A frequent question that employers have when it comes to employment contracts and policies is whether the company should use an arbitration procedure for resolving disputes.
While there is not a “right or wrong” answer to this question, I tend to recommend employers reconsider using arbitration for resolving employment disputes. Two important factors for recommending against employer required arbitration resolutions programs are as follows:
Initial Cost of Arbitration vs. Court Proceedings
When an employer is sued in state or federal court there is no court fee imposed on the employer at the outset.
In contrast, employers relying on arbitration often rely upon the American Arbitration Association (AAA) for administering the procedure. Under AAA’s Employment Arbitration Rules and Mediation Procedures, employers are looking at fees that range from $1,350 to $1,800 for responding to an employee’s claim and $1,550 to $2,000 for initiating a claim against an employee.
In judicial proceedings, neither side pays for a judge’s time. That is not true for arbitration. Again, under the AAA’s Employment Arbitration Rules and Mediation Procedures, hearing day fees are charged as follows:
- For each day of hearing held before a single arbitrator, an administrative fee of $350 is payable by the employer.
- For each day of hearing held before a multi-arbitrator panel, an administrative fee of $500 is payable by the employer.
In the big picture, these costs may make sense. But these are costs, nonetheless, that need to be factored into an employer-required employment arbitration program.
Arbitrators vs. (Run-away) Juries
One of the most common reasons to choose arbitration over judicial proceedings is to avoid a jury trial. Or more specifically, the avoidance of a potentially plaintiff-friendly, and overly-generous jury.
In contrast, arbitrations are usually heard by a single arbitrator or three-arbitrator panel who often have substantial knowledge and experience in the area of employment law. Certainly not a guarantee an employer will receive a favorable decision, but the belief that arbitrators tend to be both more predictable in decision-making and reasonable in awarding damages than juries can provide a warm and fuzzy feeling to employers.
But this concern overlooks reality; very few civil cases are actually tried before a jury. For example Hon. Denny Chin noted that in the twelve-month period ending September 30, 2011, only 1.1% of civil cases—all civil cases in the country—reached trial, both jury and nonjury. See Summary Judgment in Employment Discrimination Cases: A Judge’s Perspective (2013). Summary judgment – a motion filed to dispose of all or part of a case – has become one of the most common ways to resolve employment discrimination cases, which eliminates a jury from deciding the matter.
In sum, analysis of federal case law shows that employees who sue over discrimination lose at a higher rate in federal court than other types of plaintiffs and they judges are more likely to dismiss their cases.
Considering whether to implement a system requiring the arbitration of employment disputes will depend upon your company’s particular circumstances, goals, and historical HR risk-management issues. In weighing the advantages and disadvantages of employment arbitration, the two considerations discussed above are among the many that employers will need to consider.
For more information about investigating and responding to employment disputes, including drafting employment disputes policies and procedures, contact attorney Jason Shinn. Mr. Shinn is a Michigan employment attorney who has collaborated with a range of employers since 2001 to address employment law compliance issues, as well as defending those clients in state and federal courts.