The beginning of the New Year is not just a good time for personal resolutions, but also is a good time to consider important Human Resource policy changes. One idea that more and more employers are putting into place is mandatory arbitration agreements that cover legal claims by employees.
Arbitration before a former judge or experienced employment lawyer has many advantages over having your employee's cases decided by a jury. As those who have been involved in federal or state courts well know, the litigation process often is very, very slow which drives up both direct and indirect costs to the employer in defending a suit.
In contrast to court cases, the discovery phase in an arbitration case is usually far more abbreviated. The endless and expensive "discovery disputes" in court cases, with their accompanying motions upon motions filed by bickering lawyers that then go undecided by judges for months and months are far less frequent in arbitration.
Also, in virtually every instance, the length of an arbitration case compared to the same kind of case in the court system will be much less, and the cost of defense will be much less, as well. Claims decided through arbitration typically take less than 6 months from inception to conclusion, while court cases almost always drag on for years. Time is (more) money --- particularly in litigation.
Perhaps most importantly, damages are much more predictable in arbitration than in cases decided by juries. The fear of a "runaway verdict," consisting of monstrous emotional distress or punitive damages (always a concern with a jury), is almost non-existent in an arbitration case. This makes it safer for employers to try cases of questionable liability without fear of a ruinous award of damages by an out of control jury. In addition, arbitrations are usually private proceedings that receive virtually no news coverage and don't present the issue of "media blackmail" that drives many exorbitant settlements so the employer can avoid the glare of the media spotlight.
Indeed, the advantages of arbitration as the favored forum for employers is so pronounced that the plaintiff's bar and pro-plaintiff interest groups like AARP have lobbied Congress to pass legislation banning or severely restricting the use of mandatory arbitration agreements. So far, however, this federal legislative effort to prevent employers from compelling their employees to submit their legal claims to arbitration rather than file lawsuits in court has failed repeatedly. With a more business oriented majority in the House, there seems little likelihood that any anti-arbitration legislation will pass in the foreseeable future.
So, if arbitration is such a good idea and legislative efforts to stop usage of arbitration agreements seems destined to fail, many may ask "why doesn't every employer opt for arbitration?" The most common answer is that employers fear pushback from employees who are asked to sign agreements, along with their not wanting to confront the issue of what to do with employees who refuse to sign the agreement. Also, some employers are troubled that they must pay the fees of the arbitrator and believe this additional cost will make the overall cost of the case greater than it would be in court (where judges and juries are "free"). Finally, a common belief is that arbitrators won't grant summary judgment for cases that deserved to be dismissed short of trial.
In the author's opinion, formed after many years experience in the court system and with arbitrations, almost all of these concerns are badly overblown and simply do not pose a major problem. First, the immediate cost and time incurred in implementing a mandatory arbitration program is minimal, especially compared to its long term benefits. Second, the fear of an adverse employee response also is, at most, a very short-term issue that can be worked through successfully with a prudent implementation strategy. Likewise, the additional cost of the arbitrator pales in comparison to the financial savings of the controlled and expedited process that arbitration offers.
The final issue of arbitrators often being resistant to dismissing cases short of trial does, however, have merit and needs to be considered. Of course, this concern is predicated upon the false assumption that no dubious lawsuits are ever filed in venues where summary judgment is never granted, such as in many state courts and a number of federal courts. Still, there is no question that many experienced and fair minded judges will dismiss cases (eventually) that do not have any legal merit. So, is this concern enough to forego the many advantages of arbitration?
Our considered opinion still is a resounding "No" – arbitration remains the superior forum for employment claims. We believe the issue of obtaining early dismissals from arbitrators can largely be mitigated by carefully drafting an arbitration agreement that dictates the arbitrator will consider dispositive motions prior to trial of a case. Also, using arbitrators who are familiar with federal court proceedings, where such motions most often are granted also increases the probability that these types of motions will be considered on their merits.
Thus, in the end, we strongly recommend your adoption of mandatory arbitration agreements. We believe the few drawbacks ultimately are dwarfed by the obvious and undisputed advantages of arbitration. For 2011, if you don't consider any other major HR initiative, consider arbitration. It only makes (dollars and) sense.
For more information, contact Ben Mathis at [email protected].