It Makes Good Business Sense to Require Employees to Arbitrate, Not Litigate, Their Employment Claims

April 24, 2002

Employers can ill afford even one employee discrimination lawsuit. A single employment case can easily turn black ink to red when you get to the bottom line of your financials.

Juries are very sympathetic to terminated employees and, consequently, jury verdicts are skyrocketing. Awards in hundreds of thousands, even millions, of dollars are now more the rule than the exception when the employee prevails. For most employers, particularly small facilities, employment lawsuits constitute a huge, unmanageable risk -- a “bet the ranch” gamble.

Even if you win in the courts, you still lose if your case goes that far. Employment lawsuits are time-consuming, difficult and expensive to defend. You can expect to dole out as much as $100,000 or more in defense costs to have your day in court.

Relief is in sight. There is a viable alternative to the costs and vagaries of employee lawsuits. You can legally, if you do it right, require your employees to pursue their claims exclusively through arbitration and force them to give up their right to go to court and have their case heard by a jury. It’s called “mandatory arbitration” and, according to a recent decision by the United States Supreme Court, it is a viable, fair, legal alternative.

In a landmark opinion, the Supreme Court sided with employers and agreed that mandatory arbitration of certain employment issues is not only appropriate, but desirable. The Court's Opinion was issued on March 21, 2001, in Circuit City Stores, Inc. v. Adams. The Court ruled that employment agreements containing arbitration provisions are enforceable under federal law. The Court also questioned the validity of any state law purporting to prohibit mandatory arbitration agreements in the employment context. By so ruling, the Court afforded employers the opportunity to resolve employment disputes in a more cost effective way than the expensive and drawn-out litigation process.

Employers desiring to avail themselves of arbitration must have in place appropriately drafted arbitration agreements and a comprehensive written policy detailing the arbitration procedure. This procedure must include many of the safeguards found in traditional litigation. For instance, just as an employee is afforded the right to legal representation in the court system, the employee in an arbitration setting must be allowed to have representation of his or her own choosing. Similarly, as in a lawsuit, the employee must have fair access to information or documentation relevant to the claim. Just as the judge in traditional litigation must be impartial and fair, the arbitrator must be independent and neutral. Moreover, the arbitrator must have the power to award all relief that would otherwise be available in a court of law.

Aside from the procedural safeguards, in order to be enforceable, a policy requiring arbitration must also meet other due process and fairness standards. First and foremost, employers must include precise and specific language in the arbitration policy defining those claims which are, or are not, covered by binding arbitration. The employee’s waiver of the right to sue and to have a jury must be specific and precise. The arbitration policy needs to address the allocation of costs and make certain that expense is not a barrier to an employee's ability to avail himself of the arbitration procedure. The policy must also make clear whether it applies to new hires, current employees or both. Requiring current employees to sign an arbitration agreement requires special attention.

A mandatory arbitration program must be carefully crafted or the employer may find itself in the untenable position of not being able to enforce its policy and still having to defend an expensive and lengthy lawsuit. Employers desiring to take advantage of this very attractive alternative to the risk and expense of a lawsuit are advised to “do it right or not at all.” It shouldn’t be done without experienced professional input and review. However, it is well worth the effort. The expense of developing a program is minimal and is a one-time outlay. The costs of development, adoption and implementation will be paid for many times over if you avoid just one lawsuit. Lastly, and most importantly, the chances of your “losing the ranch” if you lose the case in an arbitration are slim indeed. It is highly unlikely that experienced arbitrators will award anywhere near the eye-popping verdicts that are resulting from plaintiff predisposed juries. The expense attendant with employment lawsuits is soaring out of control. A mandatory arbitration program is well worth consideration. It simply makes good business sense.

For more information, please contact jlyncheski@cohenlaw.com or alavelle@cohenlaw.com.