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Re-Drafting the Pre-dispute Employment Agreement: Response Against the FAIR Act

Shubham Gandhi, student at DNLU, Jabalpur

Introduction

The rule permitting mandatory employment arbitration (“MEA”) or pre-dispute agreements, took a beating as, after much debate, the United States House of Representatives passed the Forced Arbitration Injustice Repeal act (“FAIR”) banning the practice. The policy of pre-dispute agreement, amidst criticism, empowers employers to seek arbitration for resolving disputes, instead of filing suit in court, as a condition precedent before employment. The critics emphasize that the employees largely accept the agreement as a condition to get a job, without much deliberation, which violates the essential principle of party autonomy.

In this article, the author attempts to examine the negative impact of the debarring of pre-dispute agreements and seeks to examine both pre and post dispute agreements to ultimately, suggest measures to bring out pre-employment dispute agreements in a more justifiable manner, in contrast to the FAIR Act.

Expatiate Mandatory Arbitration or Pre-dispute Arbitration Agreement

The overthrow of the “employment-at-will” theory in the late 80s, spearheaded a rise in employer-employee disputes in the US, which demonstrated that employers are spending hefty sums to defend themselves against jury trials. This gave rise to the adoption of the much more favorable alternative of mandatory arbitration of employment disputes.

The law of mandatory arbitration provides recourse to arbitration in place of filing a suit for settling disputes as a condition precedent on employees for employment. The rule was predominately decried, as being against the employee’s free will and autonomy (see discussion). Thereafter, the U.S Supreme Court, addressed this controversy, in Gilmer v. Interstate/Johnson Lane Corp., which validated such agreements, by stating that a change of forum does not inevitably result in violation of substantive rights. However, the court has reserved its door open for other reliefs, stemming out of employment, which it is empowered to grant.

However, the critics still consider the practice as one against public policy, and after much discourse, the FAIR Act was passed in September 2019.

The act vide Section 2(a)prohibits pre-dispute arbitration agreements that force arbitration of future employment, consumer, antitrust, or civil rights disputes”. It creates an incisive distinction between the arbitration agreement entered before and after the employment (pre v. post-agreement).

General Hesitation around the Globe regarding MEA

The scheme of arbitration of individual employment disputes is left unexplored in large parts of Europe. The practice is forbidden in German labour law, except for matters concerning collective issues. In Spain too, arbitration is resorted to only for collective matters, rather than individual disputes. Following the Supreme Court decision in Austria, the scheme of MEA was outlawed as being contrary to the country’s Labour Constitution Act. The United Kingdom too prohibits resolving most workplace disputes through arbitration.

However, the French system states that disputes may be arbitrated if the parties agree to submit to arbitration after the termination of the employment contract when the inherent master-subordinate relationship no longer exists. The author believes this to be in good spirit. The general disregard with MEA is founded on the reason that the principle of party autonomy stands subdued with the court taking over the matter. However, in the latter part of this article, the author will try to justify his stand regarding the efficacy of MEA in employment disputes.

The Schism between Pre v. Post dispute agreement

The FAIR Act notes that a post-employment arbitration agreement is a fair and reasonable practice, as parties are armed with clear facts and issues of dispute and are in a position to access the whole situation, unlike a pre-dispute agreement. This argument lacks an understanding of ground realities.

Post dispute agreements are difficult to proceed with as the employee would opt for a civil suit if the claim is for a hefty amount, considering the high value of compensation granted by courts. In contrast, if the claim is meagre, the employee will not file a suit, as it requires substantial money to fight a case. This is not possible for employees who earn less.

The author is against the complete banning of the pre-dispute agreement, which occurs at the end of employment arbitration. Instead, the recourse that should be adopted is by bringing an amendment to the rule, making it viable and fair. The Dunlop Commission Taskforce on the alternative disputes in employment, and the National Academy of Arbitrators have well-drafted rules regarding arbitration in employment disputes, which can be referred to in this regard. The rules, such as following due process in proceedings, participation of both the parties in the appointment of an arbitrator, choice of representation, settlement of the issues of dispute, remedies in case of violation of substantive rights, the passing of a reasoned award, limited judicial review of the award, etc must be taken into consideration.

