Senate Banking, Housing and Urban Affairs Committee

Oversight Hearing on Mandatory Arbitration Agreements
in Employee Contracts in the Securities Industry

Summary of Testimony

Often cited as a more effective option than traditional litigation, ADR programs calling for the administrative services of the American Arbitration Association to resolve non-union workplace disputes have been implemented by nearly 400 large corporations covering approximately 4 million employees worldwide. The number of companies adopting employment ADR plans is expected to grow exponentially in the coming years. The AAA also conducts training programs in conflict avoidance and dispute resolution techniques for human resource managers and supervisors for companies including Boeing, General Electric and Merrill Lynch.

As of July 1998, Merrill Lynch now includes the AAA as an optional forum for its employees, making it the first Wall Street firm to give its employees the option of resolving disputes through an independent agency not affiliated with the securities industry.

The Association's experience and belief is that any ADR method used in the employment context is most effective when the parties knowingly and voluntarily agree on the process, and have confidence in the neutrality of the mediator or arbitrator and the procedures and institution under which their case is being administered.

The AAA's policy on employment ADR is guided by the state of existing law, as well as its obligation to act in an impartial manner. In following the law, and in the interest of providing an appropriate forum for the resolution of employment disputes, the Association administers dispute resolution programs which meet the due process standards as outlined in its National Rules for the Resolution of Employment Disputes and the Due Process Protocol, developed in cooperation with representatives from the American Bar Association, American Civil Liberties Union and others.

If the Association determines that a dispute resolution program on its face substantially and materially deviates from the minimum due process standards of the National Rules for the Resolution of Employment Disputes and the Due Process Protocol, the Association will decline to administer cases under that program.

Full Text of Testimony

Good morning. My name is Robert Meade, and I am a Senior Vice President of the

American Arbitration Association. A biographical sketch appears in the materials I have furnished to the committee.

The leader in conflict management since 1926, the American Arbitration Association is a not-for-profit, public service organization dedicated to the resolution of disputes through the use of negotiation, mediation, arbitration, and other voluntary dispute settlement techniques. In 1997, more than 78,000 cases were administered by the Association in a full range of matters, including 141 securities cases and 1,345 non-union employment disputes for companies in a wide range of industries. Through 37 offices nationwide, and cooperative agreements with arbitral institutions in 38 other nations, the AAA provides a forum for the hearing of disputes, rules and procedures, and a roster of impartial experts to hear and resolve cases.

Often cited as a more effective option than traditional litigation, ADR programs calling for the administrative services of the American Arbitration Association to resolve non-union workplace disputes have been implemented by nearly 400 large corporations covering approximately 4 million employees worldwide. The number of companies adopting employment ADR plans is expected to grow exponentially in the coming years.

Within the securities industry, brokerage house employees were historically required to resolve disputes through one of the self-regulatory agency (SRO) arbitration forums. This month, however, Merrill Lynch became the first Wall Street firm to give its employees the option of resolving disputes through an independent agency not affiliated with the securities industry, through the SROs or through court. In a departure from industry practice, Merrill Lynch has included the AAA as an optional forum for its employees. Their program should serve as a model for other Wall Street firms.

In addition, the AAA has commenced a conflict avoidance and dispute resolution training and education program for several hundred supervisors and human resource managers at Merrill Lynch. Conducted under the auspices of the AAA's Center for Educational Outreach, the goal of the training is to educate executives, managers and human resources staff in mediation and arbitration process to enable them to better communicate their program to employees and better facilitate program implementation. In the past several months, the AAA has conducted similar training programs for The Boeing Company, General Electric and United Parcel Services.

Since the 1991 Supreme Court ruling in Gilmer v. Interstate/Johnson Lane, the lower federal courts have generally enforced employer-imposed ADR programs, as long as the programs are fair. In the Gilmer decision, the Supreme Court refused to invalidate Gilmer's agreement with the New York Stock Exchange that he would arbitrate disputes with his employer simply because he was obliged to sign it in order to work as a securities dealer whose trades were executed on the Exchange.

AAA's Policy on Employment ADR

The AAA's policy on employment ADR is guided by the state of existing law, as well as its obligation to act in an impartial manner. In following the law, and in the interest of providing an appropriate forum for the resolution of employment disputes, the Association administers dispute resolution programs which meet the due process standards as outlined in its National Rules for the Resolution of Employment Disputes and the nationally-recognized Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship. The Due Process Protocol was developed by a task force composed of individuals representing management, labor, employment, civil rights organizations, private administrative agencies, government, including the American Arbitration Association, American Bar Association and American Civil Liberties Union in May 1995.

Notification

If an employer intends to utilize the dispute resolution services of the Association in an employment ADR plan, it shall, at least thirty (30) days prior to the planned effective date of the program:

• notify the Association of its intention to do so; and
• provide the Association with a copy of the employment dispute resolution plan for review. If an employer does not comply with this requirement, the Association reserves the right to decline its administrative services.

If the Association determines that a dispute resolution program on its face substantially and materially deviates from the minimum due process standards of the National Rules for the Resolution of Employment Disputes and the Due Process Protocol, the Association will decline to administer cases under that program. To date, the Association has refused to administer nearly a dozen employment programs when the companies, for example, tried to limit remedies or shorten the statute of limitations for filing a claim.

Designing a Fair and Equitable ADR Program

Descriptions of the full range of legally-available ADR options and a checklist of considerations for employers are included in Resolving Employment Disputes ­ A Practical Guide, developed by the Association to assist companies and their legal counsel in the responsible development of ADR plans. For example, ADR plans shall:

• give employees clear notice of their right of representation,
  
  
• allow for the same remedies and relief that would have been available to the parties had the matter been heard in court,
  
  
• provide time frames that are consistent with applicable statutes of limitation, and
  
  
• provide adequate notice to employees prior to the plan implementation.

In addition:

• In-house dispute resolution procedures, such as open door policies, ombuds, peer review, and internal mediation are encouraged.
  
  
• An external mediation component to resolve disputes not settled by the internal dispute resolution process is recommended.

Programs which use arbitration as a final step may employ:

• pre-dispute, final and binding arbitration;
  
  
• pre-dispute, non-binding arbitration;
  
  
• post-dispute, final and binding arbitration; or
  
  
• post-dispute, non-binding arbitration.

The Association's experience and belief is that any ADR method used in the employment context is most effective when the parties knowingly and voluntarily agree on the process, and have confidence in the neutrality of the mediator or arbitrator and the procedures and institution under which their case is being administered.

Panel of Experts

In addition to the development of the National Rules for the Resolution of Employment Disputes and the Due Process Protocol, the American Arbitration Association has put together a first-rate, national panel of 600 employment law experts ­ diverse in gender and ethnicity and highly qualified with more than 10-15 years experience to resolve these disputes. The arbitrators were all required to attend the AAA's uniform, consistent training programs. Anyone who selects arbitrators on our panel to resolve their dispute can have confidence in their fairness, their integrity and their qualifications and experience.

To review and monitor ongoing developments in the use of arbitration and mediation to resolve employment disputes, the AAA has a National Employment Advisory Council, borne out of the Employment ADR Conclave hosted by the AAA in 1995 in Washington, D.C.

Finally, the Association has led the way for the responsible development of ADR. In 1996, the AAA was named by the Massachusetts Commission Against Discrimination to administer its ADR system, and we have helped the Department of Labor and the EEOC in having a dialogue on the important emerging issues for employment ADR.

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