Originally from Employment Arbitration - 2nd Edition

An Introduction to the Process and the Issues

Thomas E. Carbonneau

The U.S. Supreme Court’s decision in Gilmer v. Interstate/Johnson Lane Corp., provided the impetus for the creation of a new form of arbitration, known as “employment arbitration.” The agreement to arbitrate employment disputes in Gilmer, however, was not formally part of the actual employment contract. In order to secure work as a stock broker, Gilmer signed a U-4 Form with the New York Stock Exchange (NYSE) that required him to submit disputes with his employer to arbitration under the rules of the Exchange. In terms of the employment agreement, the obligation to arbitrate claims against the employer, therefore, was implied and external. Although it had an impact upon the employment relationship, it was embedded in an agreement between the employee and another party and reflected standard industry practice.

Therefore, the Gilmer Court never addressed head-on the question of whether employment contracts containing mandatory, employer-imposed arbitral clauses constituted valid and enforceable contracts under the FAA. Employers—both inside and outside the securities industry—nonetheless began integrating such provisions into employment contracts, usually as part of a company alternative dispute resolution (ADR) framework for addressing workplace disputes. As a result, an entirely new sector of arbitration activity was created.

Employment arbitration differs from labor arbitration (a traditional area for the application of arbitration) in that it applies to unrepresented or non-union employees. The agreement to arbitrate is not part of a collective bargaining agreement negotiated by union officials on behalf of unionized employees, as is the case with labor arbitration.