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Consider alternatives before choosing mandatory arbitration

by on
in Employment Law,Human Resources

Employers and their lawyers often favor mandatory arbitration of employment claims for two reasons: It’s a cost-effective alternative to court, and it’s an insurance policy against runaway jury verdicts.

Arbitration, however, can often prove just as costly as court. More and more arbitrators are allowing plaintiffs to engage in discovery that’s nearly as expansive (and expensive) as what trial courts permit.

Additionally, employers have to add into the equation the cost to file the claim. American Arbitration Association fees can run from $950 to $65,000. Then there’s the arbitrator’s time, which often exceeds $500 per hour for prehearing conferences, discovery, motions and finally the actual hearing time and the drafting of the opinion.

Add it all up and the defense costs associated with arbitration can easily exceed defense costs in a traditional court proceeding.

Thus, while many employers continue to favor arbitration to limit their potential exposure in front of a jury, others have begun to consider alternatives.

Contractual waivers of jury trials

Employers can have employees sign agreements waiving the right to ask for a jury in any subsequent legal disputes.

More than 20 years ago, in K.M.C. Co. v. Irving Trust Co., the 6th Circuit stated: “It is clear that the parties to a contract may by prior written agreement waive the right to jury trial.... [T]he constitutional right to jury trial may only be waived if done knowingly, voluntarily and intentionally.”

The contract should clearly and unambiguously advise the employee that by signing the agreement, the employee is giving up any and all rights to have any claims related to his or her employment raised by a jury. The more broadly the waiver is drafted, the more likely it will cover an employment-related claim.

Agreement to shorten the statute of limitations

Employers can also attempt to limit the amount of time employees have to assert employment claims.

In Thurman v. DaimlerChrysler Inc., the 6th Circuit held that a clause in an employment application limiting the statutory limitations period for filing a lawsuit against the employer was valid. Connie Thurman’s employment application with DaimlerChrysler contained a clause waiving any statute of limitation and agreeing to an abbreviated limitations period in which to file suit against the employer.

Specifically, the clause stated:

READ CAREFULLY BEFORE SIGNING I agree that any claim or lawsuit relating to my service with Chrysler Corporation or any of its subsidiaries must be filed no more than six (6) months after the date of the employment action that is the subject of the claim or lawsuit. I waive any statute of limitations to the contrary.

The court held that the abbreviated limitations period contained in the employment application was reasonable, and that all of Thurman’s claims against DaimlerChrysler were time barred by the six-month limitations period. The court paid particular attention to the “read carefully before signing” language, and noted that it was in bold and placed conspicuously directly above Thurman’s signature acknowledging that she read and understood the document. It also found the specific language used was clear and unambiguous.

Internal grievance review boards

In Alonso v. Huron Valley Ambulance, the 6th Circuit cautioned that waivers of judicial rights must be knowing and voluntary to be valid. (See “Ensure workers understand waivers before signing.”)

In that case, Huron Valley Ambulance used an internal grievance process to attempt to limit exposure to discrimination and other employment-related claims. The process was disclosed, but not fully described, in its employment application.

Upon starting employment, the company provided all employees a copy of its policy manual, which described the grievance process in detail. The 6th Circuit rejected the waiver because the employer did not fully disclose it when the employees signed.

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