In several recent cases, the US Supreme Court has made it very clear that it favors arbitration of disputes that would otherwise be litigated in the courts. This is consistent with the overall desire of the courts to encourage "out-of-court" resolution of legal disputes. Because the courts look favorably upon arbitration as a means of resolving legal disputes, contractors should consider implementing arbitration agreements so that employees who file complaints do not drain company time and resources in costly litigation.
Arbitration is a form of "alternative dispute resolution" by which the parties agree to submit a dispute to a neutral third party. In binding arbitration, the parties agree that they will not appeal or otherwise challenge the arbitrator's decision. In nonbinding arbitration, the parties usually are seeking an advisory opinion from the arbitrator because they are agreeing not to be bound by that decision. In some kinds of arbitration, the matter is heard by a panel of individuals, but this most often occurs as a result of a collective bargaining agreement.
Benefits and drawbacks
There are a number of advantages to arbitration that make it worth serious consideration by contractors. First, there is no jury, and therefore no risk of a "runaway" jury that gives the plaintiff/employee a miraculous windfall. Second, arbitration is a private matter so the positions, arguments and documents of the parties do not become a matter of public record. Third, arbitration can be arranged and finished in a relatively short period of time, especially compared to the lengthy delays associated with state or federal court dockets. Fourth, because arbitration involves a relatively streamlined process, legal fees and costs are usually substantially less than litigating in court. Fifth, parties to arbitration can decide where to have the arbitration hearing and therefore are not forced to go to court out of town. Finally, most arbitrators are retired judges with vast experience, an understanding of most legal matters and an appreciation for the advantages of arbitration.
Obviously arbitration is not a perfect solution, or no one would go to court today. There are some upfront costs — usually associated with hiring the arbitrator. There usually is not a mechanism for "summary judgment" or a decision based solely upon documents. Instead, arbitrators feel that the parties should be heard. One of the major disadvantages of contractual or binding arbitration is that there is generally no right to appeal the arbitrator's decision. In some states, an arbitrator may have little or no power to compel witness testimony or the production of documents, and in some cases, witnesses can simply refuse to appear at the hearing. Finally, there sometimes is a problem with arbitrators "splitting the baby" and trying to give both parties something.
It is important to understand that an arbitration agreement cannot prevent employees from filing a complaint with a federal agency. For example, an arbitration agreement will not prevent a disgruntled employee from filing a complaint with the Equal Employment Opportunity Commission. The arbitration agreement will, however, force that claimant into arbitration after the EEOC has completed administrative processing of the charge.
You should consult with an attorney and get assistance in implementing an arbitration provision. You will also want to give the employees some "consideration" for agreeing to arbitrate claims. In some states, the consideration may be continued employment or the decision to hire the individual, but it may be advisable to give the employee something else, e.g., $10, to sign the agreement. An attorney can also help you draft an agreement that complies with any state law peculiarities, as well as help you design a plan to roll out the arbitration agreement to existing employees. For new hires, the arbitration provision can be included in, or attached to, an employment application.
For most employers, a properly drafted arbitration agreement provides a faster and less costly means of resolving disputes with current or former employees. It saves money.
