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An arbitration system goes down in flames
March 13, 2005 by Ross Runkel at LawMemo

The 6th Circuit used some interesting logic in refusing to enforce an arbitration agreement under which Employment Dispute Services, Inc. (EDSI) would be the sole source of arbitrators. Ryan's Family Steak House required job applicants to agree that their employment claims would be arbitrated by EDSI. Employees wanted to go to court instead, arguing that the arbitration system was fatally flawed.

Most of the flaws found by the court are discussed in the Arbitration Blog.

The court ruled that the plaintiffs' agreements were unenforceable under the Federal Arbitration Act (FAA) "because they do not allow for effective vindication" of their federal statutory (FLSA) claims. Walker v. Ryan's (6th Cir 03/09/2005)

This finding was based on the conclusion that EDSI's arbitral forum is not neutral. Why? Here's the interesting logic: EDSI is a for-profit company. Ryan's provided 42 percent of EDSI's gross income in 2002. This resulted in a "symbiotic relationship." "Ryan's effectively determines the ... pools of arbitrators."

There was no evidence cited by the court that indicated that Ryan's had every exerted any actual influence in the selection of arbitrators, or that any of the individual arbitrators in EDSI's pool was actually biased, or that any arbitration conducted under the EDSI system had ever been overturned on the ground of arbitrator bias.

In short, the court didn't like the system, and didn't want to wait and see whether a neutral panel of arbitrators would be selected.

My view: I would expect to see conclusions like these supported by some evidence of actual bias rather than the fear of it.

Oh, well. The court also found the agreements unenforceable as a matter of Tennesee contract law.

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