Tuesday, June 22, 2010

Do you know? Does mandatory arbitration of employment disputes work?

Yesterday, in Rent-A-Center v. Jackson [pdf] the U.S. Supreme Court held that the issue of the enforceability of an arbitration agreement should be decided by the arbitrator and not by a court. As fellow employment Dan Schwartz, of the Connecticut Employment Law Blog, tweeted moments after the decision’s announcement, “SCOTUS continues to heart arbitration provisions in employment cases.”

The bigger question, though, is whether employers should continue to heart arbitration of employment cases. The Winter 2010 edition of the ABA Journal of Labor & Employment Law has an article entitled Is Mandatory Employment Arbitration Living up to Its Expectations? A View from the Employer’s Perspective, by Charles Coleman, in-house counsel at Raytheon. Mr. Coleman argues that many companies are not all that satisfied with choosing mandatory arbitration of their employment disputes.

One of Mr. Coleman’s central arguments is that arbitration may not be faster or less expensive than traditional litigation. And, he has the numbers to bear this out. In a study of 19 recent employment cases filed against one company, Mr. Coleman discovered that arbitration is 30% more expensive and takes nearly 25% longer:
  • The average costs and fees in an employment arbitration were $102,338, as compared to $70,491 in litigation.
  • The average life cycle of an employment arbitration, from filing to decision, was 21 months, as compared to 17 months in litigation.
While this is a small sample-size, it at least illustrates that the premise that arbitration is a quicker and cheaper way to resolve employment disputes may be faulty. Aside from expense-control and speed-of-resolution, the other reason that employers favor employment arbitrations is to guard against runaway jury verdicts. But, if the premise is faulty as to cost and speed, then businesses should be questioning whether there are other ways to insure against juries.

To this end, let me suggest that instead of arbitration agreements businesses consider implementing jury trial waivers as a condition of employment. A jury trial waiver agreement both eliminates the risk of a runaway jury’s high damage award, and also preserves all appeal rights that arbitrations virtually eliminate.

There is no hard and fast answer to whether your business would be better served by arbitrations, bench trials, or some other solution. But, there are options other than the conventional wisdom that businesses should be arbitrating their employment claims.