Arbitration on “Opt-Out” Basis

Many companies have adopted programs that call for disputes with their employees to be resolved by an arbitrator, rather than a judge or a jury. The courts (led by the U.S. Supreme Court) have generally supported those programs. At the same time, as a condition of enforcing an arbitration agreement, courts have consistently required that all of the hallmarks of a valid contract be present, including the employee’s acceptance of it. A recent decision by a federal court in St. Louis demonstrates the latitude that judges may give employers in establishing their employees’ agreement to arbitrate claims.

In a case called Karzon v. AT&T, Inc. d/b/a Southwestern Bell Telephone Co., Inc., an employer adopted an arbitration program and notified its workforce through an email with a link to the agreement. The employer gave the employees approximately two months to “opt out” of the arbitration program, and if they did so, they would retain the right to resolve any disputes in court. Any employee who did not opt-out by the deadline, however, was agreeing to arbitrate any future disputes. The employee in this case did not opt-out. When his employment was later terminated, he filed a lawsuit in U.S. District Court for the Eastern District of Missouri, alleging that his discharge was based on his religion and national origin. Relying on the arbitration agreement, the employer asked the court to order that the dispute be resolved by an arbitrator. The employee opposed the employer’s motion, arguing that he had not really “accepted” the arbitration agreement simply by failing to opt-out of the program. The federal court disagreed, holding that an offer may be accepted “by the offeree’s conduct or failure to act.”

This case may suggest that some employers will attempt to increase participation rates in voluntary arbitration programs by using an “opt-out” system, rather than trying to get affirmative signatures from their employees. Note, however, that the court in Karzon was influenced by the employer’s efforts to ensure that employees knew the consequences of inaction. Those steps included the following:

• The employer’s notice to the employees contained the text “REVIEW REQUIRED.”

• Each employee was required to enter his unique username and password to access the arbitration agreement.

• The notice emphasized the deadline for opting out, and it provided a link to opt-out.

• The notice made clear that there would be no adverse consequences for opting out, and it explained the ramifications of failing to opt-out.

• All employees were asked to review the arbitration agreement and click a “Review Completed” button, regardless of whether they decided to opt-out.

In the absence of components by like these, employees may still argue that they did not truly “accept” an arbitration agreement implemented on an “opt-out” basis.

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Mastering the Art of Mediation Advocacy

On Friday, October 4, 2013, the Association of Attorney-Mediators (St. Louis chapter), in conjunction with SLU Law School, is hosting a seminar called “Mastering the Art of Mediation Advocacy.” (Come to MAMA!). This program is designed for all mediation advocates, with breakout sessions for specific types of conflicts. A number of the most experienced mediators from this area will be presenting. Please visit to see the agenda, review the speakers’ bios, and register online. I will have the privilege of joining in the breakout session on employment mediation. We hope to see you there.

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MLB, PEDs, and ADR: Baseball, Drugs and Pre-Dispute Resolution

Over the last twenty years, MLB Commissioner Bud Selig has received plenty of criticism for baseball’s handling of the steroid era under his watch. But his approach to baseball’s latest performance enhancing drug (PED) scandal offers a good example of effective pre-dispute resolution.

To summarize what happened: Baseball’s investigators developed a mountain of evidence suggesting that numerous players received PEDs from a clinic in Florida, in violation of the collectively bargained Joint Drug Agreement (JDA). Unlike failed drug tests, for which the JDA prescribes specific suspensions, these violations left the commissioner with broad discretion in fashioning penalties. At the same time, given the absence of clear guidance from the JDA and the possibility of evidentiary challenges, the players were sure to appeal any suspensions they deemed excessive. Months of litigation would ensue.

Rather than charge down the litigation path, however, the commissioner’s office reached out to the players’ union. Selig showed some of his cards, revealing damning evidence his investigators had assembled. Then he offered to treat most of the players as first-time offenders under the failed-drug-test guidelines, which would result in 50-game suspensions, in exchange for the players agreeing in advance not to appeal. Every player who received that offer took it.

The result: MLB made a strong statement against PEDs, got the offenders off the field immediately (avoiding the specter of the offenders continuing to play ball during their appeals), and eliminated the possibility of losing these important cases on a technicality. (See Ryan Braun debacle.) For their part, the players eliminated the possibility of longer penalties, allowing them to conclude their suspensions by the time the playoffs roll around, and avoided the potential for an even worse public relations nightmare. (See Ryan Braun debacle.)

