Issue Preclusion in Employment Arbitration after Epic Systems v. Lewis
4 University of Pennsylvania Journal of Law & Public Affairs 15 (2018)
23 Pages Posted: 3 Dec 2018 Last revised: 28 Feb 2019
Date Written: February 2019
The Supreme Court’s 5-4 ruling in Epic Systems v. Lewis (2018) that class action waivers in employment arbitration agreements do not violate the National Labor Relations Act’s protection of “concerted activity” by employees may prompt further adoption of class action waivers in arbitration agreements. We consider in this article the prospect of greater use of offensive non-mutual issue preclusion (sometimes termed collateral estoppel) in employment arbitration as an alternative means of minimizing duplicative or inconsistent treatment of employment claims in arbitration. Focusing on confidentiality provisions and preclusion waivers as two obstacles to greater use of estoppel principles in arbitration, we propose several modifications to the rules of the American Arbitration Association (“AAA”) that, if adopted, would promote a fairer process for both employers and their employees.
The doctrine of offensive non-mutual issue preclusion permits plaintiffs in appropriate circumstances to preclude a defendant from re-litigating an issue that a different plaintiff had prevailed on in a previous case. It is well-established that issue preclusion extends to judicially confirmed arbitration awards, and a number of courts have held that even unconfirmed awards can be given preclusive effect if the applicable state law allows it and the arbitrator in the second case agrees such effect should be given.
The nature of arbitration as a “creature of contract” poses two obstacles to greater use of the doctrine, as employers can restrict the application of issue preclusion both directly and indirectly. Employers can restrict issue preclusion directly by contracting out of issue prelusion altogether. Employers can also restrict issue preclusion indirectly through the use of confidentiality provisions. (Employees have no interest in escaping preclusion because they cannot be bound by a proceeding in which they were not a party.) While such provisions have been struck down by some state courts as unconscionable, more recent cases suggest a movement away from that positon.
State restrictions on opt-out and confidentiality clauses also raise the question of federal preemption by the Federal Arbitration Act (“FAA”). The preemption argument is difficult because it is unclear that state-law insistence on allowing claimants in arbitration to discover whether the same issues were previously decided in awards against the same employer interferes with a fundamental attribute of arbitration. Given a well-established common law right to public access to (unsealed) judicial documents, it is also difficult to argue that state courts violate the FAA’s equal treatment rule when they subject arbitration to the same standards that apply to court resolutions.
The Supreme Court’s “effective vindication” doctrine may also offer some additional room to challenge confidentiality provisions, but this route seems unpromising.
In light of the above, we propose that the AAA modify its employment arbitration rules and due process protocol in two ways. First, we propose a default rule giving arbitrators discretion, subject to the factors laid out in Parklane, to accord preclusive effect to a previously decided issue in an arbitration against the same employer, even when the prior award has not been confirmed. While the proposed rule would still permit the arbitrator to deny preclusive effect where the agreement between the parties expressly limits preclusion, the change in the default rule forces the employer to expressly opt out of issue preclusion.
Second, we propose that the AAA create a limited exception to Rule 23 of its employment arbitration rules, which currently imposes an obligation of confidentiality on the arbitrator. The proposed revision would permit arbitrators to allow parties bound by confidentiality provisions to disclose past awards against the same employer involving the same issue —unless the parties to the previous arbitration had expressly agreed to waive its preclusive effect, or the second arbitrator finds that the harms caused to the parties by disclosure outweigh any commensurate benefits.
Under Parklane, considerations of fairness counsel against applying issue preclusion if the party seeking issue preclusion could have intervened in the prior dispute, or when previous arbitrations have resulted in conflicting awards. In light of such limits, it becomes all the more important that the AAA promote transparency to permit arbitrators to consider past awards, even though they are not ultimately bound by them.
Even where employers insist on opting out of issue preclusion, many arbitrators will question employers why an issue that had previously been decided in an employment arbitration should be relitigated in the proceeding before the second arbitrator. The proposed rule changes at the least make such questioning more likely to occur.
Keywords: employment law, dispute resolution, ADR, discrimination, courts, arbitration, issue preclusion, claim preclusion, res judicata, collaetral estoppel, class actions
JEL Classification: J01, J08, J41, J48, J52, J58, J71, J78, J88
Suggested Citation: Suggested Citation