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Pros and Cons of Arbitrating Employment Disputes for Employers and Employees to Consider

Contact: Maralyn M. English

Employment agreements often include clauses that require the parties to submit any claims arising from the employment relationship to arbitration instead of filing a lawsuit in court.  Since these agreements are usually entered into pre-dispute at the start of the employment relationship, employees may enter into an agreement containing an arbitration provision without considering the consequences.  Likewise some employers have included arbitration provisions in an employment agreement without considering the pros and cons of those provisions.

Arbitration is a well-known form of alternative dispute resolution.  The terms set forth in the arbitration provision govern how the process will work.  The arbitration provision can establish rules regarding selection of an arbitrator, discovery, motions, hearings, evidence, payment of fees, etc.  An arbitrator is a neutral person who decides the dispute at the conclusion of an arbitration hearing or on a dispositive motion.  The arbitrator’s ruling is final and binding, subject to only limited review or as provided for in the employment agreement’s arbitration provision.  An arbitrator reads the submissions of the parties, reviews documentary evidence, hears testimony, considers legal arguments, and issues his or her ruling on liability, damages and costs.  An arbitration award can then be confirmed and entered as a judgment into a court.  After the court enters judgment, the award can be enforced just as any other court judgment, including garnishment of financial accounts and seizure of assets.

An employer and employee should consider the pros and cons of arbitration before entering into a pre-dispute arbitration clause.  By agreeing to arbitration, the parties are waiving the right to have the dispute decided by a jury.  This can be a positive point for both the employer and the employee because instead of having persons without experience with employment issues and knowledge of employment laws deciding the claim, the parties can chose an arbitrator who is experienced dealing with employment issues and is knowledgeable about employment law.

Resolving claims through arbitration can take less time and cost less than litigating a claim in court.  One of the reasons for this is that discovery in an arbitration may be more limited than the expensive and expansive discovery allowed by courts and court rules.  However, whereas in court there is a filing fee; in arbitrations there is usually a filing fee and fees for the time the arbitrator spends on the matter.  The arbitrator’s fees can be substantial but overall it is thought that arbitration is a less expensive means for resolving disputes than the court system.

Procedures employed throughout the arbitration process may be more relaxed than in disputes decided through the court systems.  For example, evidentiary rules may be relaxed.  This can be a benefit to the parties, especially to parties who are not represented by counsel.  The relaxed procedures can also result in less hostility between the parties.  However, relaxed evidentiary rules may be a pro or con for a party because, for example, an arbitrator may decide to consider affidavits from witnesses who are not present at the hearing to be cross-examined.

Arbitration proceedings may also be more flexible because instead of being scheduled based on crowded court calendars, arbitrations can be scheduled around the needs of the parties, including holding arbitration proceedings in the evenings or on weekends.

Arbitration proceedings are not open to the public and the parties can agree to keep the proceedings confidential.  In the court system, the documents submitted by the parties and hearings in the case are usually open to the public; therefore, in court confidential and embarrassing matters are usually not concealed from public disclosure.

Depending on the type of claim and the terms of the arbitration provision, an arbitrator may not need to explain or justify his or her decision.  There are also fewer grounds for appealing an arbitration decision than a court decision.  Thus, once an arbitration award is issued, it is generally binding on the parties and not subject to an appeal.

In sum, arbitration has advantages and disadvantages over resolution of employment claims in court.  Since arbitration provisions are usually entered into pre-dispute, it is difficult to determine whether an arbitration provision will be more advantageous for an employer or for an employee.  Before entering into an arbitration provision, an employee and an employer should each consider whether in the event there is a claim arising from the employment relationship, rather than using the court system, it would be beneficial to have (i) a neutral decision-maker who has experience in employment issues and employment law; (ii) a faster and less expensive resolution of the employment claim; (iii) relaxed and flexible procedures used to resolve the employment claim; (iv) confidential, not public, proceedings; and (v) binding enforceable rulings that are less subject to appeal.

 

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Our lawyers are ready to help.  For questions about this blog post, or about employment law or other services SCM provides, contact Maralyn M. English.

Maralyn M. English