2006/Vol. 5 No.1 - Hamline Law - Hamline University

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18 THE JOURNAL OF AMERICAN ARBITRATION [Vol. 5:1 But arbitration clauses can become “pathological” 70 when the clause is designed to give one side a disproportionate advantage. In one notorious case, the employer drafted the arbitration clause so one-sided that the court refused to uphold the agreement to arbitrate. 71 The Hooters restaurant chain used the following clause in its employment contract: Hooters and the employee agree to arbitrate all employment related disputes and controversies. Each agrees to arbitrate all disputes arising out of employment including any claim of discrimination, sexual harassment, retaliation or wrongful discharge whether arising under federal or state law. The employee and the company agree to resolve any claims pursuant to the company’s rules and procedures for alternative resolution of employment related disputes, as promulgated by the company from time to time. 72 The Hooters court stated that the provisions “when taken as a whole, however, are so one-sided that their only possible purpose is to undermine the neutrality of the proceeding.” 73 By entering into an case of any failure of a party to make an appointment referred to above within four weeks after notice of the controversy, such appointment shall be made by said Chamber. All arbitration proceedings shall be held in Paris, France, and each party agrees to comply in all respects with any award made in any such proceeding and to the entry of a judgment in any jurisdiction upon any award rendered in such proceeding. The laws of the State of Illinois, U.S.A. shall apply to and govern this agreement, its interpretation and performance. Id. 70. For an analysis of flawed arbitration clauses, see Benjamin G. Davis, Pathological Clauses: Frédéric Eisman’s Still Vital Criteria, 7 ARB. INT’L 4 (1991). 71. Hooters of Am. v. Phillips, 173 F.3d 933 (4th Cir. 1999). 72. Id. at 936. 73. Id. at 938. In this case, the arbitration rules were procedurally biased in favor of Hooters. Id. Employees were required to provide Hooters with notice of their claims from the outset while Hooters was not required to provide responsive pleadings or notice of any defenses. Id. Hooters also had complete control over the arbitration panel. Id. at 938-39. Under the rules, the panel of three arbitrators would be selected from a list of eligible arbitrators compiled by Hooters. Id. The rules would have permitted Hooters to choose arbitrators who have existing financial or familial interests in the restaurant and was free to remove from the list arbitrators who rule against it. Id. at 939. Hooters was also allowed to expand the proceeding to include any matter whatsoever that it wished; however, the employee could not raise any issue which was not included in the Notice of Claim. Id. The rules granted Hooters numerous rights that it denied to the employee: the right to move for summary judgment, the right to bring a motion to vacate the arbitral award in court if the arbitrator exceeded his/her authority, to cancel the arbitration
2006] ARBITRATION: THE BASICS 19 arbitration agreement, the parties agreed to submit their dispute to arbitration—a process in which their disputes should be decided fairly by a neutral third party. 74 By promulgating such one-sided arbitration rules, Hooters breached the sense of fundamental fairness in its agreement to arbitrate. 75 The American Arbitration Association has issued a “Due Process Protocol” refusing to administer such disputes with these types of “unfair” arbitration clauses. 76 V. INITIATING THE ARBITRATION Most arbitration agencies simplify the process by handling most of the preliminary matters. For example, the American Arbitration Association will notify the other party of the initiation of the arbitration proceeding, 77 will assign an arbitrator if the parties cannot agree, 78 will notify the arbitrator that the arbitrator has been chosen, 79 and will assist in arranging a time and place for the parties to meet. 80 Simplicity and ease of use of the process are two of the reasons arbitration is used. 81 But a party can forfeit the right to arbitration if the party fails to take affirmative steps to initiate arbitration. 82 agreement upon thirty days notice. Id. Perhaps most egregiously, Hooters could change the rules without notice at any time, even during the arbitration proceeding. Id. 74. Id. at 940. 75. Id. 76. American Arbitration Association, supra note 42, at Principle 1. 77. AAA Rules, supra note 37, R-4. 78. Id. R-11. 79. Id. R-2 80. Id. R-9, R-10, R-22. 81. JULIAN D. M. LEW, LOUKAS MISTELIS & STEFAN M. KRÖLL, COMPARATIVE INTERNATIONAL COMMERCIAL ARBITRATION 36-41 (Kluwer Law Int’l 2003). 82. See, e.g., CAL. BUS. & PROF. CODE § 6201(a) (2004) (stating that, in disputes involving attorney fees, “the client’s failure to request arbitration within 30 days after receipt of notice from the attorney shall be deemed a waiver of the client’s right to arbitration under the provisions of this article”); ME. REV. STAT. ANN. tit. 23, § 52-A (2004) (In contract disputes between a contractor and a subcontractor, “failure to submit [the claim] to arbitration as provided under this subsection shall constitute a waiver of the claim”); see also Engalla v. Permanente Med. Group, Inc., 938 P.2d 903, 909 (Cal. 1997). In Engalla, the defendant, Kaiser, administered its own arbitration program. Id. The arbitration agreement provided for three arbitrators and each party was to select one arbitrator of its own choosing within thirty days of initial service on the respondent. Id. Within an additional thirty days, the two party-appointed arbitrators were to jointly select a neutral
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