Human Resources News & Insights

Mandatory arbitration: Worth the bother?

Mandatory arbitration of employee disputes — instead of civil court — could be the best course for your company or lead you down a bad road. The key is in knowing the benefits and drawbacks before you decide to try it.

Essentially, mandatory arbitration involves selecting a neutral arbitrator to hear arguments, review the evidence, and render a final and binding decision. Thus, the arbitrator is judge and jury.

The advantages to the employer:

  • It’s usually cheaper and less time consuming than full-blown litigation. Plus, because you take part in choosing an arbitrator, you can make sure you’re getting someone with knowledge and experience in employment law instead of depending on off-the-street jurors who usually lack knowledge and more often identify with the employee.
  • An arbitrator is less likely to award excessive compensatory or punitive damages, as juries often do.
  • Arbitration rules typically limit the amount and types of discovery that the parties can conduct; this, in turn, can significantly reduce defense costs. For example, arbitration rules may limit each party to a set number of depositions. Similarly, arbitrators typically will not consider the various motions that are common in litigation.
  • Arbitration proceedings are more confidential than litigation. Court filings are usually a matter of public record, unless sealed by the court. Arbitration proceedings are not.

The disadvantages to the employer:

  • While the cost and time involved with hiring an attorney and pursuing a claim in court might deter an employee from filing a lawsuit, the cost and time savings associated with arbitration may encourage employees to file arbitration claims – resulting in more claims.
  • Employers often succeed in obtaining dismissal of a lawsuit or summary judgment in court before an expensive trial even starts. Arbitrators are less likely to dispose of cases until the employee has presented a case at a trial-type hearing.
  • Arbitrators tend to be more equity minded than courts. As such, they often seek the fairest result, rather than the result required by the law.
  • Judicial review of an arbitrator’s final decision is limited. On the other hand, an employer faced with an unfavorable court ruling may appeal the decision for a number of reasons, including an improper application of the law. And a court’s review of an arbitrator’s decision is limited to situations where the decision was obtained by fraud, corruption, or misconduct of the arbitrator, or when the arbitrator rules on an issue not submitted to arbitration. And if the arbitrator misapplies the law or facts, that’s not grounds for a reversal of the decision.
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Comments

  1. Fairer to whom? This is basically a win-win situation for the employer. I doubt the courts will take a decision by an arbitrator seriously in these matters. It is limiting the potetial cost to the employer and keeping quiet any potential abuses. Neither will the court will think is in the best interest of the public.

  2. “While the cost and time involved with hiring an attorney and pursuing a claim in court might deter an employee from filing a lawsuit, the cost and time savings associated with arbitration may encourage employees to file arbitration claims – resulting in more claims.”

    I found out personally that it cost a LOT more to initiate arbitration. $11,000 and I still haven’t even gotten there. So this should go under the “advantages to the employer:” section.

    “Arbitrators tend to be more equity minded than courts. As such, they often seek the fairest result, rather than the result required by the law.” Arbitrators are chosen by the employe, an arbitrator who sides for consumers will soon be an unemployed arbitrator so again this should also be listed under the “advantages to the employer:” section

    “Judicial review of an arbitrator’s final decision is limited….” again “advantages to the employer:”

    Common sense, why would a big bank with lot’s of high paid lawyers force a binding mandatory obligation in it’s consumer contracts if it wasn’t to their benefit??? Why would they hid them in the super fine print?

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