Arbitration has received a lot of publicity over the last several years. Almost all discussions, even those that are contained in court decisions, begin by assuming that arbitration is confidential. But is that the case? What are the boundaries of any confidentiality protections? Any serious examination reveals significant limits to arbitration confidentiality even when the arbitration is a business-to-business arrangement. When consumers, employees, or investor-state disputes are involved, there are even fewer confidentiality protections.

Arbitration is a private method of dispute resolution (as opposed to a public court proceeding) that depends upon a written contract between the parties. It is a creature of contract, depending upon the authority granted by the agreement. Relying upon the Federal Arbitration Act, 9 U.S.C. §1 et seq., which was specifically enacted to overcome hostility to arbitration, the U.S. Supreme Court has consistently upheld the validity of arbitration agreements to resolve future disputes if they meet the standards for enforceable contracts generally. See Gilmer v. Interstate/Johnson Lane, 500 U.S. 20 (1991); Circuit City Stores v. Adams, 532 U.S. 105 (2001). Arbitration agreements are uniformly held to be voluntary in the sense that they are presumed to have been knowingly entered into. See, e.g., Ragone v. Atl. Video at the Manhattan Ctr., 595 F.3d. 115 (2d Cir. 2010); Isaacs v. OCE Business Servs., 968 F. Supp. 2d 564 (S.D.N.Y. 2013).

In arbitration, the parties participate in selecting an arbitrator who will conduct the proceeding, preside at the evidentiary hearing, and function as an impartial decision maker. The proceedings are governed by the parties' agreement, applicable provider rules (if any), and applicable law. The arbitrator's award is final and binding, aside from very limited options for judicial or other merits-based review of an award. In general, only where the arbitration process has been tainted by corruption, fraud, undue means, evident partiality, or arbitrator misconduct, or where the arbitrator has exceeded his or her powers, can an arbitrator's award be vacated under the Federal Arbitration Act. See 9 U.S.C. §10(a). Judicial review of arbitrator awards is similarly limited under the New York CPLR. See N.Y. C.P.L.R. §7511.

Confidentiality and Privacy

Unlike public proceedings in the courthouse, arbitration is a private proceeding. Only individuals with a direct interest in the arbitration may attend the evidentiary hearing, unless the parties agree otherwise. The arbitrator and the arbitration provider and its employees (such as the American Arbitration Association, JAMS or CPR) are always bound by ethical obligations and rules to maintain the confidentiality of the arbitration, and they may not voluntarily disclose any information regarding the arbitration to third parties or publicly. However, the common belief that arbitration is inherently a completely confidential process is inaccurate. Depending upon the applicable rules , the parties to an arbitration, their counsel and non-parties who participate in the proceeding may not be obligated to maintain confidentiality and may convey information regarding the arbitration to third parties and to the public, unless they are prohibited from doing so by provisions contained in their agreement to arbitrate or under a confidentiality order established in the arbitration.

Parties to an arbitration frequently enter into confidentiality agreements after a dispute has arisen, similar to agreements entered into during court litigation, which can be adopted and ordered by the arbitrator. Such agreements commonly provide that documents and other materials and information disclosed during the arbitration's information exchange process shall remain confidential.

However, an arbitration is never completely confidential. For example, if a party seeks to confirm or vacate an arbitration award that has been rendered by an arbitrator, a party must make an application in court to convert the award into a judgment or have the award vacated. In such application, the award itself typically is included in the court filings, becoming publicly available on the court docket.

To provide greater transparency, some arbitration provider rules provide that redacted employment arbitration awards are publicly available on searchable electronic databases. See, e.g., Rule R-39b, AAA Employment Arbitration Rules.

Court trials allow plaintiffs to assert and pursue their claims in public courtrooms, which furthers transparency and public awareness of alleged misconduct. Parties who proceed in court may have difficulty protecting information that they would otherwise deem private, such as their salary or health status. But they also must disclose the claim and thereby air alleged wrongs. The greater privacy available in arbitration may be viewed as a benefit or a disadvantage, potentially creating tension between the interests of the parties to an arbitration and the public interest in publicizing wrongdoing and identifying wrongdoers. If there is also a confidentiality agreement that controls the claimant by virtue of a non-negotiated arbitration agreement, it can protect the privacy of the employee but also prevent disclosure of an employer's alleged wrongdoing. This feature has fueled considerable criticism that employment arbitration lacks transparency.

However, parties often value the privacy or confidentiality afforded by arbitration. They may have no desire to publicize either their claims or the other party's allegations, as they may contain personal and/or potentially harmful business information. In contrast, public testimony and publicly filed court pleadings, motions, and briefs may contain unflattering or salacious allegations that are readily accessible to the public and may cause harm to one or more of the parties. See, e.g., Canada v. Perkins Coie, No. 18 Civ. 11635, slip op. (S.D.N.Y. Dec. 12, 2018) (refusing to keep documents sealed in discrimination lawsuit despite a joint request by plaintiff and defendant).

Recent Developments

Recent legislation reflects criticism of the use of non-disclosure agreements that conceal sexual harassment and abuse claims, which is seen by some as a byproduct of arbitration. Effective July 11, 2018, CPLR §5003-b and General Obligations Law §5-336 prohibit nondisclosure provisions regarding the underlying facts and circumstances of sexual harassment claims, except where the inclusion of such a provision is the complainant's preference. Multiple bills have been introduced in the New York state legislature that, if adopted, would limit the use of arbitration in employment, consumer and other types of cases. The motivation for such legislation has included concern regarding confidentiality and related lack of transparency in arbitration.

In 2018, Internal Revenue Code §162(q) was adopted, disallowing deductions of settlement payments and related attorney fees in cases involving sexual harassment or sexual abuse, where the settlement is subject to a nondisclosure agreement.

Also based in part on concerns regarding confidentiality and lack of transparency, the American Bar Association adopted a resolution that urges legal employers not to require, before a dispute arises, that employees agree to arbitrate claims of unlawful discrimination, harassment or retaliation based upon race, sex, religion, national origin, ethnicity, disability, age, sexual orientation, gender identity or expression, marital status, genetic information, or status as a victim of domestic or sexual violence. Multiple New York law firms no longer require arbitration of some or all employment disputes, resulting at least in part from pressure that has been applied at law schools to bar law firms that maintain pre-dispute arbitration policies from recruiting on campus. In addition, large employers, for example Facebook and Amazon, have voluntarily removed pre-dispute arbitration clauses from their employment agreements and policies.

Context is everything. Business-to-business disputes benefit from the privacy and confidentiality of private dispute resolution. Whistleblowers may not want to be in the public eye; some employees will want to avoid that as well. We need nuanced solutions that do not undercut the ability to resolve disputes or the possibility of alleviating serious societal problems by sweeping them under the carpet.

Laura A. Kaster is a full-time arbitrator and mediator and chair-elect of the NYSBA Dispute Resolution Section. David C. Singer, formerly a partner at Dorsey & Whitney for 28 years, is an independent arbitrator, mediator, ombudsman and investigator.