In Epic Systems v. Lewis, 138 S.Ct. 1612, 1624 (2018), the Supreme Court held that, absent "a clear and manifest congressional command to displace" the Federal Arbitration Act's (FAA) requirement that arbitration agreements be enforced as written, class action waivers in employment agreements are generally enforceable. One effect of the ruling is to spur possible legislative change, as evidenced by proposed legislation in California and the House of Representatives' passage, on Sept. 20, 2019, of the so-called Forced Arbitration Injustice Repeal (FAIR) Act), H.R. 1423, which would render unenforceable pre-dispute arbitration agreements for employment and consumer disputes. State laws are likely to fall on the shoals of FAA preemption; the House bill has no chance of becoming law until a change in the composition of the Senate occurs. Another effect has been the attempt by employee representatives, now presumably closed from a class or collective action, to metastasize their case into a welter of individual arbitrations in the hope that employers will see the wisdom of a class-wide resolution.

The proliferation of single employment claims poses a serious challenge for employment arbitration. Strong case management by the arbitrator is critical. Borrowing a leaf from the experience of courts handling mass tort claims, the arbitrator should convene an early conference where counsel for claimants would inform the arbitrator and counsel for employers of the number and range of cases filed involving the same employer and the same general factual setting. Counsel for both sides would then explore with the arbitrator the possibility of using a "test case" or series of test cases that would act as exemplars of the issues likely to arise in all of the cases. The results in these cases, which would be tried first, would be used to help the parties and the arbitrator narrow the relevant issues and evaluate probability of outcomes. In some situations, it would be appropriate to allow one-way intervention by claimants outside of the test cases, as occurred, for example, in Katz v. Carte Blanche, 496 F.2d 747 (3d Cir. 1974) (en banc)—preclusion to spare employees from having to separately relitigate against their employer an issue that has already been resolved in favor of other employees of the same employer in previous arbitrations.

Another approach, which does not depend on getting both sides to agree to a protocol at the outset, is utilization of issue preclusion principles. It is well-established that under the doctrine of collateral estoppel or issue preclusion, "[w]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action." Restatement (Second) of Judgments §27 (1982). While the doctrine was traditionally limited to parties involved in previous litigation, the Supreme Court relaxed this requirement in Blonder-Tongue Laboratories v. University of Illinois Foundation, 402 U.S. 313, 350 (1971), holding that a defendant may invoke non-mutual issue preclusion defensively against a plaintiff that had lost on the same dispositive issue in an earlier suit. The court further relaxed the mutuality requirement in Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331 (1979), permitting, as a matter of federal common law, the offensive use of non-mutual issue preclusion. As a result of this decision, federal courts have "broad discretion" to permit a plaintiff who had not been a party to the previous lawsuit to "estop a defendant from re-litigating the issues which the defendant previously litigated and lost against another plaintiff." The Parklane court cautioned, however, that "[t]he general rule should be that in cases where a plaintiff could easily have joined in the earlier action or where the application of offensive estoppel would be unfair to a defendant, a trial judge should not allow the use of offensive collateral estoppel." In the court's view, it would be unfair to allow non-mutual issue preclusion: (1) if the defendant in the first action was "sued for small or nominal damages," such that he had "little incentive to defend vigorously, particularly if future suits [were] not foreseeable"; (2) if the judgment relied upon as a basis for the estoppel is itself inconsistent with one or more previous judgments in favor of the defendant; or (3) "where the second action affords the defendant procedural opportunities unavailable in the first action that could readily cause a different result."

It is now also well-established that "final arbitral awards are afforded the same preclusive effects as are prior court judgments" (Manganella v. Evanston Ins. Co., 700 F.3d 585, 591 (1st Cir. 2012)), that is because of a long-standing presumption that a "valid and final award by arbitration has the same effects under the rules of res judicata, subject to the same exceptions and qualifications, as a judgment of a court." The same principle is implicitly codified in the FAA: When a party obtains judicial confirmation of an arbitration award pursuant to §9 of the statute, §13 provides that the confirming judgement "shall have the same force and [thus preclusive] effect" as a judgment in an action.

