Cost-cutters Turn to In-house Panels to Settle Disputes

UNIONDALE, N.Y. _ The first time that one of Tom Frederick's management decisions at the Marriott hotel in Uniondale was overruled by an employee jury, he didn't like it, and he did not agree.

The second time, however, Frederick, the hotel's director of engineering, saw the light: He'd been wrong. He'd given one of his engineering department employees a written reprimand _ a serious disciplinary measure at Marriott that can be the basis for a dismissal _ and the employee jury, after hearing both sides, reduced it to a verbal warning.

"I totally agreed once it was explained," he said.

At the Long Island Marriott, any employee now has the right to appeal any management decision to a randomly selected five-member employee "peer review" jury panel that has full power to reverse or modify a manager's call on personnel matters.

This is not all altruism on the company's part. In an effort to avoid costly workplace lawsuits, more and more corporations around the nation are experimenting with in-house legal systems of investigation, arbitration and dispute resolution that, like Marriott's, are entirely and deliberately outside the old system of public civil court.

In some cases, companies are requiring new hires, as a condition of employment, to give up their right to sue outside the company's newly established dispute settlement systems. Usually neither side has a lawyer. And that is pretty much the point.

"It's quick justice," said Martin F. Payson, a White Plains lawyer who advises companies on creating internal dispute systems. "You don't spend three years in pretrial, you get a decision in three weeks _ you cut down on back pay awards and you keep lawyers out of your hair."

The internal dispute systems are generally opposed by unions, but they have won at least qualified support from some surprising sources. Officials at the American Civil Liberties Union say that while the internal system has potential for abuse, in most cases they've looked at, the results have been fair.

"I don't think there's any question that we're witnessing the birth of a new arm of civil justice," said Lewis L. Maltby, director of the national task force on civil liberties in the workplace at the ACLU. "The civil court system is no longer offering a service that the average individual, or even the average company, can afford."

The companies have been encouraged by a recent series of U.S. Supreme Court decisions that upheld the right of the securities industry to require its securities dealers to submit to binding arbitration.

At Marriott International, officials say they have been so pleased with their in-house court system that they are offering it to all their hotels.

In the three years since the Long Island hotel was selected for the Marriott pilot project, employees here have won 30 percent of the time, Marriott officials say. Most cases involved terminations.

Managers and employees say it has changed how people relate to one another and how they make decisions.

"It makes managers more conscious of everything that they're doing regarding discipline and promotion," said Frederick, the engineering director. "They know if they don't have all their ducks in a row, it's probably going to be shot down by a peer-review panel."

Joan Mary Webber, a waitress who has been a juror in four peer-panel cases, said she had learned about aspects of the business she never dreamed of and developed sympathy for what managers go through.

"It's eliminated `us versus them' thinking," she said.

The driving force of the trend is not truth or justice, but cost control. Employers say that in-house court systems _ which are most prevalent in nonunion white collar and service companies _ cut their lawyers' bills, save time and reduce exposure to unpredictable civil court juries capable of inflicting triple punitive damages.

The cases are decided so quickly that regardless of the results the company does not have to worry about awards involving years of back pay.

Providers of private justice services, like the American Arbitration Association, a nonprofit organization based in New York, say that inquiries by companies have soared since the Republicans took over Congress. Democrats, who controlled Congress before last November, had threatened to clamp down on company legal systems _ but that legislation is now assumed to be dead.

"In the last three months the number of companies expressing interest has grown geometrically," said Robert E. Meade, a vice president for program development at the association, in an interview in mid-March. "And for every employer I've worked with there are probably 15 moving it along."

Labor unions are generally wary of the trend, and many see it as an anti-union tool, since one of the most important benefits a union provides is the right to arbitrate disputes with management.

Still, some leading advocates of workers' rights are cautiously applauding the trend as an improvement over the high prices and clogged calendars of the status quo.

For example, Maltby, the ACLU's workplace specialist, opposes mandatory systems that take away employees' rights to seek relief through traditional courts.

