With the passage of AB 51, which we discussed in yesterday’s post, it’s understandable for employers and HR professionals to be asking if mandatory workplace arbitration still makes sense. After all, according to the new bill set to take effect on January 1, 2020, requiring an employee to sign a pre-dispute arbitration agreement or implementing an arbitration program potentially exposes employers and HR professionals to misdemeanor liability. So is it time to abandon mandatory employment arbitration? Not in my opinion, but let’s look at the pros and cons:

The Pros

  1. There are no runaway, emotion-fueled jury verdicts. Arbitration awards can be high, but they tend to be more closely rooted in reality.
  2. The procedures (including discovery) are usually more streamlined than cases in court.
  3. Although plaintiffs can still publicize whatever they want, arbitration hearings are generally more private than court trials.
  4. The cases settle more cheaply. This is a function of item 1 above. 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 windfall.
  5. Cases usually resolve 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. Since the Supreme Court decided Epic Systems Corp. v. Lewis in 2017, it is now clear that 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 and, in California and many other jurisdictions, the employer bears the vast majority of those costs.
  3. While Epic Systems resolved the issue of class action waivers, the California Supreme Court has said “no” to mandatory arbitration of Private Attorney General Act claims. Eventually, the U.S. Supreme Court may need to address that issue.
  4. As our friends at Wage & Hour – Developments and Highlights have pointed out, plaintiffs’ lawyers who previously filed class actions may now start filing multiple individual arbitrations for wage and hour violations, which could subject employers to burdens and expenses that rival class actions.
  5. As part of the #MeToo movement, there have been concerted attempts by some to argue that arbitration agreements protect sexual harassers. However, any remedy that an employee can recover in court against a harasser is available to the same extent in arbitration.
  6. If you lose at arbitration, your opportunity to appeal is very limited.
  7. It can be harder to get cases out on dismissal or summary judgment.
  8. While it hasn’t been my experience, some say that arbitrators tend to “split the baby.”
  9. AB 51, set to take effect on January 1, 2020, prohibits the agreements and makes attempts to enforce them unlawful — even criminal (a misdemeanor).

So what are employers to do?

In AT&T Mobility LLC v. Concepcion and other cases, the U.S. Supreme Court has clearly stated that the Federal Arbitration Act preempts state laws that “stand[] as an obstacle to the accomplishment and execution of the full purpose and objectives of [the FAA].” That’s why Governor Newsom’s predecessor, Jerry Brown, kept vetoing bills like AB 51. That’s why AB 51 doesn’t ever use the word “arbitration” other than noting situations in which arbitration is allowed. It attempts to dance around that by talking about waiver of certain rights, forums, or procedures. Still, the intent is apparent and there will undoubtedly be legal challenges to this bill, too. So now is not the time to panic. In fact, if you’re an employer who doesn’t have arbitration agreements with your workers, now may even be the time to implement one, since the bills says that it will not invalidate existing written arbitration agreements that are otherwise enforceable under the FAA.

I’ve defended hundreds of cases for employers over the years in court and in arbitration. From that experience, I believe that – for most employers – the pros outweigh the cons. Since most cases end up settling and cases subject to arbitration tend to settle more cheaply, I believe arbitration agreements still make sense. Of course, every employer is different in terms of goals, risk tolerance, employee relations, and myriad other factors. So you should discuss what makes sense for your company with qualified employment counsel.