MLB’s approach offers lessons for handling other types of disputes. In many cases, there are opportunities before a court case begins to strike a deal that brings value to both sides. Sometimes that same deal may be elusive or unattainable later … after positions have hardened, facts have been publicized, legal expenses have been incurred, or other challenges have arisen. Adversaries and advocates, therefore, should remain open to the potential benefits of pre-suit resolutions.

Granted, sometimes litigation may be unavoidable or even preferred. In the PED controversy, Selig did not cut a deal with one player: Alex Rodriguez. Maybe it was more important to draw a hard line on the most notorious offender. Or maybe A-Rod was unwilling to agree to anything reasonable. The aging star’s camp appears to have decided that the litigation path best suited his interests, with an appeal allowing him to join what may be his last playoff run. So, in the end, the commissioner may have concluded that he did not have a willing negotiating partner.

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Is the Supreme Court “Waiving” Goodbye to Class Actions?

At almost every opportunity in recent years, the Supreme Court has endorsed arbitration as a means of resolving disputes. The Court has also issued rulings making it more difficult for plaintiffs to bring class actions. In a decision handed down on June 20, 2013, the high court did both. The case, called American Express v. Italian Colors Restaurant, re-affirmed that the Federal Arbitration Act allows parties to expressly waive class treatment and thereby limit arbitrations to individual disputes.

In doing so, a majority of the justices (over a vehement dissent) torpedoed one of the strategies employed by plaintiffs to avoid the Court’s 2011 decision in AT&T v. Concepcion, which held that the FAA pre-empts state laws invalidating class waivers. Namely, claimants argued that class waivers should be voided in cases where the expense necessary to prosecute an individual claim far exceeds the total potential recovery. In other words, if individual case treatment is not economically feasible, the argument went, the contractual bar to class treatment should be lifted. Writing for the majority in Italian Colors, Justice Scalia firmly rejected that tack, because the federal “antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”

Undoubtedly, this ruling will reverberate in other areas, including wage-and-hour litigation. Granted, there remains a battle over the NLRB’s stance that employers commit an unfair labor practice when they include class waivers in arbitration agreements. Federal appellate courts (including the 8th Circuit), however, have thus far disagreed with that position, and the issue is likely destined for the U.S. Supreme Court too. Many companies are not waiting for that final word, and instead are including class waivers in their arbitration agreements now. Given the recent trend, their confidence is understandable.

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Let’s Negotiate … But You Go First!

There’s a memorable scene in the movie Raiders of the Lost Ark, when Indiana Jones and his friend Sallah open the Well of the Souls and peer down:

Sallah: Indy, why does the floor move?

Indiana: Give me your torch.

[Indy takes the torch and drops it in.]

Indiana: Snakes….. Why’d it have to be snakes?

Sallah: Asps… very dangerous. …..You go first.

While a negotiation may not be as poisonous as a snake pit, there is often a similar impulse to let the other party venture in first. Whether in contractual bargaining, informal settlement discussions, or formal mediations, the question arises: Who starts? Many parties instinctively push for the other side to make the opening proposal and then respond. That desire is perfectly understandable. By waiting for your counterpart to make the first offer, the thinking goes, you potentially gain valuable information about the other side’s position.

While intuitive, that common approach to negotiations may not recognize the potential power of a first offer. A variety of independent studies, backed by empirical data, have shown that the party making the first move in a negotiation often achieves a better outcome. A first offer (so long as it is not patently absurd) sets a marker that has a strong pull on the course of the negotiations that follow. The phenomenon is called “anchoring.”

Interestingly, at least one of those studies revealed that parties who open the negotiations, however, experience increased anxiety by doing so. That trepidation can potentially cause them to be less satisfied with the outcome, even if it is superior in economic terms. So the next time your client is agonizing over making the first move, perhaps you can alleviate their concerns by suggesting that it may pay off!

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Governor Nixon Recognizes Importance of Mediation

I recently had the privilege of joining other mediators from around the state at Governor Nixon’s proclamation of April as “Mediation Month.” In his remarks to those of us assembled in his office, the Governor emphasized the important role that mediation plays in resolving conflicts. He also observed that mediation was not emphasized when he was in law school.


