In the last 20 years or so, it has become more and more common for employers to require employees to enter into arbitration agreements. These are documents or policies that are designed to protect employers from having to defend lawsuits in court. They provide that if any legal disputes arise between the employer and the employee, before or after the employment relationship ends, they will be submitted to an arbitrator for decision, instead of to a judge or jury.
Employers have tended to favor these agreements for several reasons. First, the idea is that arbitration takes less time and is more streamlined than a court case, and therefore costs much less in attorney fees. Secondly, it is generally believed that arbitrators are likely to me more “employer friendly” than juries. Thirdly, there is believed to be less chance of a really “eye popping” damage award from an arbitrator than from a jury.
There is some validity to each of these considerations. And employee advocates have resisted arbitration agreements where they can, primarily because they prefer that their employee clients receive jury trials, and they view juries as more sympathetic to employee rights. There is some truth to this.
Employers should be aware that, In order for an arbitration agreement to be enforceable, it has to meet certain requirements:
1. It has to really be an “agreement.” In other words, it should be a written document signed by the employee. Merely having an arbitration “policy” that the employee does not formally agree to may be unenforceable.
2. It must allow the employee to recover the same remedies available at law. An agreement that limits the employee’s recovery, such as by prohibiting certain types of damages, may not be enforced.
3. It can’t make it too expensive for the employee to pursue arbitration. If the costs of arbitrating are far more expensive to the employee than the filing fees charged by a court, a court is less likely to enforce the agreement.
This last point has caused some employers to re-think the wisdom of requiring employees to sign arbitration agreements. The cost of paying an arbitrator for his or her service can be a five-figure expense. If the employer has to bear that expense alone – as it may have to do in order for its arbitration agreement to be enforceable – suddenly arbitration may not seem like a much less expensive alternative to a court proceeding.
Additionally, many sets of arbitration rules that apply in employment cases – such as those of the American Arbitration Association – have expanded the “discovery” (depositions, interrogations, etc.) permitted before an arbitration hearing. This is designed to make sure the employee has a fair opportunity to develop evidence to support his or her case, but it also makes the process longer and more expensive – again, more like a court proceeding.
Whether you are an employer or an employee, if you have questions about whether arbitration agreements are a good idea, or about whether a particular agreement is enforceable, please give us a call.