Reassessing The Pros And Cons Of Workplace Arbitration-UPDATED August 2020

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As someone who represents employers, I’ve long been a proponent of arbitration as a way to limit exposure to employment claims. I have colleagues who disagree and I recognize that it’s a complicated issue. So starting about five years ago, I’ve been laying out what I saw as the pros and cons of mandatory workplace arbitration. I did so to enable employers to make informed decisions on their own as to what course to take.

Like so much of employment law (and life in general), the only constant is change. Since I wrote on this topic last October, a federal district court ruled that AB 51 (seeking to ban mandatory workplace arbitration) was unenforceable, a state appellate court issued a decision restricting third-party discovery (Aixtron, Inc. v. Veeco Instruments Inc.), and COVID-19 has drastically decreased courts’ ability to get civil cases to trial. So given the current situation, here’s what I see as the pros and cons.

The Pros

  1. You avoid runaway, emotion-fueled jury verdicts. Any skilled plaintiffs’ trial lawyer knows how to appeal to jurors’ emotions. Those techniques don’t work as well on an experienced arbitrator. For that reason, while arbitration awards can be substantial, they tend to be more closely rooted in reality.
  2. The procedures (including discovery) are usually more streamlined than cases in court. Usually, that’s a benefit for the employer, who’s bearing the cost of the proceedings.
  3. The cases tend to settle more cheaply. This is a function of item 1 above. 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 windfall.
  4. Cases usually resolve more quickly in arbitration than in court.
  5. The attorneys’ fees are usually lower.
  6. If you win, the other side’s opportunity to appeal is very limited.
  7. Since the Supreme Court decided Epic Systems Corp. v. Lewis in 2017, it is now clear that you can require employees to waive the right to pursue class actions.
  8. It’s always been a struggle to get employment cases to trial. Every trial lawyer knows the frustration of preparing for trial, getting your witnesses prepared, lugging your files to court, and being told there are no courtrooms available and to come back in a few months. Given court closures due to COVID-19, and the need to give criminal trials priority, that problem is not going away anytime soon. Arbitration hearings, in contrast, usually proceed as scheduled.
  9. To the extent that proceedings take place by remote video, a jury trial will be far more unwieldy than an arbitration hearing. Trying to assess whether jurors are engaged and how they’re reacting by video seems especially daunting.

The Cons

  1. It’s easier for unrepresented parties to bring weak claims in arbitration. Because there are fewer procedural rules, it’s easier for a party to proceed even if they can’t convince a lawyer to take their case.
  2. Forum and arbitrator costs are higher and, in California and many other jurisdictions, the employer bears the vast majority of those costs.
  3. While Epic Systems resolved the issue of class action waivers, the California Supreme Court has said “no” to mandatory arbitration of Private Attorney General Act claims. Eventually, the U.S. Supreme Court may need to address that issue. But it’s not eager to do so, having passed up numerous opportunities.
  4. As our friends at Wage & Hour – Developments and Highlights have pointed out, plaintiffs’ lawyers who previously filed class actions may now start filing multiple individual arbitrations for wage and hour violations, which could subject employers to burdens and expenses that rival class actions.
  5. As part of the #MeToo movement, there have been concerted attempts by some to argue that arbitration agreements protect harassers. However, any remedy that an employee can recover in court in California against a harasser is available to the same extent in arbitration. I’ve also heard  arbitration attacked as a “secretive” process. It’s true that arbitration hearings are generally more private than court trials. But I know of nothing that prevents a claimant in arbitration from publicizing her claims however she wants. Still, there’s no question that the decision to adopt an arbitration program can be characterized as coercive or oppressive by certain groups.
  6. If you lose at arbitration, your opportunity to appeal is very limited.
  7. It can be harder to get cases out on dismissal or summary judgment.
  8. While it hasn’t been my experience, some say that arbitrators tend to “split the baby.”
  9. Based on the Aixtron decision, unless the arbitration agreement specifically allows it, you may not be able to subpoena information from third parties for discovery. I don’t know if that disadvantages one side over another, but it’s worth noting.
  10. Every year, the California Legislature passes a bill aimed at abolishing mandatory workplace arbitration. Governor Brown repeatedly vetoed the bills as unconstitutional. Governor Newsom signed AB 51, but as noted above, a federal court deemed it unlawful. That litigation, and the resulting uncertainty, continues.

So what are employers to do?

The lawyers who represent employees have been fighting to do away with workplace arbitration for years. The battle began well before the #MeToo movement. The reasoning has nothing to do with arbitrators being biased (they are certainly better at applying the law to the facts than juries) or plaintiffs not having an effective way to vindicate their rights (they can bring the same claims for the same remedies).

The issue here is money. Because juries are more likely to be swayed by emotion than arbitrators, a jury is more likely to grant a windfall verdict. As a result, jury verdicts tend to be higher than arbitration awards.  A corollary of that is that cases that are heading to a jury trial (with the greater possibility of an emotion-fueled verdict) tend to settle at a higher dollar amount than cases that are headed to arbitration. Sure there are other arguments for and against arbitration. But it would be naive to underestimate the financial motives behind this battle — on both sides.

I’ve defended hundreds of cases for employers over the years in court and in arbitration. From that experience, I believe that – for most employers – the pros outweigh the cons. Since most cases end up settling and cases subject to arbitration tend to settle more cheaply, I believe arbitration agreements still make sense. Of course, every employer is different in terms of goals, risk tolerance, employee relations, and myriad other factors. So you should discuss what makes sense for your company with qualified employment counsel.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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