Volume 36, Issue 6, June 2001



Mandatory Employee Arbitration

Will It Make Employee Lawsuits Obsolete?

by David Barron

Any business owner who has been sued for sexual harassment or race discrimination will tell you employee lawsuits are time-consuming and costly. Often, litigation can drag out for several years and attorneysí fees, court costs and settlements can add up quickly. Clogged court systems and the pressure to settle lawsuits, even ones that have no merit, have caused many employers to look for new alternatives. The U.S. Supreme Court recently gave the green light to a method of avoiding the court system all togetherómandatory employee arbitration.

Circuit City stores, one of the nationís largest consumer electronics chains, fought for the right to use such agreements all the way to the nationís highest court. Circuit City implemented an employee arbitration program that required its employees to give up their ability to sue over all disagreements, in favor of a quick and cost-efficient arbitration process. One employee decided to challenge that policy and Circuit City defended its arbitration agreement all the way to the Supreme Courtóand won.

Arbitrationís History
Before this decision, courts across the country had taken different views of mandatory employee arbitration agreements. Some courts felt these agreements were unfair and gave businesses the upper hand. Other courts used more technical grounds to strike down the agreements. Although the Supreme Court did not resolve all of these conflicting decisions, it made it clear that mandatory employee arbitration, as a general rule, is now legal as a means of resolving employee disputes and avoiding costly litigation.

Arbitration is not new. Many unionized employers have used arbitration as a means for resolving employee grievances for decades. Non-union companies have avoided arbitration historically because of the perception, often correct, that arbitrators favor labor over management. But with time, however, the landscape has shifted. New federal and state laws restricting conduct in the workplace are passed every year. Newspapers trumpet million-dollar discrimination verdicts against Fortune 500 companies. Suddenly, arbitrators do not seem so bad. Although an arbitrator may be more likely to find in favor of an employee, arbitrators rarely award punitive or emotional distress damages that have now become prevalent in the courts.

Downsides to Arbitration
There is no question that, for many, mandatory arbitration is an attractive alternative for financial reasons. There are also, however, practical considerations. Some of the potential downsides to mandatory arbitration include the following:

1. Employees may be more likely to arbitrate disputes than litigate; some employers have found claims actually go up slightly after arbitration is instituted. Employees may be more willing to pursue the arbitration of a dispute where they would not be willing to seek out an attorney and spend the time and effort to pursue lengthy litigation. 

2. By instituting arbitration, the employer, as well as the employee, gives up the right to a jury trial and the right to be heard by a federal or state judge. In some jurisdictions, this may be a good thing; in others, it may not. For example, an employer in California may choose to avoid what it perceives as a liberal court system. An employer in a more conservative state may not want to give up the advantage of a predominantly conservative judiciary.

3. Arbitration is cheaper and faster. In most cases, this will likely benefit the employer, but in other cases it may not. Many companies rely upon aggressive lawyering and the effective use of the judicial system to overwhelm the other side. This is difficult to do in the arbitration setting where the rules are relaxed and time is short.

Employers should carefully consider all of the pros and cons of employee arbitration before implementing a program. For many businesses, taking away the risk of a bankrupting employee lawsuit is a sound decision. For others, however, who are comfortable and confident in the judicial system, moving to an alternative forum may not make sense. The bottom line, however, is that the Supreme Court has now given employers a clear choice and provided an alternative for which many people may want to take advantage. 


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