Employers are increasingly using arbitration agreements as a strategy to mitigate the risks of potentially costly litigation. Generally speaking, there are several benefits for employers to consider when deciding whether to adopt an arbitration policy. A few of these benefits, and their limitations, include the following:
- Ability to mitigate the risk of class action litigation by incorporation of a class action waiver. One of the greatest benefits employers with larger workforces can derive from arbitration agreements is the ability to preclude class action litigation. However, employers should be aware of that the enforceability of class action waivers is frequently litigated in both state and federal courts and the law in this area is rapidly developing. For example, the National Labor Relations Board has taken the position that class action waivers violate employees' rights to act collectively and the United States Supreme Court is scheduled to hear argument on that issue this coming October. Courts in California have also imposed limitations on the scope of representative action waivers as applied to California's Private Attorney General Act (PAGA), so employers should be aware of the differences between class actions and PAGA representative actions and how that might impact the decision whether to adopt an arbitration policy.
- Ability to avoid a trial by jury. The trial by jury system of our American government is invaluable to our democratic system. That being said, defendants often fear the great authority juries can wield especially when it comes to awarding damages. Although arbitrators can also award punitive damages when they are available under the law, arbitrators are generally believed to be less likely to award punitive damages than juries. The contrary downside is that arbitrators are generally known to be more likely to "split the baby" in close cases instead of awarding a complete verdict to one side or the other.
- Forum predictability. Choosing arbitration gives both employers and employees predictability about how and where disputes will be resolved. Parties to an arbitration agreement have the ability to choose the location and rules under which any arbitration will take place, assuming those choices are not "unconscionable" under the law. Without an arbitration agreement employers can be forced to defend themselves in various state or federal courts, depending on the claims being asserted and the location where the employee worked.
In summary, although there are benefits to arbitration of employment disputes it should not be assumed that they are the right choice for every situation. There are also several pitfalls that employers must avoid when instituting arbitration policies and employers should consult counsel for an update on the latest developments before rolling out any new arbitration agreement.