But he said that while there were abuses, with some companies stacking the deck in their own courts so that they almost always win, studies by his organization and independent academics have concluded that company-established courts have not, as a rule, been biased against workers.

A recent study of employment arbitration conducted by the ACLU concluded that while most company systems still did not meet the organization's standards of due process, available data suggests that employees win more than half the time anyway. In the largest set of data, from the American Arbitration Association, employees won 73 percent of the cases they filed.

"Most of the current systems are reasonably fair, even when there's virtually no legal obligation for them to be fair, and that's encouraging," Maltby said.

Lawyers say that companies are also under increasing pressure, from within their own ranks and from some big private providers of arbitration services, to make their procedures fairer.

At the same time, the traditional forums for employee grievances are overwhelmed or beyond the financial reach of many workers. The federal Equal Employment Opportunity Commission, for example, has a backlog of 100,000 unresolved cases.

"Reasonably swift justice is important," said Max Zimny, the general counsel to the International Ladies Garment Workers Union and co-chairman of a recently formed national task force on dispute resolution in the nonunion workplace. "If someone has been fired, what good is reinstatement five years later?"

But the amalgam of new legal fiefdoms _ from mediation to peer review and arbitration _ is also changing relationships on the job between managers and hourly workers in ways that are still unfolding. MORE

At Marriott International, which has already expanded the peer review system to more than 90 of its 259 full-service hotels, workers say the process has made management decisions more consistent because every action must be defendable before a jury.

Marriott, like many companies, has reduced middle management ranks in its hotels in recent years, and company executives said peer review was partly a recognition that front-line workers were already empowered to make a lot of dayto-day decisions.

But that doesn't make being overruled by employees any easier to take, managers say.

"Marriott is a very structured organization, and for a corporation to embrace this process, you're really giving up management authority," said Lisa Privett-Wood, the hotel's director of human resources. "It's a big deal."

Lawyers who help set up peer review systems say, however, that even at companies where bosses have said they are prepared to lose in employee court, they're usually not.

"It's sort of like a soldier going to war and thinking he can never be shot," said Al Feliu, a lawyer in Manhattan who represents management. "The first decision that comes along that's corrected _ it's a humbling experience."

Some consultants and company officials also concede that systems like peer review, in particular, can discourage union activity by giving employees greater voice in the running of the business.

"It's not an anti-union tool, but it does give an opportunity to tell employees, `I trust you,' " said Ray Core, a consultant who helped develop a peer review system at Allied Signal in New Jersey. General Electric, Du Pont and Cigna, the insurance company, are also using peer review at some locations.

At Brown Root, a Houston-based engineering and construction concern, employees are required to use only the company arbitration court for disputes with management.

If an employee files a complaint for, say, wrongful termination, Brown Root will even pay the first $2,500 of the employee's legal bills, said William L. Bedman, the associate general counsel for human resources. Bedman said the employee also sets most of the terms of how the case will be argued.

"If they don't want a lawyer, we won't have one either," Bedman said.

Critics, led by lawyers, say that rights of the sort guaranteed by companies like Brown Root are not rights at all.

"At the beginning of the century, companies would require people who came to work to sign agreements that they would never join a union," said Judith P. Vladeck, a plaintiff's lawyer in Manhattan. "I think this is a modern variation _ people who are helpless have to give away a right."

Some labor organizers say that recent improvements in how dispute systems operate inside companies _ and the acknowledgment by many employer attorneys that due process rights must be guaranteed _ are driven entirely by the fear of unions.

By embracing company court systems, the union officials say, employers have climbed upon a tiger that they cannot safely get off.

They must improve their systems and make them more fair, at the risk of making unions and their well-established and contractually negotiated labor dispute systems seem all the more attractive by comparison.

"People think they're getting a decent shake," said Zimny at the International Ladies Garment Workers Union. But if they keep losing in the company court, he said, they will become disenchanted. "Employers realize this, and it's energizing them to try and come up with a system that will endure."

Copyright 1995
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