The Wall Street Journal has an interesting story this morning about employers who are seeking to implement and enforce arbitration agreements on employment law claims.
Arbitration of employment disputes took off in the early 1990s after federal legislation made it easier for workers to sue — and win big damages — over claims such as sex, race and disability discrimination. Intent on reducing large payouts and litigation costs, companies responded by putting in place arbitration programs in which disputes are heard not by a judge or jury, but by an arbitrator.
Typically, disputes are handled by a single arbitrator, who, as a lawyer, may be less likely to be swayed by emotion than a jury would be. In arbitration, workers also face greater constraints on the amount of evidence they can gather to support claims. Proceedings usually are private, and final awards aren’t easily overturned by courts.
Employment arbitration now covers a wide swath of industries, from restaurants and retailers to law firms and banks. An estimated 15% to 20% of businesses now require employees to arbitrate disputes, according to Alexander Colvin, a labor studies professor at Pennsylvania State University. By contrast, a 1995 government study indicated that less than 10% of companies had employee-arbitration programs.
While more employers are using arbitration agreements, it is hardly a majority. Employers considering arbitration clauses should determine what is best for their company without worrying about trends. As the article notes, the studies on the outcomes of arbitrations are far from clear:
Proponents of arbitration argue that while juries sometimes give huge awards, they also can award nothing; arbitrators, they say, are more inclined to provide at least some damages. People on both sides of the debate say that very large awards are less likely in arbitration. But data on outcomes conflict: Some studies show that employees fare worse in arbitration than in court, while others conclude that employees win more often in arbitration and recover comparable amounts. Studies show that employment arbitrations are resolved twice as quickly on average as lawsuits.
Arbitration is not for every employer and even where the employer decides to implement an arbitration program, there are many nuanced decisions that need to be made. An article by some of my colleagues a few years ago touches on this and is a good starting point for thinking about whether an arbitration clause is right for you.
(Hat Tip: Law Blog)