The Pros and Cons of Employment Arbitration Agreements
In Collaboration with:
Tom O’Day, Partner at Husch Blackwell
In an era marked by an ever-evolving employment landscape, the prevalence of arbitration agreements has become a polarizing subject of debate among employers, employees, and legal experts. Employment arbitration agreements, sometimes known as mandatory arbitration clauses, have increasingly found their way into the fabric of employment contracts, defining the terms under which workplace disputes are resolved. As an alternative to traditional litigation, these agreements require individuals to relinquish their right to pursue legal claims in court and instead opt for private arbitration to settle conflicts.
While proponents argue that arbitration offers a more efficient, cost-effective, and confidential resolution process, critics voice concerns about potential erosion of employees’ rights and the lack of transparency inherent in private proceedings. The debate over the pros and cons of employment arbitration agreements has sparked contentious discussions within the realm of labor law, leading us to delve deeper into the complexities of this alternative dispute resolution mechanism. This article aims to shed light on the multifaceted nature of employment arbitration agreements, exploring their potential advantages and drawbacks for an employer to make informed decisions about the merits of employment arbitration agreements.
Arguments For Use
- Workers subject to mandatory arbitration bring 98% fewer claims under the Fair Labor Standards Act compared to those not subject to mandatory arbitration1.
- Arbitration agreements may include provisions that prevent employees from filing class action lawsuits, reducing the risk of large-scale legal actions against the company. Rather, employment disputes are decided on an individual basis rather than in litigation.
- Juries are unpredictable, so resolving disputes through arbitration mitigates the risk of a runaway jury verdict.
- Arbitration is typically quicker and less expensive than litigation.
- There are more in-favor decisions for employers through arbitration than in litigation.
- The American Health Law Association offers arbitrators with specific knowledge of health care.
- Arbitration offers greater confidentiality for the dispute, which helps protect the company’s reputation and sensitive information.
- An employer may make signing an arbitration agreement a mandatory term of employment, ensuring all employment relationships are encompassed under arbitration.
Arguments Against Use
- In lieu of class action, there is the potential for hundreds of individual costly arbitrations.
- Arbitration can be unpredictable in itself and the decision is final with no, or very limited, ability to appeal.
- The entire cost of arbitration usually rests with the employer.
- There is limited discovery and motion practice with arbitration, which may restrict a party’s ability to secure an early ruling or obtain/present necessary evidence. The rules of evidence are liberally applied in arbitration and may allow for the introduction of problematic evidence that would otherwise be excluded in court.
- Arbitration cannot be compelled in the situation of sexual assault or sexual harassment.
- Judges regularly throw out arbitration agreements that are flawed or biased for employers.
- An employer may have to pursue its right to have a dispute decided in arbitration while also having to participate in litigation at the same time.
- An arbitration agreement by itself does not imply that employers are protected from employee litigation over an employment issue. Federal and state regulators can still prosecute employers when employees file actions against businesses for violating pay, discrimination, or other laws and regulations.
- Arbitration may invoke a negative perception from employees, potentially contributing to morale concerns.
There is much to consider before deciding to implement employment arbitration agreements. Organizations will want to carefully weigh the risks vs. benefits and consult with legal counsel to fully understand the implications. It is essential to note that the pros and cons of employment arbitration agreements can vary based on the specific terms and conditions of the agreement and the jurisdiction in which it is enforced.
Reach out to your M3 account executive or Husch Blackwell Attorney for further information.
This article is not intended to serve as legal advice.
Source: 1 UNC School of Law