Courts have broad discretion to give arbitral rulings preclusive effect even for unconfirmed awards. As noted by the Fifth Circuit, relevant factors include whether: (1) "arbitral pleadings state issues clearly"; (2) "arbitrators set out and explain their findings in a detailed written opinion"; (3) "procedural differences between arbitration and the district court proceeding might prejudice the party challenging the use of" offensive, non-mutual preclusion; (4) procedural differences "might be likely to cause a different result"; (5) the findings of the arbitral panel "are within the panel's authority and expertise"; and (6) "the arbitration proceeding affords basic elements of adjudicatory procedure, such as an opportunity for presentation of evidence." Grimes v. BNSF Ry. Co., 746 F.3d 184, 188-89 (5th Cir. 2014).

If the case is in arbitration, the question becomes whether the arbitrator will accord preclusive effect to a prior arbitral award. There may be some reluctance among arbitrators, but, as the leading labor arbitration treatise suggests: "Any well-reasoned and well-written prior arbitration opinion has persuasive qualities where it is 'on point' with the subject matter of a current grievance … to be given preclusive effect it must be between the same parties, must invoke the same fact situation, must pertain to the same contractual provisions, must be supported by the same evidence, and must concern an interpretation of the specific agreement before the arbitrator." Elkouri & Elkouri, How Arbitration Works 11-9 to 11-10 (Kenneth May et al., 7th ed. 2006). There is no reason to believe that employment arbitrators will take a different view, if confronted with an attempt by one of the parties to relitigate an issue that was the subject of a prior an arbitral award against that party.

Effect of Confidentiality Provisions

Confidentiality provisions pose a practical obstacle to issue preclusion insofar as they bar parties from disclosing information that would be needed for an arbitrator in a subsequent proceeding to determine whether an issue was "actually litigated" or its determination was "necessary" to the prior award. Additionally, confidentiality provisions may prevent employees from sharing or learning about the outcomes of other arbitrations of similar issues against the same employer, as well as deny all parties the ability to use past arbitrations as precedent. Courts that have declined to enforce confidentiality provisions have relied on the state law doctrine of unconscionability or on the federal common law doctrine that bars contractual provisions that prevent the "effective vindication" of statutory rights.

State Law Restrictions on Confidentiality

Courts that have found confidentiality provisions unconscionable and therefore unenforceable have done so mainly on two related but distinct grounds. First, as held by the Ninth Circuit in a series of cases interpreting California law (until a California Court of Appeal ruled otherwise in Sanchez v. Carmax Auto Superstores California, 168 Cal.Rptr.3d 473, 481 (Cal. Ct. App. 2014)), arbitration agreements are unconscionable if they put the employer "in a far superior legal posture" relative to its employees by denying them access to precedent while at the same time accumulating that knowledge as a "repeat player" or barring "an employee from contacting other employees to assist in litigating (or arbitrating) an employee's case." Davis v. O'Melveny & Myers, 485 F.3d 1066, 1078 (2006). Second, as held by the Washington Supreme Court, in hampering "an employee's ability … to take advantage of findings in past arbitrations," a confidentiality provision can be found unconscionable because it "undermines an employee's confidence in the fairness and honesty of the arbitration process and thus potentially discourages that employee from pursuing a valid claim." Zuver v. Airtouch Commc'ns, 109 P.3d 753, 765 (Wash. 2004).

While it was once the case that the larger number of jurisdictions held confidentiality provisions to be unconscionable and therefore unenforceable, more recent decisions suggest a greater divergence in views if not a trend away from the anti-enforcement position. Most notably, the 2014 California appellate ruling mentioned above declared that "we see nothing unreasonable or prejudicial" about a confidentiality provision that covers the "hearing and record of the proceeding." Sanchez, 168 Cal.Rptr.3d at 481-82. The Ninth Circuit subsequently followed suit. See Poublon v. C.H. Robinson Co., 846 F.3d 1251, 1266 (9th Cir. 2017)

