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What are the pros and cons of requiring staff to sign mandatory arbitration clauses?

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in Employment Law,Human Resources,Leaders & Managers,Management Training

Q. My company is considering requiring employees to agree to an arbitration clause to resolve any employment disputes, including discrimination complaints. I have been told it is a good risk-management tool for avoiding high legal defense costs and big jury verdicts. Do you agree?

A. Not always. There are many possible advantages to arbitration: no jury sympathy, quicker results, less discovery and greater confidentiality. But to determine whether it’s right for your organization, you’ll need to consider some questions.

You need to review your experience. How many cases have you been getting and what types of cases are they? The existence of an arbitration clause may result in more, not fewer, cases since it is easier and cheaper for a plaintiff to get to arbitration than to a court.

What are your reasons? Risk management? Are you in an industry with lots of union representation and are you considering this because you want to offer independent third-party review as most union contracts do?

Arbitration has downsides. There is more and more discovery as it becomes more formal and legalistic. There’s almost no right to appeal an incorrect decision. Arbitrator fees can be expensive—and employers are required to pay the bulk of them.

Arbitrators have to be given the authority to award the damages available by statute and are willing to do so. In June, Thomas Chester won a $4.1 billion arbitration award against iFreedom Communication. A few weeks ago, the 2nd Circuit ruled in Reliastar Life Ins. Co. of New York v. EMC National Life Co. (2009 WL 9411173) that an arbitration panel did not exceed its power by awarding attorneys’ fees for bad-faith conduct, despite the fact that the contract provided that the parties pay their own fees. Although we are used to judicial deference to arbitrators, it is unusual to see deference to their inherent powers in the face of specific, contrary contract language.

Bottom line: All the facts concerning your workplace, its culture and the issues must be taken into account.

There are alternatives to mandatory arbitration that you should consider, including a jury trial waiver. Such a waiver provides that the employee agrees to waive any right to a jury trial in a dispute with the employer. Such waivers are enforceable for all types of civil cases, not criminal. The case is then tried before a judge or magistrate, without a jury. There are several advantages, including no fees for the judge or magistrate, formal and predictable discovery rules, knowledgeable and experienced judges and the right to an appeal from all issues.

In deciding on a risk-management strategy to control a runaway jury award, you should carefully consider all relevant issues and take care in drafting and implementing any such program.

Mandatory arbitration may be popular, but that doesn’t necessarily make it right for your organization.

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