Revamping The Pre-dispute Agreement in Totality

Party autonomy: The salient feature of any arbitration agreement is the party autonomy principle, which according to critics, stands violated by pre-dispute agreements. The legislature can make the arbitration clause an enabling provision without making it mandatory, emphasising the autonomy of the employee. There should also be a statutory time limit prescribed to the employees to decide, whether to agree or not.

Arbitrator: The presence of an impartial arbitrator is quintessential, which for critics is not fulfilled in pre-dispute agreements since they believe that the arbitrator will favour the employer.

The process can be made impartial by following below considerations:

  • The arbitrator must be selected by the employer must be an established and reputed one, such as one from the National Academy of Arbitrators.
  • The employee should also be allowed to include his/her candidates on the list.
  • In case of dissatisfaction with the employee from internal arbitration, he/she should be empowered to choose an outside panel for arbitration.

Generally, the interest of the employee lies in getting a timely decision in accordance with the decision of the internal panel, before resorting to the outside panel. In view of the discretion of the arbitration agency to amend the names of the arbitrators on the list, based on the recommendations of the parties involved and specific requests made by them, the law must clarify in clear terms that any “tailoring” by the agency shall be with an objective approach based on the joint requests of both the parties. Further, due attention has to be given to the disclosure of proposed arbitrators and whether the same arbitrators are frequently handling the cases of the employer concerned.

Fees: Due process requires both the parties to equally pay the arbitrator fees, but the recent trend indicates otherwise. The reason for the variance in arbitration fees is because the employee is not able to pay as much as the employer can. This contention is resolved by the latest amendment in Guidelines of the National Academy of Arbitrators by Section 2.A.4 which makes “one party solely responsible for arbitration fee” i.e. employer,  ensuring a pro-employee arbitration regime.

Limitation: The issuance regarding limiting the period of filing claims in arbitration, has been subject to great debate, with no finality being achieved. The author contends that if the claim arises out of an agreement duly signed by the employee, then the clause to reasonably shorten the period of limitation shall stand valid. However, if the claim relates to a substantive right, arising out of violation of any law in force, then the limitation period shall be computed as per statutory limitation, rather than the agreement. The period of limitation will ensure timely adjudication of a claim and avoid long-standing disputes in employment agreements.

Post Award Conduct: It is also important to set out principles that shall guide the conduct of the arbitrator after the award. The Code of Professional Responsibility and the NAA Guidelines for mandatory arbitrations prohibits an arbitrator to interpret an already issued award without seeking permission of both parties. However, in case of an issue arising out of the implementation of the award, an arbitrator can make a special resolution. Similarly, an arbitrator is restricted, subject to the approval of parties, from rendering an opinion or making public the award post-arbitration proceedings.

Judicial Review: The comprehensive rule as it stands is that the court is bound to honour the award passed by the arbitrator if it is not otherwise affected by any question of law or is not against public policy. The agreement submitting to arbitration, and clauses therein rendering the award as final and binding gives absolute precedence to the arbitral award. The essence of this rule was succinctly captured by the Supreme Court in Eastern Associated Coal Corp. v. United Mine Workers in the following words, “We must treat the arbitrator’s award as if it represented an agreement between Eastern and the Union as to the proper meaning of the contract’s words.”

So, the award rendered in pre-dispute will hold precedence, subject to public policy and the questions of the principle of law.

Conclusion

The practice of pre-dispute arbitration agreement appears problematic, as employees in a vulnerable situation, will ultimately accept the agreement, without giving active consent. But, outlawing the pre-dispute agreement absolutely, will not serve the purpose, as one must consider the ground realities too. Post-arbitration is also problematic, as employees in either of the situations will not look favorably towards it. Ultimately, it will result at the end of arbitration of the employment dispute.

The author’s view is that, unless there is gross negligence or if due process is not followed, an agreement for effecting a pre-dispute agreement is not against the public policy, as held in the Gilmer case. To answer the critic, making the practice more rationalized and fair will serve the purpose. There is no need to completely doing away with it.

*Disclaimer: The content of this article is intended to provide a piece of general information. The views are expressed by the author solely and BFTLR may or may not subscribe to the views of the author.

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