FAA Preemption of State Law Restrictions on Confidentiality

Even where courts have found confidentiality provisions to be unenforceable under state law, recent U.S. Supreme Court decisions raise the question whether such rulings are preempted by the FAA, that is because the court has narrowly construed the so-called "savings clause" in §2 of the FAA, which provides that arbitration clauses are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. §2. As interpreted in AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), the FAA "permits agreements to arbitrate to be invalidated [only] by 'generally applicable contract defenses, such as fraud, duress, or unconscionability.'" Limiting what counts as a "generally applicable contract defense," the Concepcion court cautioned that courts may not "rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable." In essence, judicial attempts to interfere with the "fundamental attributes of arbitration" are not saved by §2 and are preempted by the FAA. And while we are not aware of any decision that treats confidentiality as a fundamental attribute of arbitration as such, the Fifth Circuit has suggested that restrictions on confidentiality are "in part, an attack on the character of arbitration itself." Iberia Credit Bureau v. Cingular Wireless, 379 F.3d 159, 175 (5th Cir. 2004).

If confidentiality cannot be imposed, the Fifth Circuit panel reasoned, "one would expect that parties contemplating arbitration would demand discovery similar to that permitted under FRCP 26, adherence to formal rules of evidence, more extensive appellate review, and so forth—in short, all of the procedural accoutrements that accompany a judicial proceeding."

On the other hand, some courts have continued to hold confidentiality clauses unconscionable even after Concepcion, with the Supreme Court of Kentucky noting that "the potential obstacles to arbitration presented by the forbidding of class action waivers are simply not present in the case of confidentially provisions." Schnuerle v. Insight Commc'ns Co., 376 S.W.3d 561, 578 (Ky. 2012). Indeed, in a context in which the parties to an employment arbitration proceeding must anticipate that at least some awards will be challenged in court, and where the disclosure rules of the AAA and other arbitration services organizations require prospective arbitrators to list prior awards involving the same parties, it is unclear whether a limited carve-out from confidentiality sufficient to assess whether a party's plea that claim or issue preclusion is warranted in a particular case in fact undermines the core benefit of confidentiality. Likewise, the FAA arguably leaves untouched state restrictions on confidentiality provisions insofar as those provisions conflict with a "strong policy that justice should be administered openly and publicly"; and such a policy is applied even-handedly to all forms of adjudication. Given a well-established common law right to public judicial documents, discussed below, it would seem difficult to argue that state laws requiring the publication of redacted arbitration awards or limited disclosure of prior awards involving the same employer and the same or similar issue, discussed above, target arbitration's unique features or implicate the FAA's equal-treatment rule requiring that arbitration agreements be treated no differently than any other contract. See Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.Ct. 1421, 1426 (2017).

Confidentiality and Enforcement of Awards

Any confidentiality bar, however, is likely to drop out once a party seeks to confirm or enforce an arbitration award in court, where a strong presumption obtains that the award and (at a minimum) dispositive pleadings produced during the arbitration must remain open to public view, notwithstanding even the existence of a confidentiality provision in the agreement. This presumption flows, as recognized by the U.S. Supreme Court in Nixon v. Warner Commc'ns, 435 U.S. 589 (1978), from a well-established right of access to "judicial records." In order to seal a judicial order confirming an arbitration award, courts use a balancing test to determine whether the presumption of public access is overcome by compelling interests that favor non-disclosure.

The presumption in favor of disclosure does not kick in, however, if the winning party in the first arbitration does not seek judicial confirmation of the arbitration award—as is likely to be the case if the employee prevailing on, say, a discharge, has no need to go to court for enforcement of the award. Thus, if confidentiality provisions are valid and enforceable, and are properly interpreted to block access to the awards and documents generated in prior arbitrations involving the same employer, there will be no basis for invoking claim or issue preclusion absent independent knowledge of what was decided in a prior arbitration involving the same employer.

Proposed Disclosure Protocol

In order to secure the advantages of consistency of outcome and discourage repetitive arbitration of previously decided issues, we propose that the AAA update Rule 23 of its Employment Arbitration Rules and Mediation Procedures. In its current form, Rule 23 imposes an obligation of confidentiality solely on the arbitrator, who "shall maintain the confidentiality of the arbitration and shall have the authority to make appropriate rulings to safeguard that confidentiality, unless the parties agree otherwise or the law provides to the contrary." Our proposal would create a limited exception to permit a subsequent arbitrator to allow parties to the prior arbitration to disclose the award and opinion in cases (1) involving multiple arbitration of statutory employment claims against the same employer and (2) which involve similar issues, unless the parties to the previous arbitration had expressly agreed that the award and opinion may not be disclosed to non-parties, or the second arbitrator finds that the harms caused by such disclosure outweigh any commensurate benefits.

