Problems With JAMS Arbitrators

In connection with an employment discrimination case, a federal court recently addressed and harshly rebuked what I have described as “double-dipping” JAMS arbitrators. Martin v. NTT Data, Inc. (E.D. Penn. June 23, 2020) (click here for a copy of the decision). Like other arbitrators, these “double-dipping” arbitrators collect fees associated with each dispute they are hearing. However, these “double-dipping” arbitrators are also owner-shareholders who receive a percentage of JAMS’ total revenues from a given year. Thus, they also have a pecuniary interest in the administrative or filing fees collected by JAMS. These owner-shareholder arbitrators have a financial interest in attracting and retaining the business of large companies or employers who draft arbitration agreements pre-selecting JAMS as the chosen arbitration provider. Sadly, the financial interests of these owner-shareholder arbitrators had not been previously disclosed in the past. In this Martin case, the owner-shareholder arbitrator disclosed her deeper financial interests about one week before closing arguments, after the hearings on the merits and briefing had ended.

The arbitrator in Martin ruled in favor of the employer, a repeat user of JAMS, and dismissed the worker’s discrimination claims. The worker asked the federal court to vacate the award based on the arbitrator’s failure to disclose all her financial interests upfront. Based on the narrow standard of review of arbitral awards, the court refused to vacate and instead confirmed the award.

Although the court did not vacate the award, the court harshly rebuked the arbitrator. The court said that if a judge had engaged in a similar failure to disclose a financial interest, the judge would have been disqualified from a case and subject to ethical review.

Why do we hold arbitrators to lower standards than judges? As suggested by the court opinion, the conduct here would give rise to potential disciplinary proceedings and ethics concerns and result in disqualification if a judge engaged in similar behavior. In today’s environment with the widespread use of arbitration clauses, arbitration has largely replaced our court system for most consumers and workers. To help build up public confidence in this system of arbitration and avoid the appearance of impropriety, shouldn’t arbitrators be held to the same, or even higher, standards as judges? In this worker dispute involving claims of discrimination, where there is strong public interest in addressing such claims and where the worker had no meaningful choice in selecting JAMS, shouldn’t we have guarantees of a neutral decision-maker beyond reproach?

I am deeply troubled by the failure to regulate arbitration institutions, which in effect function like modern courts.  I would prefer to ban pre-dispute arbitration clauses for workers and consumers.  But if such a ban is not possible, one potential fix would be to bar companies from pre-selecting arbitration institutions in the take-it-or-leave-it contracts the companies draft and impose on workers or consumers. Arbitration institutions should have to compete for business, after a dispute arises, by offering fair practices and procedures that appeal to all parties. Consumers and workers should have a choice in selecting arbitration providers after a dispute arises. However, in the current system, arbitration institutions largely compete for business by appealing or catering solely to one party in a dispute, the companies who draft arbitration clauses and who are likely to be respondents or defending parties in a dispute. Under the current system, arbitration institutions have little incentive to cater to potential claimants such as consumers and workers because such individuals do not have a voice or meaningful choice in selecting the arbitration institutions. I don’t like the idea of being stuck with JAMS, or other providers, whose roster of neutrals tend to lack diversity. If parties could select arbitration institutions after a dispute arises, I believe different arbitration institutions would have greater incentives to become more diverse and develop fairer, more balanced procedures that provide workers and consumers a better chance for obtaining justice. Compared to procedures available in courts, I believe arbitration rules (e.g., limited discovery and confidentiality) are currently skewed to favor companies, the repeat players who select arbitration providers in advance.