Business Law Compliance/Best Practices Employment Law Legal Topics

The Pros and Cons of Requiring Workplace Arbitration

175660493The following is a guest blog post by Jeffrey D. Polsky, a partner at Fox Rothschild LLP, where he counsels employers on California employment law issues, represents them in litigation, and writes for Fox Rothschild’s California Employment Law Blog.

Should employers have mandatory arbitration agreements with their employees? Having tried and arbitrated dozens of cases on behalf of employers, here are what I see as the pros and cons—and where I stand on the question.

The Pros:

  • Mandatory arbitration avoids runaway, emotion-fueled jury verdicts.
  • Arbitration procedures (including discovery) are generally more streamlined.
  • Arbitration is more private than a court trial, so there’s less risk of media attention.
  • Cases typically settle more cheaply.
  • Cases usually proceed more quickly in arbitration than in court.
  • Attorney fees are usually lower.
  • If you win, the other side’s opportunity to appeal is very limited.
  • You may be able to require employees to waive the right to pursue class actions (the Ninth Circuit recently held that class action waivers are unenforceable (Morris v Ernst & Young, LLP (9th Cir, Aug. 22, 2016)  2016 WL 4433080), but most federal circuits to address the issue disagree, as does the California Supreme Court, which held in Iskanian v CLS Transp. Los Angeles, LLC (2014) 59 C4th 348 that employees can waive the right to bring class actions but not the right to bring a “representative action” under the Labor Code’s Private Attorneys General Act of 2004 (PAGA) (Lab C §§ 2698-2699.5)).

The Cons:

  • It’s easier for unrepresented parties to bring weak claims in arbitration.
  • Forum and arbitrator costs are higher.
  • The law about enforceability of arbitration agreements remains unsettled. For example, the California Supreme Court has said “no” to mandatory arbitration of PAGA claims (although the Supreme Court may have the last word). Also, there have been repeated efforts in Congress to outlaw the practice.
  • Employees generally don’t like losing access to a trial by jury.
  • If you lose at arbitration, your opportunity to appeal is very limited.
  • It may be harder to eliminate cases on dismissal or summary judgment.
  • Although it hasn’t been my experience, some say that arbitrators tend to “split the baby.” (How I hate that cliché! I don’t like “throwing out the baby with the bath water” either. Leave the poor baby alone!)

The Deciding Factor

Most cases end up settling, and cases subject to arbitration settle more cheaply. The fact that there’s no risk of an excessive jury verdict changes the whole settlement calculation. Employees and their attorneys can’t base their negotiation position on the fact that, if they just get before a jury, they have a shot at a huge verdict.

If your client doesn’t have an arbitration agreement with its workers, you should seriously consider whether it’s time to develop one.

For more on the practical considerations in deciding whether to compel arbitration as well as a sample mediation/arbitration clause for an employment agreement, turn to CEB’s Advising California Employers and Employees, chap 20.

Other CEBblog™ posts you may find interesting:

© The Regents of the University of California, 2016. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

5 replies on “The Pros and Cons of Requiring Workplace Arbitration”

Add your comment to the blog post

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s