Are Employee Arbitration Agreements Right for You? Some Pros and Cons to Consider

As we blogged about recently, the U.S. Supreme Court recently held in Epic Systems Corp. v. Lewis, No. 16-285 (U.S. May 21, 2018) (consolidated cases), that employment agreements that require employees to individually arbitrate disputes do not violate the National Labor Relations Act. The Epic Systems decision paves the way for employers to require that employees sign arbitration agreements that waive the employees’ right to join with other employees to file class or collective actions in court. Instead, the employees’ claims would proceed on an individual basis in arbitration.

Epic Systems no doubt comes as welcome relief to any employer that has been through a class or collective action. But should every employer automatically assume that arbitration is the right approach just because it can obtain a waiver of the employees’ right to pursue class and collective claims? Not necessarily.

There are many pros and cons to employee arbitration agreements, all of which you should carefully consider before implementing an arbitration program.

Arbitration Pros

• No Juries. Conventional wisdom is that arbitrators tend to be more predictable and reasonable in awarding damages. Outcomes are more likely to turn on the merits of the claim, rather than on an evidentiary ruling or the whims of jurors.
• Expense. Arbitration is less expensive than litigating in court. Specific points like shortened discovery and hearing processes substantially reduce litigation costs. Arbitration is typically two-thirds less expensive than litigating in court, rendering defense of employment claims more viable.
• Privacy. There are no public records in arbitration, and the media does not have access. The results of the arbitration are also confidential.
• Efficiency. Litigation in court can take several years, whereas one of the main goals of arbitration is to reach a resolution within months.
• Informality. Arbitration hearings are more informal. They are held in conference rooms, not courtrooms, and arbitrators usually try to accommodate parties’ and counsel’s schedules in ways that judges do not. Informality can also help preserve any ongoing relationship between the employer and employee.
• Early Resolution. In arbitration, employees do not have a chance to “gamble” before a jury because the range of possible outcomes is much narrower. Employers can also implement a process that requires employees to complete certain steps before the arbitration hearing, which means that many disputes are resolved prior to reaching the actual arbitration hearing.
• Choice of Arbitrator. In litigation, the court assigns a judge with no input from the parties or their counsel. In arbitration, both sides can choose from a list of arbitrators, giving each side some say in who will decide the case and the ability to have an expert in the field as the arbitrator.
• Finality. Arbitration awards are final and binding, and grounds for appeal are limited. The parties therefore cannot use an appeal process to prolong the case.

Arbitration Cons

• Finality. The reduced ability to appeal can be a double-edged sword. Rights of appeal are limited to serious arbitrator misconduct, bias, corruption, and acting outside the scope of authority. Unlike in court, mistakes of fact or law are not grounds for appeal.
• Discovery Limitations. Less discovery, while it expedites resolution and trims costs, also limits an employer’s opportunity to learn more about the relative strength or weakness of the employee’s case before proceeding to a hearing.
• Limited Motions Practice. Unlike in court, motions for summary judgment or dismissal are rarely filed and are basically never granted in arbitration, forcing parties to either proceed to a hearing or settle. A court motion, on the other hand, could lead to an employee’s claim being dismissed in its entirety.
• Informality. Courts have very formal rules that limit which evidence will be admitted and considered. Arbitrators are not subject to such limitations unless the arbitration agreement specifically says so. Arbitrators therefore may end up considering evidence that would not play a part in the determination if the dispute were pending in court.
• Injunctive Relief. In court, an employer can obtain a temporary restraining order if an employee is stealing trade secrets, working for a competitor, or engaging in similar misconduct. This remedy is not usually available in arbitration, although it can be carved out in an arbitration agreement.
• Administrative Charges. Arbitration does not prevent agencies such as the EEOC or the DOL from investigating an employee’s complaint.
• “Baby Splitting.” One common objection to arbitration is that arbitrators are reluctant to dismiss an employee’s case outright and will search for a way to award the employee something, even if it is only a token amount, out of compassion or a sense of fairness. This kind of “split the baby” approach is arguably less likely in court.

On balance, we would generally recommend arbitration as the better alternative to litigation in court. But think carefully about the positives and negatives of arbitration before you make that decision.