Thursday, April 2, 2009

Think before having employees sign that arbitration agreement

Yesterday, the Supreme Court issued its opinion in 14 Penn Plaza v. Pyett, which enforced a provision in a collective-bargaining agreement that required union members to arbitrate statutory discrimination claims. My fellow bloggers have already provided some thoughtful analysis of this opinion – Michael Moore at the Pennsylvania Labor & Employment Blog, Michael Fox at Jottings By An Employer’s Lawyer, and Richard Bales at the Workplace Prof Blog.

The bigger question for employers to think about, though, is whether arbitration of employment claims makes business sense. Companies and their lawyers often use mandatory arbitration of employment claims for two reasons: (1) as a cost-effective alternative to court; and (2) as an insurance policy against runaway jury verdicts.

In my experience, however, arbitration can prove just as costly as court. More and more arbitrators are allowing plaintiffs to engage in discovery that is nearly as expansive (and expensive) as what is permitted by trial courts. Additionally, employers have to add into the equation the cost to file the claim, which the employer usually shares. With the American Arbitration Association, these fees can run anywhere from $950 to a cap of $65,000. These fees do not include the arbitrators’ time, which often exceeds $500 per hour, and includes all pre-hearing conferences, discovery and motion practice, the actual hearing time, and the drafting of the opinion. It is not hard to see how in many cases the defense costs associated with arbitration outweigh defense costs in a traditional court proceeding.

Given these high costs, there is a much better alternative to hedge against a runaway jury verdict – contractual jury trial waivers. A properly drafted jury trial waiver accomplishes the following goals:

  1. No appeal rights are lost. Judicial review of arbitration awards is very narrow. An appellate court, however, will have a much wider scope of review of a bench trial.

  2. A bench trial eliminates the risk of a runaway jury awarding obscenely high damages.

Before asking your employees to sign that arbitration agreement, consider whether there are other viable alternatives to reach the same goal, such as a jury trial waiver.

Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or