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The (Possible) Future of Arbitration

In my last post, I discussed the pros and cons of arbitration of employment disputes, concluding that the pros outweigh the cons. I also noted that the Arbitration Fairness Act, which would ban forced arbitration in employment disputes, is looming on the horizon. I ended with the question: What should you do if the Arbitration Fairness Act passes? As promised, here are a few suggestions.

1. Contractual Waivers of Jury Trials — Such waivers have been enforced by Courts and result in a bench trial. There are a few positive aspects to this approach. First, the case is kept away from a jury, which is a primary benefit of arbitration. Unlike arbitration, an employer would have the right to appeal a bad decision. Of course, this cuts both ways and potentially adds significant expense to the defense of meritless cases, which are also subject to appeal. Regardless, for employers already utilizing arbitration, this approach seems like a natural step if the Arbitration Fairness Act passes.

2. Voluntary Post-Dispute Arbitration — This is the alternative that proponents of the Arbitration Fairness Act point to as the “fair” approach to arbitration. Instead of agreeing to arbitrate future disputes, the parties can voluntarily submit the case after it arises if they choose to do so. The problem is that few if any plaintiffs would do so since the majority of cases settle and arbitration significantly diminishes the settlement value in most instances. Nevertheless, it may be possible to add incentives to arbitration after a dispute arises that would induce an employee to pursue it rather than taking a case to court. For example, an employer might agree to pay all costs and fees, allowing an employee to pursue a claim without having to pay any filing fees or other costs. Other incentives might be added but at some point it probably makes more sense to simply put the cost of incentives toward settlement negotiations.

3. Early Mediation — In my experience, cases referred to arbitration seldom end up in mediation. One reason may be that employers perceive less risk in the arbitral forum and are more willing to try cases. Regardless, if mandatory arbitration is removed as an option, it seems likely that employers will be more willing to mediate cases. Moreover, it may be possible to enter into mediation agreements that require employees to engage in good faith mediation efforts in advance of or in conjunction with filing a lawsuit. Employers who already have multi-step dispute resolution processes that end in arbitration might consider modifying them to end in mediation.

4. “Advantage” clauses — The Supreme Court’s caselaw regarding arbitration evolved over time but as things currently stand, a couple of generalizations can be made: (1) Arbitration of employment claims is favored because it is faster and more cost-effective than litigation; and (2) arbitration proceedings must provide for full remedies and be sufficiently fair to meet state law standards for enforcement of contracts. In essence, arbitration changes only the forum for resolving disputes, not substantive rights. Of course, these rules evolved as guidelines for employers to create enforceable arbitration agreements. If arbitration agreements are all rendered unenforceable, why not revert to agreements that limit substantive rights, what I refer to as “advantage” clauses. One example that has been tested in the courts are contractual statutes of limitations. Courts have enforced statutes of limitations shortened by contract in cases where the language is clear and the shortened time limit is reasonable. It is possible to imagine other substantive rights that employers could try to limit through agreements.

The foregoing are just some general ideas that employers might consider if the Arbitration Fairness Act becomes law. Employers should consult with a competent employment attorney before trying any of the above approaches.

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