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KC Chiefs’ Pass to Arbitrator Intercepted

The Kansas City Chiefs recently suffered two losses on the same day. Weird, you might think, because the NFL does not schedule double-headers, and it’s the offseason anyway. Those setbacks, however, did not occur on the football field, but rather in court. Their opponents were a pair of former employees, and the subject was an arbitration agreement that the organization required its workers to sign.

In both cases, the plaintiffs sued in Missouri state court, claiming age discrimination. The Chiefs moved to have the cases sent to an arbitrator. The trial judges refused and the Missouri Court of Appeals agreed, ruling on February 26, 2013, that the arbitration agreement was unenforceable. Consequently, now the former employees can proceed toward jury trials in Jackson County Circuit Court. (Interestingly, while the Chiefs were trying to avoid that forum in these cases, a subsequent development in a separate case may change their outlook somewhat. On March 6, 2013, in an age discrimination case by a third former employee, a Jackson County jury returned a verdict in the Chiefs’ favor.)

So what made the Chiefs’ arbitration playbook invalid? The Missouri Court of Appeals found it to be fatally one-sided, lacking any consideration given by the organization. An offensive coordinator designing plays might not be concerned with ensuring the other side gets a benefit, but the world of contract law involves a different type of “Xs and Os.”

In attacking the agreement, the employees first argued that the Chiefs did not promise to arbitrate any claims the organization may have against the workers—only the employees’ claims were covered. The Court of Appeals strongly suggested that if there had been a mutual promise to arbitrate claims on both sides, that would have been sufficient to make it enforceable.

Lacking a mutual promise to arbitrate, the Chiefs were left to argue that the workers’ promise to arbitrate was supported by the organization’s promise of continued employment. The Chiefs contended that one employee’s agreement was made as a condition of her beginning employment, but the Court concluded that while it was signed on her first day, it had not been part of the job offer already extended to her. Therefore, she already had a position, and signing the agreement was simply a condition of continuing her employment. In the case of the other employee, he admittedly did not sign the agreement until well into his employment. So there too, it was not a prerequisite to getting hired, but rather a condition of remaining employed. Because both employees were “at-will” and could be terminated at any time, the Court of Appeals held that the promise of continued employment was not sufficient to support the promise to arbitrate.

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Opening Statements in Mediation…Persuasive or Poisonous?

Your client’s big wrongful discharge case is set for mediation next week. You have been working on the case for months, conducting written discovery and taking party depositions. Now it’s time to see if the case can be resolved. The mediator asks whether the lawyers want to give opening statements at the beginning. What do you do?

There is a fair amount of disagreement over the value of opening statements in mediation. Are they helpful in achieving a good resolution? Or do they poison the well at the outset, making settlement more difficult? I’ve heard many attorneys (and some mediators) say that opening statements are not necessary, or that they do more harm than good.

There is a risk that remarks made during a joint session at a mediation will “poison the well,” but if chosen and delivered carefully, they can be extremely beneficial. Parties usually settle cases because they conclude that the proposed deal is better than the likely (or possible) alternatives. What better way to help the other side reach that conclusion than to preview what those alternatives look like? Ask yourself whether you trust that opposing counsel has sufficiently advised his or her client about the weaknesses in their case? And when you decide to give an opening statement, you can bet your opposing counsel will not remain silent. So, as an added benefit, you will see how the other side plans to present its case.

Opening statements in mediation, however, should not be approached like opening statements at trial. Save the dramatic Perry Mason routine for the jury, if the case doesn’t settle. It is important to remember the audience. In most cases, the primary target for a mediation opening statement is the opposing party. It usually is not the opposing attorney (although your opening remarks sometimes may be designed to educate your adversary on factual or legal weaknesses that the lawyer does not fully appreciate). The mediator is not the primary audience either; you will have a chance in the written submissions and private caucuses to explain your case to the neutral. And resist the temptation to show your client how skilled a trial lawyer you are. With the client watching, lawyers feel pressure to be aggressive in the opening statement. But mediation is a different setting. No one ever threatens to take someone to mediation! Making the opposing party cry usually doesn’t put them in a conciliatory mood.

So how best to approach the opening statement in mediation? Here is a short list of suggested Do’s and Don’ts:

• DON’T make personal attacks. Focus on the issues and the conduct – not the individuals themselves.

