Consider all possible costs when determining whether arbitration will save you money

When it comes to reducing the time and expense of litigation, be careful what you wish for.

Attorneys often advise employers to consider adopting arbitration clauses to settle employment disputes. After all, litigation in court is expensive, time consuming and unpredictable. Juries often go overboard and deliver a pot of gold to employees who may not deserve a windfall at their employers’ expense.

But with arbitration, no jury is involved. The case stays out of court, there’s no bad publicity, and it may be cheaper. Or maybe not.

Sometimes litigation is inevitable and happens before arbitration can even start. Why? It often takes a court hearing to decide whether the case belongs in federal court or in arbitration.

Recent case: An appellate judge has upheld a lower court’s decision dismissing construction company Granite Rock Co.’s suit against the International Brotherhood of Teamsters. The company alleged that the union interfered with the company’s contract with a local Teamsters chapter.

Judge Ronald M. Gould of the U.S. Court of Appeals for the 9th Circuit found that under the contract’s arbitration clause, the parties are required to submit any contract disputes to arbitration, even a dispute over whether a contract exists. (Granite Rock Co. v. International Brotherhood of Teamsters, No. 07-15040, 9th Cir., 2008)

Final note: Consider the extra cost of interpreting the arbitration agreement when figuring cost savings. Those costs may eat up any potential savings. Ask your attorneys to compare cost estimates before starting a new arbitration program.

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