Business Law Articles
Written By: Dennis J. Alessi, Esq.
Mandelbaum Salsburg Lazris & Discenza, P.C.
West Orange, New Jersey
Arbitration For All Employees
Since the early 1990s, many of the more sophisticated employers have required that all their employees sign arbitration agreements for any disputes regarding their employment and termination. In some instances these agreements are incorporated into the employment application; or as a separate document employees execute upon initiating employment, along with many other employment-related forms; or, in other situations, a policy on arbitration is included in the Employee Handbook. Regardless of the mechanisms the employer uses to establish this arbitration agreement, there are standard factors which all courts will consider in deciding whether to enforce it.
Federal and state supreme courts have enforced such agreements provided certain conditions are met; primarily that: (1) the employee has signed a document which in clear, simple, and straightforward language states the terms of the arbitration agreement; (2) the agreement contains this same type of language that the employee is waiving the right to a trial in court with a judge and jury; and (3) from the circumstances of the employee’s signing the agreement, (e.g. having time to consider signing and an opportunity to ask management any questions), it is clear that they knew and understood what the agreement meant, particularly the waiver of a jury trial, and have voluntarily signed it as a condition of continued employment. This last requirement can usually be met, to the court’s satisfaction, if the employee has signed an acknowledgment for the arbitration agreement which includes such representations.
Advantages of Arbitration
There are many advantages for employers in arbitrating employment disputes as compared to a jury trial in court. These advantages have been written about extensively, so only a few of the most important ones will be summarized in this article.
The most obvious advantage to an employer is that arbitration avoids a jury trial where the jury pool will most assuredly be comprised almost totally of employees. If an owner or executive of a business does happen to be in the pool, the employee’s attorney will certainly use a preemptory challenge to remove this person from the jury. For an employer there is no jury of its peers in a wrongful employment practices lawsuit. By far, eliminating this unfair advantage for the employee is the greatest benefit of arbitration for an employer.
A second, closely related advantage for an employer is that arbitrators are experienced jurists who “have heard and seen it all”. They are much less likely to be swayed by the emotional appeals of the employee and their attorney. An arbitrator will usually decide a case on a cold, hard analysis of the facts.
Even when the arbitrator does find that the employer has violated some employment law, there are still advantages for employers. As compared to a jury, an arbitrator is far less likely to award large, or any, punitive damages against the employer for its violation. Similarly, arbitrators are not prone to large employee awards for what are usually very subjective claims of alleged pain and suffering.
A fourth advantage of arbitration is that it is a private means of settling a dispute with no court or other public filings, except in the rare instance of a court complaint to vacate or enforce the arbitrator’s award. Even in these instances, such a filing is likely to generate far less media attention than the filing of an initial law suit alleging, for example, sexual harassment or whistleblowing. For a company that is concerned about its public image with women, or its compliance with government regulations, arbitration has a definite advantage over a law suit.
In sum, the advantages of arbitration are that for employers it is a far more level playing field than in court with a jury, and with a greater likelihood that the employer will prevail. Even when it does not, the damages awarded the employee in arbitration are nearly always far less than in a jury trial, and an arbitrator’s award against the employer is a private matter.
Disadvantages of Arbitration
There are, however, many disadvantages to arbitration which are often overlooked by employers who obviously want to avoid jury trials of employment disputes. Most importantly, the arbitrator’s decision is essentially final because it is subject to very limited review by the courts. If the arbitrator just “didn’t get it”, in terms of the employer’s arguments; or incorrectly interpreted or applied the law; or erroneously excluded testimony or evidence helpful to the employer; the employer is essentially stuck with the arbitrator’s decision.
The second most important disadvantage of arbitration is that unless the matter is settled, the employer will almost always have to proceed through the entire arbitration process. There are few procedures for the arbitrator to decide the matter, in whole or even partially, prior to the completion of the hearing process. And in this writer’s experience, arbitrators are reluctant to use those arbitration procedures which do exist to decide the case on a summary basis. This is one aspect of arbitration which does not appear to be changing, even with retired judges now often being the arbitrators.
