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Health Law

: Healthcare Law Blog

"Arbitrition"* In Healthcare Disputes.

By Greg Piche'

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           In 1991, the United States Supreme Court gave strong impetus to the enforcement of arbitration agreements in employment contracts when it held that unequal bargaining power between employers and employees was an insufficient reason to hold that arbitration contracts are never enforceable in the employment context.  In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991) the court held that an age discrimination act claim can be subject to compulsory arbitration. (*The overlay of cumbersome judicial like process on equitable decision making.)

        Since Gilmer, there has been a rush to include arbitration provisions in employment agreements within and without the healthcare industry.  Included in many arbitration agreements are provisions designed to limit the exposure of employers such as caps on damages, limitations on the types of damages, limitations on discovery, class action bars, shortened filing periods and the unilateral selection of arbitrators.Many of these arbitration clauses are boiler plate and non-negotiable contracts of adhesion giving rise to some question about the fundamental fairness of imposed arbitration agreements maintained as a condition of employment.

        In 2000, the California Supreme Court, in Armendariz v. Foundation Health Psychcare Services, Inc., (2000) 24 Cal. 4th 83, severed the obligation to arbitrate a statutory rights complaint itself in an employment agreement from other limitations in the same agreement that it determined to be unconscionable.  It held that the obligation to arbitrate could be enforced while the court rendered unfair provisions in the arbitration agreement a nullity.  While noting the strong federal policy supporting arbitration, the court was particularly concerned that clauses requiring both parties to equally contribute to the expense of the arbitration could itself limit access to relief because of the inequality of resources between an employer and employee.

        The court held that the employer in an employment based arbitration would be responsible for all of the costs of the arbitration that are unique to the arbitration itself as opposed to a judicial resolution. The Armendariz decision regarding the allocation of arbitration costs has been incorporated into the American Arbitration Associations and the JAMS Employment arbitration rules.
The Armendariz court articulated many of the concerns that have arisen concerning the fairness of arbitration proceedings to employees.

Various studies show that arbitration is advantageous to employers not only because it reduces the costs of litigation, but because it reduces the size of the award an employee is likely to get, particularly if the employer is a ?repeat player? in the arbitration system.

The court noted that a judicial forum would be more likely to follow the law  favoring employees than to ?split the baby? in arbitrary decision making. While that may be true for jury cases, it is not necessarily true for judge made decisions.  In fact, it often appears that most of the available arbitrators tend to be retired judges who can bring a career of personal biases and frustrations with them to the process.
The court worried about a ?systematic effort to impose arbitration on an employee, not simply as an alternative to litigation, but as an inferior forum that works to the employer?s advantage.?

      While endorsing a bias toward upholding the agreement to arbitrate, even one forced on a ?take it or leave it ? basis as a condition to employment, the court sought to remove  the more obvious unfair limitations and procedural deficits attached to the arbitration agreement, such as unfair limitations on discovery, unfair bias in the selection of arbitrators and expansion of the opportunity for motion practice.

                 In effect, courts in California can ?blue pencil? or redesign arbitration procedures in arbitration agreements that are deemed unconscionable and replace them with more judicial like proceedings.
California has a long history of arbitration going back to at least the 1850s.  In awarding damages in an arbitration, the arbitrator is charged with doing what is fair and equitable in the circumstances regardless of rules governing the court system.  See Moncharsh v. Heily & Blasť, 832 P.2d 899, 904 (Cal. 1992) (Quoting Muldrow v. Norris, 2 Cal. 74, 77 (1852) (arbitrators are not bound to award on principles of dry law, but may decide on principles of equity and good conscience, and make their awards ex aequo et bono [according to what is good and just]).

      In Armendariz, the court indicated that judicial review of an arbitrator?s decision would be implemented to at least an extent to assure that an employee?s statutory rights were not trammeled upon in the proceedings.  Things seem to be moving toward a new hybrid system somewhere between the courthouse and the traditional arbitrator?s conference room.

        As arbitration proceedings evolve more toward a judicial system model, concerns arise as to the additional level of costs and reduction in ease and timeliness of the proceedings being imposed in the resolution of disputes. In other words, in re-engineering arbitration agreements to remove more disputes from the legal system, are courts designing a process that  may not only be encouraging the Solomonic split of the baby, but also the proverbial dispatch of the baby with the bath water.

Full post as published by Healthcare Law Blog on May 26, 2008 (boomark / email).

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