procedures are fair. The following section identifies issues that should be considered when designing a process, which may include elements of both arbitration and mediation: (1) Who will be the neutrals, how will individual claims be assigned for hearing, and where will the hearing be held? Often an administering agency creates a pool of experienced employment mediators and arbitrators who are available to serve individually or in panels. The parties then jointly select from that pool. Cases in any given geographical area then are assigned in rotation, or the individual claimant selects (the employer having already agreed to the composition of the pool) from among the geographically available mediators and arbitrators. If the individual mediator, arbitrator, or panel is responsible for setting the mediation or hearing date, then the neutral(s) generally will be overseen by the administering agency. Alternatively, the administering agency may make all of the hearing arrangements. The site of the mediation or arbitration should be reasonably convenient to the individual claimant and must provide the appropriate degree of privacy. Hotel conference rooms usually are suitable if no less expensive alternative is readily available. Hearings can take place outside of the normal business day to accommodate the needs of parties or counsel. (2) May claimants be represented by counsel and, if so, who pays the claimant’s attorney’s fees? The class action settlements with which I’m familiar provide that claimants may be represented by counsel. Some settlements have provided that class counsel will represent individual claimants or that a regional pool of lawyers will be recruited to represent claimants. The company pays the mediator and attorney’s fees for the claimant’s attorney if settlement is not achieved. If the parties settle, then the claimant’s lawyer gets a contingent fee negotiated by class counsel. The company pays the arbitrators’ fees. Generally, the employer pays attorney’s fees if the employee/ claimant loses in arbitration. If claimant wins, then statutory attorney’s fees may be awarded. If statutory attorney’s fees are not available because of the nature of the claim, then the employer pays the claimant’s attorney’s fees. When employers are responsible for paying claimants’ attorney’s fees, they usually are limited to a maximum amount negotiated as part of the class settlement. When the underlying case has been brought by the EEOC, the Commission represents individual claimants or arranges alternative representation. (3) What claims can be brought? Some settlements limit claims by individual class members to the allegations underlying the class action suit. Others have permitted all an individual’s employment claims to be resolved in the arbitration. Class settlements typically allow for the resolution of interim claims of retaliation or other interim, related matters in the same mediation or arbitration. Workers’ compensation claims are excluded from this entire process. In most of these settlements, employer counterclaims are not included, although a few settlements have allowed counterclaims. (4) What about discovery? Most class action settlements allow for only very limited discovery prior to mediation. Although discovery also may be limited for arbitration, evidence developed for the class action is available to the individual claimants’ attorneys. Some plans provide that the arbitrator(s) may permit additional discovery for good cause. (5) Rules of evidence? Some settlements have required the use of the Federal Rules of Evidence or its state counterparts during the arbitration of individual class members’ claims. Others either have allowed for a specified relaxed set of rules or have made no provision on this issue. In the absence of any specification, arbitrators are not required to follow any rules of evidence, although most privileges are recognized and enforced in arbitration. One reasonably can expect the arbitrator(s) to uphold objections asserting that the evidence is irrelevant, cumulative, or unduly time-consuming. Most plans designed for cases alleging sexual harassment prohibit the introduction of claimant’s sexual history except for evidence of any prior relationship between the claimant and the person accused. Nonetheless, the arbitrator may limit admissibility if he or she decides that the evidence is not relevant. Many settlements restrict the use of expert testimony. In some cases expert medical (usually psychological) testimony is permitted. Economic experts have been permitted even when other expert testimony has been excluded by the class settlement agreement. (6) Transcripts? Some settlements prohibit transcripts of the arbitration proceeding. Others will allow a party to order a transcript if he or she is willing to cover the cost. Cost and time factors, however, often make a transcript undesirable. (7) Confidentiality? Although, as a rule, the mediation of class members’ claims is confidential, usually the arbitration is not. Sometimes there is a provision that allows the individual claimant to determine whether the arbitration proceeding will be confidential. As a practical matter, except when high profile class members are involved, there generally is not much media interest and the issue really may affect only friends or family members. It seems like a good idea to allow at least one such “support person” to be present at both the mediation and arbitration for the claimant’s comfort. (8) Pre and post-arbitration briefs? Often this issue has not been addressed. Limited pre-mediation briefs may make sense, especially when limited time is allotted to the mediation. Both pre- and post-hearing briefing may add unnecessarily to the time and expense of the arbitration. If the arbitrators are experienced in employment law, then briefing also may offer very limited utility. Class parties may benefit if a stipulation of facts common to the class is submitted to the arbitrators of individual member’s claims. (9) Award The date the arbitration award is due always is specified and seems to run anywhere from 14 to 30 days. Usually an opinion is not required, although some class settlements have provided for a brief “statement of the reasons.” It may be a good idea to require such a statement to ensure that the arbitrator has identified reasons for the award. The statement also helps the parties understand why a particular amount was awarded. A brief statement increases the likelihood the process will be perceived as fair and substantially diminishes the likelihood of further proceedings. Arbitration awards are considered final and binding and may only be vacated by a reviewing court for the reasons specified in the Federal Arbitration Act (or in similar state laws), such as misconduct, evident bias, or the arbitrator’s lack of authority. While it is too soon to be certain if it will become more common to resolve class action liability in arbitration, the value of ADR in the overall class action universe is becoming increasingly recognized and utilized. This article is excerpted with permission from CCH’s Journal of Alternate Dispute Resolution, Winter 2000 Edition. Sara Adler has worked as a full-time neutral (arbitrator/mediator/fact-finder), primarily in labor and employment disputes, since 1978. She has extensive experience in the resolution of a wide variety of labor and employment disputes in the private and public sectors at all levels of employment, including mediating numerous wrongful discharge disputes and over 150 sexual harassment and other discrimination disputes. ::::FOOTNOTES:::: FN1 Hartman v. Duffey, 8 F. Supp.2d 1 (D. D.C. 1998), FN2 Frazier v. Detroit Edison, No. 97-71448 (E.D. Mich); Sanchez v. Detroit Edison, No. 97-706639-NO (Mich. Cir.Ct); Gifford v. Detroit Edison, No.93-333296-NO (Mich. Cir.Ct). Arbitration award issued October 28,1999. FN390 Cal. Rptr. 2d 916 (App. 1999), review granted (March 24, 2000). FN4Id. at 920-21 (citing Keating v. Superior Court, 31 Cal.3d 584, 609, 610 (1982) (app. dismissed in part and judg. rev’d in part on other grounds sub nom Southland Corp. v. Keating465 U.S. 1 (1984)). FN567 Cal. App. 4th 42, 78 Cal. Rptr. 779 (1998). FN629 U.S.C. �216(b). � 2001, CCH INCORPORATED. All Rights Reserved.

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