I have always been a fan of arbitration as a means of dispute resolution in business contracts as opposed to using the legal system. Arbitration — yes! Lawsuits — no!
Recently, companies have been requiring new employees to agree to a basis of employment that includes a dispute resolution technique based solely on binding arbitration. [Note: This is different, though similar, than binding arbitration in business contracts. Similar.]
The employees are being asked to give up their right to sue the company, their employer, as a condition of employment.
Good idea or nefarious overreach by the employer?
These are not contract employees, but “at will” employees. A contract employee has an Employment Agreement and the at will employee has an “understanding” or a “basis of employment” while still being subject to termination for no reason or good reason or any reason.
It is perfectly normal for an Employment Agreement to have some form of dispute resolution spelled out as part of the deal. This falls under the umbrella of “you don’t get what you deserve, you get what you negotiate.”
Today, it is reported that more than 60,000,000 US employees are working under a mandatory arbitration arrangement for employment disputes. So, it is not uncommon.
[Note: Unions have their own dispute resolution procedures as part of their collective bargaining agreement. It often is based on arbitration or a form similar.]
What has made this more relevant, Big Red Car?
What is driving the move toward more mandatory arbitration is the fall out from increasingly explosive workplace lawsuits like sexual harassment. This is part of an increasing wave of employee v employer litigation in general.
Some will tell you that #MeToo has driven more arbitration and some will tell you that it has pushed in the opposite direction.
Small technical legal point — it is an evolving part of the law that a class action lawsuit cannot be advanced if the complainant has a mandatory arbitration obligation. You can’t form a class if you have an individual obligation to arbitrate. Evolving.
Benefits of arbitration, Big Red Car?
Here are some relevant facts:
1. There is a large voice that says that arbitration favors the employer v the employee. I don’t agree with that. I think any form of litigation ultimately favors the employer.
Employers are routinely represented by attorneys, so they know the game better than a once-in-a-lifetime legal confrontation triggered by an employee.
There are others who say the immediacy of arbitration forces the employer to get his “settlement cap” on quicker because the arbitration is going to happen so fast.
2. It is infinitely easier to keep an arbitration confidential than a lawsuit with public filings anybody can get to at the courthouse.
This cuts both ways as I am sure you can imagine in a sexual harassment confrontation.
3. Arbitration is less formal — meaning less extensive discovery — and quicker. That’s two things.
Those two things taken together should make it less expensive.
4. Arbitration is less mentally taxing and less geographically jarring. No courtroom.
An arbitration is likely to take place in a conference room around a big table with the parties across the table from each other with the arbitrator at the head of the table.
I once had a very successful arbitration in a conference room overlooking a lake, next to a fabulous coffee shop, less than 100 yards from a great Mexican restaurant. Won an enormous settlement. Glorious day.
The only drawback? The arbitrator was a Duke basketball fan.
5. The arbitrator has an oar in the water. The arbitrator — who both parties must agree upon — is a seeker of truth and will take a proactive role in drawing out the truth. Most arbitrators are seasoned lawyers who control the process in their own conference room.
I particularly like retired Federal judges as arbitrators.
Downside, Big Red Car?
OK, here is the downside:
1. The company may have engaged in several arbitrations and be slicker than snot on a glass door handle because of their familiarity with the process. Sort of comes with the territory. Same situation in a courtroom, no?
2. The company has more financial resources, can afford better lawyers, can spend more money preparing for the arbitration, can get their management to toe the company line — I consider these to be the same conditions if an employee hauled an employer into court.
So, big advantage, but no real difference, right?
3. If the employer is a bad actor, the confidentiality protects those bad acts. This is huuuuuuuuuuuuge.
There is no employer who wants their bad practices shotgunned to the rest of the work force and the world in general.
This is often the driver for settlement.
4. Since arbitration is not a judicial undertaking, the employee has no right to appeal the decision to an appellate court. Arbitration is binding and final. No appeals.
What else, Big Red Car?
There are a couple of other wrinkles:
1. The overview is a little different based on who the company is. Google had a mandatory arbitration provision and has recently been rumored to have abandoned it because of a 20,000 person work stoppage action.
It is not totally clear what drove the work stoppage (it was a sunny, pleasant day), but one thought is a protest against Google’s ability to hide its bad acts behind a veil of corporate smoke. In any event, they are considering dumping mandatory arbitration.
2. There is a bill in the House of Representatives, The Forced Arbitration Injustice Repeal Act of 2019 – HR 1423, with a companion in the Senate (S 610) which prohibits mandatory arbitration.
Before you get too alarmed, there was a similar bill introduced last session of Congress that went nowhere. This one is also likely to die a slow, cold death in the bowels of the Congress.
3. Kentucky did ban mandatory arbitration as a condition of employment in 2018 and other states (California, Massachusetts, New York, Vermont, Washington — all quite liberal states) are in the talking stage.
4. If an employee hauls her employer to arbitration — like a courtroom, same deal — you will likely not retire from that company with the infamous gold watch. It is a career move, but you knew that, right?
Bottom line it, Big Red Car
I come down where I started. I think it’s a good idea for a company to streamline its legal exposure in the current environment and, therefore, I think mandatory arbitration is a reasonable move.
More importantly, a good company should avoid employee dissatisfaction of all types by using specific techniques like an Anonymous Company Survey.
OK, so there you have it, dear reader.