Mandatory arbitration is a standard clause in many employment contracts that employees and employers have been battling over on the in courts for decades. Supreme Court cases such as Epic Systems v. Lewis have reinforced the pro-arbitration allowing clauses in employee contracts requiring arbitration as the legal defense for settlement employment disputes.

What is arbitration?

Arbitration is a legal means to resolve an employment or other dispute that involves a panel of judges in a less formal setting. Each side will be able to plead their case and present witnesses and evidence to support it. After everything is presented, the panel will render a decision. There is both binding and non-binding arbitration, but in the case of most employment contract clauses, the arbitration will be binding. This means that the decision is final, there will be no appeals, and both parties will have to accept the judgment.

Why is the option of arbitration beneficial?

There are many reasons why arbitration can be a much better option than proceeding with a court case. In arbitration:

  • You will still be able to present your case, though you won’t be subject to full court proceedings
  • The results of the arbitration can be kept private, where court cases are almost always public
  • It can be less costly than going through the trial process
  • The length of time from the initial dispute to resolution is significantly shorter
  • You will still conclude with a finalized judgment by independent parties with legal knowledge

Does arbitration favor employers?

With the strong push in courts to allow arbitration clauses and the increasing use of arbitration in employment contracts, many people feel that this is a tactic used for employers to have the upper hand in employment disputes and restrict the ability for employees to air their grievances. This is hardly the case. Some of the most common reasons that businesses prefer arbitration is because it allows them to keep their company reputation out of public opinion. Many times companies will be found guilty in the court of public opinion even when they are found to be not at fault by the courts.

Another reason that arbitration is preferred is the costs of lengthy litigation. When an employee files a suit for compensation, often times they can retain a lawyer who will take payment if the employee receives a settlement, minimizing their costs during the process. For the company, they will end up with sizable lawyers fees due to the length of time and delays that can be caused by litigation.

When contract arbitration clauses backfire

Even though the primary driving factor behind arbitration is to keep costs down, it can and does backfire. An example of this was the case of a Florida contractor who ended up incurring over $100,000 in arbitration fees when three employees tried to sue them in federal court. Instead of dealing with one suit from the three employees, they ended up being charged with three separate fees for individual arbitration. The paving company ended up having to retreat to federal court when it could not accommodate the exorbitant fees.

This type of case is a growing concern for employers. The Epic case stated that employees could not arbitrate their claims as a group. This decision was probably made, to prevent undue bias during the process, by treating each case as an individual grievance as it should, but it allows employees to put additional pressure onto the employers by filing individual arbitration suits, which can make arbitration more costly than litigation.

While arbitration can be a much easier process to handle employment disputes, it can still be problematic for employers if multiple individuals decide to file at the same time. If your business is facing employee arbitration, finding the right legal counsel is a crucial part of the process to help keep costs down and make sure your arbitration clause is enforced in a court setting.