By comparison, as all attorneys know, there are many procedures and opportunities under the rules of all federal and state courts to have a judge decide multiple individual issues, and even the entire matter, before it proceeds to a trial. Besides the potential strategic advantages for employers of procedural moves in the actual litigation of the matter, they can often also result in an acceptable settlement prior to trial. Most of these procedural moves generally do not exist in arbitration.
In addition, there are the Rules of Evidence, particularly in Federal Courts where, in general, they are more stringently applied than in most state courts. These Rules afford an employer at least the potential that a judge will limit, or completely bar, testimony that is particularly damaging to the employer’s case, which would be admissible in arbitration. A good example is that hearsay evidence is permissible in arbitration.
With the internet and social media, one of the great advantages of arbitration, privacy, can be totally undermined by a claimant who is bent on “telling their story”. A good example is the allegedly sexually harassed secretary who posts a video on You Tube, involving her high profile boss, that goes viral. Unlike a judge, an arbitrator has no authority or ability to address such conduct. Consequently, one of the employer’s main advantages in arbitration may be lost in the very situation where privacy is most important.
The Changing Nature of Arbitration & Arbitrators
The nature of the arbitration process, and the arbitrators themselves, have changed over the last two decades. Arbitration is suppose to be, and initially was, a more informal and faster process for adjudicating disputes. While many arbitrators were previously trained as lawyers, many others were not. They had backgrounds in human resource management or labor relations. Until the early 1990s, most of them spent their entire careers, or the greater part, as arbitrators.
Presently, many arbitrators are retired federal or state court judges. Because of this experience they have engrafted onto the arbitration process, either intentionally or unintentionally, many of the formalities and procedures of the Court Rules. This has eliminated many of the advantages of arbitration.
Added to these changes are the arbitrator’s fees which can be six to eight hundred dollars an hour, and fees up to nine hundred dollars an hour are being charged by the most experienced retired judges, now arbitrators. With these arbitrators encumbering the process with many of the formalities and procedures adopted by the courts, the costs of arbitration can be burdensome, particularly for a small employer. (California, and perhaps other states, essentially require that the employer pay the entire cost for the arbitrator, before their courts will enforce an arbitration agreement against an employee.)
Another Way; Judges But No Juries
Considering the disadvantages of arbitration, its changing nature, and changes in the pool of available arbitrators, employers should consider another alternative; having agreements with their employees that all legal disputes will be submitted to court, but only before a judge without a jury (a “bench trial”). This alternative preserves the unquestionable employer advantage of not having the matter decided by a jury. It eliminates all the disadvantages of arbitration, and affords the employer all the advantages of being in court.
In addition, this alternative does preserve one of the major advantages of arbitration. Judges, like arbitrators, have also “heard and seen it all”. They are less likely to be swayed by the employee’s, and their attorney’s, emotional appeals. Judges are also less likely to award punitive damages, or damages for alleged emotional pain and suffering. They are more likely to decide the matter on an objective analysis of the facts and the real damages, if any, to the employee.
Litigants often agree to waive the right to a jury trial even without a prior agreement. Judges are very familiar with this procedure, and they tend to be comfortable with it. By following the same steps outlined above, for having employees agree to arbitration, employers should not have any problems enforcing employee agreements to proceed in court with a bench trial.
In counseling their clients, in-house counsel should carefully consider the nature of the business and the composition of the workforce; their prior experiences with employee claims; and with litigation in court and/or in arbitration; before deciding which litigation process best suits their company. The “bottom-line” for in-house counsel is to ensure that one of these methods for avoiding jury trials is properly implemented for all the company’s employees.
If in-house counsel wants to discuss how to properly adopt an enforceable agreement for either arbitration or a bench trial for all company employees, or to obtain sample documents, please contact Mandelbaum Salsburg by visiting International Society of Primerus Law Firms or www.msgld.com.
 Some states, particularly California, have imposed a number of additional conditions which an employer must meet before the courts will enforce an employee’s arbitration agreement.