Employment Arbitration: A Minefield For Employer And Employee

By Gregg Bertram M.A., J.D., LL.M.

In the past twenty or more years many employers, especially large company employers, have required employees to agree to arbitration as the exclusive forum to resolve disputes.  State and federal courts have generally deferred to this preference by employers.   Complaints by employees and their attorneys that compulsory arbitration and denial of access to the courts is fundamentally unjust have largely failed.  This article summarizes a number of employee and employer perceptions and criticisms of mandatory arbitration.

  1. Is Arbitration Faster and Less Expensive Than Trial?  Many employers adopted mandatory arbitration of disputes with employees under the belief that arbitration was faster and less expensive than trial.  Often it is not.  At least one study comparing a number of employment cases arbitrated by one employer versus a similar number adjudicated in court by that same employer found that the trials occurred faster than the arbitration hearings and at a lower cost to the employer.  In order to achieve the touted goal of efficiency, employment contract arbitration provisions must be very carefully drafted to include, among other things, firm timelines from the initial demand for arbitration through to the arbitration hearing.  Relatively few arbitration clauses contain such deadlines.
  1. Is Arbitration More Expensive for the Employee?  If an employee is represented by an attorney, the expense should be the same whether the dispute is in arbitration or trial.  However, if the employee is required to also pay a portion of the arbitrator’s fees and costs, then the cost will be substantially higher than if the case was in court.  Experienced arbitrators generally charge top dollar for their services.  Arbitration fees can range from the $7,500-$10,000 range to more than $100,000.  Many employment agreements, however, require the expense of the arbitration to be paid entirely by the employer.
  1. Is Preparing for the Arbitration Hearing the Same as Getting Ready for Trial?  Generally, unless the arbitration clause requires parties to adhere to court discovery and evidence rules, the pre hearing arbitration process is often much less clear and less formal than is preparing for trial.  Employers chafe because they have difficulty obtaining dispositive motion relief such as summary dismissal of an employee’s claims in arbitration.  In addition, an arbitrator’s failure to properly manage pre hearing discovery can result in confusion, delay and additional party expense, an economic cost that is usually more painful for employees than their wealthier former employers.
  1. Will the Employee Get a Fair Hearing in Arbitration?  Employees and their attorneys often complain about arbitrator bias in favor of employers.  Arbitration providers such as AAA (American Arbitration Association) and JAMS are often identified in employment agreements as exclusive arbitration providers.  These ADR providers may have conducted many, even more than one hundred, arbitrations for a single employer and have been well paid for these services.  It is naïve to expect arbitrators having such entrenched business relationships with employers to be unbiased.
  1. Is There Appeal from a “Bad” Arbitration Award?  Most employment arbitration contracts provide for “binding” arbitration.  Where binding arbitration is specified, successful appeals in court are exceedingly rare and the grounds for appeal are extremely narrow.  Even if the arbitrator makes one or more mistakes of law, that may not justify reversal of an arbitration award and will not occur under federal law.

Practice Tip: Before beginning employment with a new employer, an employee should have their employment agreement reviewed by a competent attorney.  If it contains a one-sided arbitration clause, the employee should attempt to negotiate a more balanced arbitration provision and one that requires at the very least that the employer pay all arbitration fees.  In addition, the employee should also attempt to include mediation as a step that must occur before any arbitration.  Mediation is not only much less expensive than arbitration but it allows the parties to retain decision making control and, in certain instances, create a range of remedies that neither arbitration (nor trial) can provide.


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