Our proposed disclosure protocol preserves the recognized benefits of confidentiality in arbitration proceedings. For example, it leaves untouched AAA Rule 23's requirement preventing the arbitrator from disclosing the details of the proceeding; the proposed disclosure exception is limited to the prior award and any opinion. The proposal, moreover, establishes a default rule that the parties can opt out of but only by express provision. In addition, even in the absence of such an express provision, the proposal permits arbitrators to take into account the interests of the employer in sealing or redacting documents, the same way courts engage in a balancing analysis when deciding to confirm arbitration awards under seal (as held by the Seventh Circuit, for instance, "[w]hen there is a compelling interest in secrecy, as in the case of trade secrets, the identity of informers, and the privacy of children, portions and in extreme cases the entirety of a trial record can be sealed." Jessup v. Luther, 277 F.3d 926, 928 (7th Cir. 2002)). Arbitrators, likewise, may decide to enforce confidentiality provisions where doing so would be the sole way to prevent the disclosure of highly embarrassing but otherwise irrelevant facts, and the risks of such disclosure are sufficiently compelling to outweigh the value of determining the preclusive effect of the issues on which those facts bring to bear.

Objections To Using Collateral Estoppel in Arbitration

One objection that has been raised against extending the doctrine of issue preclusion into the world of arbitration is that plaintiffs will hold off pressing claims and wait for a favorable arbitral ruling and then file their claims. This "wait and see" approach is likely to be unavailing because, as the Supreme Court recognized in Parklane, such strategic behavior is a reason for withholding preclusive effect. If, on the other hand, the arbitration agreement bars joinder of claims, such a clause would provide ample justification for not intervening in the prior proceeding.

A second objection is that a prior arbitral award used as the basis for claiming preclusion could be inconsistent with one or more previous awards in favor of the defendant. This point, too, was anticipated in Parklane, where the court counseled against applying issue preclusion "if the judgment relied upon as a basis for the estoppel is itself inconsistent with one or more previous judgments in favor of the defendant." Issue preclusion is thus not likely where prior awards have resulted in disparate results. It may well be that non-mutual issue preclusion will be recognized only when the employer has lost on the same issue in at least two or more arbitrations and there are no conflicting decisions, but that is precisely the kind of situation that calls for preventing the employer from fighting a war of attrition against claimants—a war that could not be fought in court and which no fundamental feature of arbitration requires that it be fought in arbitration.

Even when multiple arbitrations result in several conflicting awards, it becomes all the more important that arbitration organizations like the AAA promote transparency, such that arbitrators can consider the outcomes of several ongoing arbitrations in deciding whether to apply issue preclusion—even if they are not ultimately bound by prior awards.

Conclusion

In view of the Supreme Court's Epic Systems decision, it becomes imperative to take up the challenge of Justice Ruth Bader Ginsburg's dissent and to see if there are ways to capture some of the efficiency gains of employment class actions without compromising the benefits of bilateral arbitration proceeding between the employer and its employee. Employment arbitration is worth saving. If properly structured and regulated, employment arbitration improves the likelihood that employees, and most especially those who are relatively low-paid, will be able to obtain an adjudication on the merits of their rights disputes with the employer. We believe that greater use of issue preclusion in arbitration, subject to the conditions laid down by the Supreme Court in Parklane, can promote a fairer process for both the employer and its employees.

Samuel Estreicher is the Dwight D. Opperman Professor of Law & Director of the Center for Labor and Employment Law, NYU School of Law. This column is a condensed version of Samuel Estreicher & Lukasz Swiderski, "Issue Preclusion in Employment Arbitration After 'Epic Systems v. Lewis,'" 4 Univ. of Penn. J. of L. & Pub. Aff's 15 (November 2018).