It’s not uncommon for a contract to contain a “dispute resolution clause,” describing the process the parties will use if they have a dispute down the road regarding some aspect of their contract. Because Christians are not supposed to take their disputes to court (I Corinthians 6:1-7), many contracts between Christians – including churches, ministries, and other Christian organizations – specify in their dispute resolution clause that the dispute will be resolved through mediation and, if that is not successful, then through arbitration (“med/arb”). That ensures that the dispute will not end up in court.

These are known as “pre-dispute” arbitration clauses, because the parties select the arbitration process before they have a dispute. It is much more difficult to agree on anything, including a dispute resolution process, once the parties are in dispute. So the Christian med/arb clause is a means for Christians to bind themselves to honor the biblical proscription against lawsuits among Christians.

As with other dispute resolution processes (e.g., negotiation, mediation, litigation), arbitration has pros and cons. It is typically faster and less expensive than litigation, and the parties can choose a neutral who has subject-matter expertise and is already familiar with the industry and the lingo. Unlike mediation, arbitration will definitely resolve the dispute; even if a party withdraws, the process continues to an award. The process is private, and is subject to very limited judicial review.

Arbitration clauses are coming under increasing scrutiny. The party that did not draft the contract may not even know that it contains an arbitration clause. Or the non-drafting party may be aware of the clause, but have no leverage to negotiate a different process, as with consumer contracts for credit cards, cell phones, etc. The non-drafting party may assume that the arbitration process will be fair, only to learn later that it favors the party that inserted the arbitration clause, which is usually the more powerful party, e.g., the employer or business.

So now there are both legislative and judicial efforts to restrict pre-dispute arbitration clauses. These will make it more difficult for Christians to include enforceable pre-dispute arbitration clauses in their contracts.

One such legislative effort is known as the FAIR Act, or Forced Arbitration Injustice Repeal Act. This bill would amend the Federal Arbitration Act to prohibit a pre-dispute arbitration agreement from being valid or enforceable if it requires arbitration of an employment dispute. This would presumably affect only the “arb” portion of a med/arb clause in an employment agreement. Since many Christian employers include a med/arb clause in contracts with their employees, the “arb” portion of that clause would not be enforceable, if this bill becomes law. (It passed the House in 2019 but did not pass the Senate, and was re-introduced in both houses in 2021.)

For example, many Christian schools include a med/arb clause in teacher contracts, typically calling for the dispute to be resolved in accordance with biblical principles. The Association of Christian Schools International, among others, has adopted the model contract clause long promoted by the Institute for Christian Conciliation (ICC), which calls for any dispute to be resolved through the ICC in accordance with its Rules of Procedure. This clause has been held legally enforceable, most recently in Whitefield Academy v Alford, ___ S.W. 3d ___ (Ky. App. 2021).

Another bill that just passed the House this week, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, would make arbitration clauses unenforceable in any action “alleging conduct constituting a sexual harassment dispute or sexual assault dispute.” This Act is narrower than the FAIR Act and is projected to become law. [Update: the President signed this into law on March 3, 2022, applicable to any claim of sexual assault or harassment “that arises or accrues on or after March 3, 2022.”] It means that any Christian School teacher who believes she has experienced sexual harassment could sue the school in court, the arbitration clause notwithstanding.

Parties could still proceed as if the arbitration portion of the med/arb clause were legally enforceable. But angry Americans are wont to sue one another, and angry Americans who happen to be Christian are also tempted to sue, even if their faith discourages them from doing so. If either of these bills becomes law, courts will not be able to enforce the arbitration clause that Christians inserted in their employment contracts. Both church and state benefit when the civil courts send church disputes to a church dispute resolution process. Legislation that makes certain aspects of arbitration agreements unenforceable makes it harder for Christians to keep their disputes out of court.

Related update: The Telios law firm, a leading firm on Christian employment issues, recently offered two observations regarding application of the EFA Act to organizations that have agreements for Christian dispute resolution: “First, it is unclear that the statute would control an agreement for dispute resolution that is based on the free exercise of religion. Second, an option is to have employees agree to participate in Christian mediation before going to the courts or arbitrating” because this would not be a binding arbitration agreement and thus would not be covered by the new federal statute.

