Factors for Considering Mandatory Arbitration of Employment Disputes

Arbitration of employment claims can be an effective form of alternative dispute resolution (ADR) that benefits the employee and employer alike. When it works well -- and regardless of whether the employer ultimately is found liable -- both parties can realize cost savings and efficiencies without sacrificing the ability to present your case or the quality of that presentation. Certainly, these are the benefits that make arbitration attractive to companies. However, whether this continues to be the reality of arbitration today is an entirely separate question.

Any company that has or is considering having a mandatory pre-dispute employment arbitration program must balance risks and rewards that are very specific to that particular company. Depending on the size of your workforce, your location, the industry you are in, the industry's history (if any) with arbitration, your prior litigation experience, the specific types of claims you have experienced, legal costs, and an assessment of the types of claims that may fit your risk profile, you may decide for or against using a mandatory arbitration program. But there is much more to consider about the arbitration process itself.

As an employer, you should consider, for example, the current state of the law in the locations where you seek to enforce the arbitration agreement. That's because the courts in some places have shown themselves to be more willing than courts in other areas to compel arbitration. For example, an employer may be more successful trying to compel arbitration in Texas than in California, depending on the content of the arbitration agreement. Also, the courts are greatly influenced by the actual content of the arbitration agreement. These are important factors as you consider the costs and benefits of a mandatory arbitration process.

Also, what forum would you use for arbitration? Would you contract with the American Arbitration Association, JAMS, or another established ADR provider and use their arbitration rules? Or would you write your own rules and assemble your own arbitration panels? There are pros and cons to both approaches, and your choice also affects whether a court would enforce your arbitration agreement.

Regardless of the forum, what about the quality of the pool of arbitrators? Are they lawyers? Do they have backgrounds that indicate they understand the subtleties of complex employment laws? This is a concern because some ADR organizations do not require their panel arbitrators to have any employment law expertise. As a result, an employer may be found liable even though the case may have been dismissed much earlier on, had it been filed in court.

Do your arbitrators have a reputation for applying the law to the case in front of them or are you concerned about arbitrators "splitting the baby?" In other words, you should consider the likelihood of whether you will be found liable on some claims in more cases but ordered to pay less money than a jury might otherwise impose. Do you feel protected by the discovery process? Sometimes, arbitrators are less inclined to allow the type of discovery an employer may desire even thought the arbitrators allow the claimant a bit more latitude.

Are the costs of outside counsel lower in arbitration than in litigation? Well, the answer may be that the pre-arbitration costs are similar to court cases and the savings appear once the hearings begin. If that's the situation, you'll need to consider how often cases actually settle before a hearing, in order to try to quantify the savings. And keep in mind that in many cases, you will be required to cover the costs of the arbitration so that the claimant pays no more than he or she would if they had filed a case in court. Otherwise, a court may not enforce your arbitration agreement. This means that, depending on the arbitral forum you use, the number of arbitrators on your panel, and the size of the case and rules of the forum, the cost of the arbitration itself may not be insignificant.

There also is a consideration regarding confidentiality. Unless ordered sealed by a court, all filings in court are usually a matter of public record. However, this is not so in arbitration. Arbitration is not entirely confidential but, generally speaking, it can be less in the public eye than litigation. (And this is one of the issues that opponents of mandatory arbitration often point out.)

With regard to timing, arbitrations can generally be moved along faster than litigation (although this is not always so). And when a claimant is not represented by counsel, arbitration can be more of a challenge than a court case.

You should also consider the issues involved in rolling out a new or revised arbitration program to existing employees. For example, does your state's law consider continued employment to be sufficient consideration for an agreement to arbitrate? Will you terminate employees who refuse to sign the arbitration agreement? Questions like this will help you account for the cost and cultural impact of litigation that may result from the rollout of the program itself.

These are just a few of the many issues employers should consider when determining whether mandatory pre-dispute arbitration programs are "right" for the business. It is important for you to consult with legal counsel about your specific situation so that you understand all the benefits and possible downsides of arbitration programs.

Visit the AllBusiness.com Forms & Agreement section to see a sample Arbitration Policy for Disputes Involving Employees.

Barrie Gross is former Vice President and Senior Corporate Counsel (Employment Law) for an international Fortune 1000 company and is a regular contributor to AllBusiness.com. She is the founder of Barrie Gross Consulting, a human resources training and consulting firm dedicated to assisting companies to manage and develop their human capital. Visit www.barriegrossconsulting.com to learn more about Barrie and the services BGC provides.

Note: The information here does not constitute legal advice and should not be relied upon as legal advice. If you have a legal issue or wish to obtain legal advice, you should consult an attorney in your area concerning your particular situation and facts. Nothing presented on this site or in this article establishes or should be construed as establishing an attorney-client or confidential relationship between you and Barrie Gross. This article is provided only as general information, which may or may not reflect the most current legal developments or be complete.