• DON’T bother trying to persuade the other party that your side is correct. You should not expect to change the other party’s mind about what happened. Remember, in this setting, it’s not about right and wrong – it’s about risks.

• DO talk about what things look like if the case is not resolved at the mediation.

• DO predict what the evidence will show and what the likely legal arguments will be.

• DO explain why your side’s theories will have appeal to a judge or jury (or why the other side’s theories will not).

• DO describe what the other party will face or endure in preparing the case.

• DO outline the likely outcomes.

In short, a command of the case and how it will be prosecuted can have a powerful effect in mediation…without being toxic.

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Top 10 Mediation Tips for Attorneys

1. If there are significant obstacles to settlement, inform the mediator before the mediation session.

2. If you intend to invite a non-party to the mediation, clear it with the other party or the mediator first. Confrontations at the start over who is allowed to participate are counter-productive.

3. Make an opening statement. But make sure it’s the persuasive — not poisonous — variety. (This will be the subject of an upcoming post — stay tuned.)

4. Be willing to make the first proposal. There is value in “anchoring” the negotiation in your client’s acceptable range (assuming it’s realistic! see #5).

5. Ensure that your client’s demand or offer is realistic and can be justified. And be prepared to explain how you arrived at it. A plaintiff who makes an exorbitant demand inevitably ends up crowing later that “I’ve cut my initial offer in half, while the defendant has only increased its offer by a fraction.” Sure, but fifty percent of ridiculous is still absurd. The same could be said for a defendant who insists that he’s doubled his opening offer of $10. Two times minuscule is still paltry.

6. Be willing to engage in the “dance” of the negotiation. Trying to “cut to the chase” prematurely can be misleading to the other side. Studies have shown that people are inherently accustomed to engaging in the give-and-take, the exchanging of demands and offers, and they get confused when the other party tries to short-circuit that process by leaping to its “bottom line” or “top dollar.”

7. Explain to your client that your role is different in a mediation than it is in the courtroom. Sure, mediations (especially the joint sessions) call for advocacy. But they also require the attorney to put on a “counselor” hat, engaging in reality-checking with the client about the risks and possible unfavorable outcomes of litigating. This is perhaps the most challenging aspect of mediations for trial lawyers.

8. If your client will require a particular form of settlement agreement, show it to the other side in advance or early in the process. This helps avoid surprises at the end.

9. Remind your client that in almost all cases, the other party will somehow need to justify the resolution in their own minds (or to a spouse or someone else whose opinion they value). So in order for them to accept a proposed settlement, they must feel like they “got something” or at least “saved face.” Sometimes you can offer things that mean more to the other side than they cost to your client.

10. If your client’s offer or demand is the best and final proposal, tell the mediator to characterize it that way to the other side. Also, if you say it’s take-it-or-leave-it, make sure your client means it.

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The Value of a Pre-Session Call with the Mediator

A mediator is most effective when he or she understands what is driving a dispute. Knowing what the plaintiff is demanding, or what the defendant is offering, is one thing. Knowing why a party is taking that position is something else.

Of course, a good mediator will draw out the parties’ interests through careful questioning and attentive listening during the mediation session itself. The parties’ written submissions also help. There is another tool, however, that is not as widely used: a separate telephone conference between the mediator and each side’s attorney before the mediation session itself.

While some mediators conduct a joint pre-mediation conference with both attorneys together to discuss logistics, having separate sessions allows each attorney to say things that he or she may not wish to reveal in front of the other side. A pre-mediation session also allows each attorney to provide information about the dynamics of the conflict that he or she may not feel comfortable putting in the mediation statement, or may be unwilling to say at the mediation in front of his or her client. For instance, an attorney can shed light on the client’s lack of sophistication with litigation, unrealistic expectations, emotional obstacles, ancillary financial pressures, and the like. The unilateral conference also gives the mediator an opportunity to ask clarifying questions about issues raised in the attorney’s written submission, rather than spending time during the mediation session itself, so that everyone can “hit the ground running.”

In court, an attorney cannot discuss a case with the judge without the opposing counsel present. In mediation, ex parte communication (at least in most jurisdictions) is the norm. Of course, a mediator is not a fact-finder or decision-maker, but he has an important role in determining whether a dispute is resolved. Why not take full opportunity to ensure the mediator understands the case?

If your mediator does not offer a pre-mediation conference, consider requesting one.

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