By Ivan Sasin
Law Clerk – LL.M., Boston University School of Law
Law Offices of Thomas F. Nowland
(Reading time: 5–7 minutes)
Disclaimer:
This material is provided for general informational purposes only and does not constitute legal advice. Every employment dispute is unique, with different exceptions, procedures, and potential outcomes depending on the facts of your case and recent court decisions. For accurate guidance based on your specific situation, please contact our office for a free legal consultation.
A lot of business owners are excited about their entrepreneurial ideas. Naturally, they tend to
focus on the positive outcomes of growing their business. Even if they expect some challenges
along the way, many don’t give those challenges much attention until they actually face them—
or they believe they can avoid them altogether. But can they really?
The answer: it depends. It depends on whether, as a business owner, you thought about these
risks at the beginning of your journey. And even if you are already in the middle of your business
path with a well-drafted arbitration agreement, it depends on whether you have responded to
modern legal changes and integrated it into your business protection, using preventive tools
before disputes arise.
In this article, I will explain why having a properly written, enforceable arbitration agreement
may save you time, money, and stress. However, if you are seeking legal advice, do not rely on
this informational article. Please contact our office to evaluate your current situation and receive
proper legal consultation. You can also read our companion article, which explains what
makes an arbitration agreement valid, and avoid a situation where your “agreement” turns out
to be just a piece of paper without legal effect. Otherwise, you may lose the opportunity to move
your dispute to arbitration, something that plaintiffs’ attorneys are quick to take advantage of,
since it could mean your case will proceed in court and, in some cases, in front of a jury.
Pros and Cons of Arbitration:
1. Money
In cases of labor and employment, the financial risk for business owners is often unpredictable.
If the plaintiff prevails, you may be ordered to pay not only damages (such as unpaid wages) but
also the plaintiff’s attorney’s fees. For example, in a case involving $10,000–$20,000 in unpaid
wages, plaintiffs’ attorneys, who often work on contingency, can add their legal fees to the
judgment. That amount can quickly grow into hundreds of thousands of dollars.
However, be clear-eyed about the flip side: in California, employers generally must pay
arbitration forum and arbitrator fees that are unique to arbitration. Those costs can exceed court filing fees. And statutory fee-shifting under FEHA and the Labor Code can still apply in
arbitration. The bottom line is that arbitration often reduces overall spend by simplifying
procedures and controlling discovery, but it is not automatically “cheaper” in every case.
To sum up, arbitration makes it possible to reach a final decision or settlement much faster than a court trial. The process is simpler, which means attorneys for both sides usually spend less time
on motions, discovery, and court appearances. This saves time and, often, legal fees. However,
arbitration is not a cheap process. Professional arbitrators, who are often retired judges or
experienced lawyers, can charge anywhere from $10,000 to $20,000 per day for hearings, plus
preparation time. For that reason, while arbitration can be more efficient overall, it still requires
serious financial planning.
2. Time
Trial, compared to arbitration, is a more time-consuming process and often takes years to reach a solution. Crowded schedules, repeated motions, and multiple hearings all cause delays.
Arbitration usually moves faster. Arbitration itself is a simpler process than trial, without
complicated procedures or a busy schedule. For a business owner, it is a more understandable
environment and process, with quicker decisions and less time spent distracted from regular
business operations.
3. Stress and Privacy
Litigation in court is not only time-consuming but also stressful. The formality of the courtroom,
the unpredictability of a jury, and rigid procedures take a toll. On top of that, court proceedings
are public, sensitive information about payroll, internal operations, or employee complaints can
end up in the public record.
Arbitration offers a less formal environment and a more businesslike atmosphere. It is still
serious, the decision is binding, but the process tends to feel less intimidating. Also, arbitration is
generally private, but not automatically confidential. Confidentiality depends on your agreement and the provider’s rules, and filings to confirm or vacate an award in court can become public. If you include non-disparagement or confidentiality provisions, be sure to include the legally required carve-out allowing employees to discuss unlawful acts in the workplace, in order to remain compliant with applicable labor laws.
4. No Appeal
The arbitrator’s decision is final and binding, with no option for appeal. However, certain
exceptions do exist, such as cases involving fraud, corruption, or serious misconduct by the
arbitrator, which may allow a party to challenge the arbitration award in court.
For a business owner, having the ability to stop any further legal developments immediately
upon prevailing can be a significant advantage. Labor law complaints are typically financed by
plaintiffs’ attorneys on a contingency fee basis. If they win, they deduct their fees from the
damages and attorney’s fees awarded. In this sense, the opposing attorneys act like investors in
the case and may be motivated to seek additional returns through an appeal. Binding arbitration
eliminates this risk entirely, as no appeal is possible.
On the other hand, employers must understand that they, too, lose the right to appeal. Whatever
the outcome, it is final. That said, arbitration can lead to quicker clarity on the strength or
weakness of each party’s case. Often, during arbitration, both sides recognize early on whether
their position is weak and may choose to settle. This same option exists in court, of course, but it
may become apparent sooner in arbitration. (See our article on why settling labor claims can
sometimes be the smarter option.)
5. Expertise and Neutrality in Arbitration
In arbitration, as opposed to civil court, the parties have the option of choosing a Judge who
specializes in labor and employment law. With this alternative, the disagreement can be handled
by a decision-maker who is knowledgeable with the relevant regulatory framework and the realworld realities of business operations.
In contrast, the case can be given to a judge who has no deep experience with employment
concerns, and there’s a chance that the employee will be the plaintiff on the jury. Jurors decide
factual disputes by evaluating whether the evidence substantiates the plaintiff’s claims, while
judges make legal decisions by interpreting statutes and using common-law precedents.
The dynamics of juries in employment disputes, when the plaintiff is usually the employee, can
be unpredictable. Because they are also employees, jurors may sympathize with the worker. On
the contrary, arbitration Judge likely tends to provide a more legally focused evaluation, with less emotional influence than a jury trial.
Conclusion
Before relying on an arbitration agreement, business owners should carefully weigh the benefits
and drawbacks of requiring employment disputes to be resolved through arbitration. On the plus side, arbitration often provides a faster and more cost-effective way to settle disputes. Long jury trials are avoided, privacy is maintained because the proceedings are private, and decisions are made by qualified experts who understand business and employment issues. Finality is another advantage of arbitration, since awards are binding and cannot be appealed through multiple levels of review. On the other hand, there are potential disadvantages as well, such as the lack of a formal appeal process, the high cost of arbitration services in some cases, and the risk of an arbitrator showing bias toward the plaintiff. In summary, arbitration can be an effective tool for managing employment disputes when the agreement is properly drafted, compliant with current laws, and presented to employees without any pressure or coercion.
Even well-written agreements should be reviewed by legal counsel on a regular basis to ensure ongoing compliance with changes in laws and regulations. If you are already facing a complaint and discover that your arbitration clause is unenforceable, read our article on why settling a labor case may sometimes be a better strategy than going to trial.
The author is a Law Clerk with an LL.M. degree and is not yet a licensed attorney.
This article is for informational purposes only and does not constitute legal advice.
Please contact our office to speak with one of our attorneys and obtain legal advice regarding your specific situation.