Mediators and arbitrators are required to disclose to potential parties any facts that might make them appear impartial. The arbitration statute in Michigan requires potential arbitrators to disclose “any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator…” including a financial or personal interest in the outcome of the arbitration, or an existing or past relationship with any party, their counsel, a witness, or another arbitrator. MCL 691.1692. Mediators are required, pursuant to the Michigan Standards of Conduct for Mediators, to disclose conflicts of interest and grounds of bias or partiality reasonably known to the mediator. Standard III.C. A conflict of interest is defined as “a dealing or relationship that could reasonably be viewed as creating an impression of possible bias or as raising a question about the impartiality or self-interest on the part of the mediator.” Standard III.A. Michigan’s Standards of Conduct for Mediators are very similar to the Model Standards.

The paradigm is that the potential neutral discloses sources of possible bias, then the parties decide whether the connection disclosed is so tenuous as to be irrelevant, or so serious as to disqualify the person from serving as their neutral. In sum, the neutral’s job is to disclose; the parties’ job is to decide whether to appoint (or to remove, if the disclosure occurs when the process is already underway).

The Court of Appeals seems to have gotten this confused in an arbitration case, Wilson v Builders, unpublished per curiam opinion of the Michigan Court of Appeals, issued November 19, 2020 (Docket No. 351560). The case involved a construction dispute; each side was represented by counsel, and each side selected an arbitrator, then the local judge appointed the “neutral” arbitrator. The neutral arbitrator, Mr. Darbee, had a long-standing friendship with defendant builder’s attorney, Mr. Sheppard, which Mr. Darbee apparently failed to disclose. Over the previous ten years, they had frequently engaged in group lunches and occasional social events through the local bar association. They had gone together with a local orthodontist to a couple of college basketball games. Their paths had crossed when Darbee was on the municipal zoning board of appeals and Shepherd was city attorney. When Darbee had a dispute with his water bill, his attorney selected Shepherd as their neutral case evaluator. The two were rumored to have lunch together in local restaurants, and indeed, they lunched together during the arbitration proceedings.

The plaintiff evidently did not learn of any of this until after the award (he won, but he received less than a quarter what he had demanded). Plaintiff asked the trial court to vacate the award due to the arbitrator’s bias. He said he never would have agreed to Mr. Darbee had he known all this. The trial court refused, noting that Bay City was “a small community” where “lawyers rub shoulders and change sides on a daily basis,” concluding that Darbee was impartial. (Recall that the trial judge is the one who appointed Mr. Darbee to this panel.) The plaintiff appealed.

The Court of Appeals affirmed. The Court agreed that Arbitrator Darbee had a “relationship” with Attorney Sheppard, but determined that the “the type of relationship contemplated by the statute is one implicating a personal or financial interest, rather than the loose professional association between Darbee and Sheppard.” The court opined that interpreting the statute broadly to include professional relationships “would prohibit most attorneys from acting as arbitrators and would discourage attorneys from participating in bar events.”

No, it wouldn’t. All the statute requires is disclosure, not disqualification. Neutral discloses, parties decide. The plaintiff here might well have determined that, all things being equal, Mr. Darbee was still the best candidate for the job. But the plaintiff was deprived of the opportunity to make that decision.

In a twist of logic, the Court of Appeals says that the fact that the arbitrator had lunch with defense counsel during the proceedings is evidence that their association did not affect the arbitrator’s impartiality, because neither party objected. Impartiality is not proven by whether a party objected. If plaintiff’s counsel knew at the time the extent of their friendship, perhaps he would have objected. Lacking context, he may have decided to overlook this one incident to avoid jettisoning the arbitration. Far from being evidence of impartiality, it’s further evidence that there was a friendship here that should have been disclosed at the outset.

The Court of Appeals’ comments about how a broad interpretation of “relationship” would mean that no one in the bar could serve as a neutral are similar to the concerns expressed by the Attorney Discipline Board (ADB) in a case regarding a mediator’s failure to disclose a close friendship with one side’s attorney. The ADB worried that, “In the legal profession, an ‘appearance of conflict of interest’ can be found wherever anybody looks,” so requiring neutrals to disclose every connection would discourage the collegial relationships that enable attorneys to resolve their differences amiably.

The ADB, like the Court of Appeals, confuses disclosure with disqualification. In fact, following this logic, if all attorneys disclosed their relationships, they would all have the same “disadvantage” and the playing field would be leveled. The Court of Appeals almost sounds patronizing when it quotes the trial judge’s observation that “lawyers are able to separate themselves and act professionally and make professional decisions without being affected by personal relationships.” Both courts sound like they’re saying that attorneys don’t need to disclose friendships because they can be trusted to do the right thing.

No, they can’t, and that’s why we have rules compelling disclosure. Neutral discloses, parties decide.