Should your company have mandatory arbitration agreements with its employees? Having tried and arbitrated dozens of cases on behalf of employers, here are what I see as the pros and cons.

The Pros:

Copyright:  / 123RF Stock Photo
Copyright: / 123RF Stock Photo
  1. There are no runaway, emotion-fueled jury verdicts.
  2. The procedures (including discovery) are more streamlined.
  3. Arbitration is more private than court trials. So there’s less risk of media attention.
  4. The cases settle more cheaply.
  5. The cases usually proceed more quickly in arbitration than in court.
  6. The attorneys’ fees are usually lower.
  7. If you win, the other side’s opportunity to appeal is very limited.
  8. You can require employees to waive the right to pursue class actions.

The Cons:

  1. It’s easier for unrepresented parties to bring weak claims.
  2. Forum and arbitrator costs are higher.
  3. The law about enforceability of arbitration agreements remains unclear. For example, the California Supreme Court has said “no” to mandatory arbitration of Private Attorney General Act claims (although the Supreme Court may have the last word). Also, there have been repeated efforts in Congress to outlaw the practice.
  4. Employees generally don’t like losing access to jury trials.
  5. If you lose at arbitration, your opportunity to appeal is very limited.
  6. It may be harder to get cases out on dismissal or summary judgment.
  7. While it hasn’t been my experience, some say that arbitrators tend to “split the baby.” (How I hate that cliché! I don’t like “throwing out the baby with the bath water” either. Leave the poor baby alone!)

The Deciding Factor:

Most cases end up settling and cases subject to arbitration settle more cheaply. The fact that there’s no risk of an excessive jury verdict changes the whole settlement calculation. Employees and their attorneys can’t base their negotiation position on the fact that, if they just get before a jury, they have a shot at a huge verdict.

If you’re an employer who doesn’t have arbitration agreements with your workers, seriously consider whether it’s time to develop one.

  • Meryl

    You are spot on regarding how difficult it is to run a small business (40 employees) in CA. In fact, “you” “can’t run” a small business in CA. THE GOVERNMENT DOES. We are just allowed to stay in business until some ridiculous law puts us out of business. Absolutely love your articles and sense of humor you bring to the not very funny problems in CA.