Since 2013, there have been a number of court rulings regarding employment arbitration agreements. While the United States Supreme Court has offered differing opinions, one thing is certain-companies need to evaluate if they should have an arbitration agreement. Furthermore, businesses need to determine if their agreements should include a class action stipulation or not.
There are several factors, both positive and negative, that organizations need to keep in mind when drafting and implementing an arbitration agreement.
PROS:
Cost-Arbitration can be less expensive than litigation and a court trial. This allows the business to spend less money on the claim.
Waivers-If a company chooses to waive the worker’s rights to participate in a class action, then the company is limited to the claims of one specific employee. This can help to defray the costs associated with multiple claims arising at the same time.
Confidentiality-Most arbitration agreements are not public records. This benefits the organization from having to provide information about the case and any possible payout to the opposing side.
Hearings-Arbitration cases are held in front of an arbitrator instead of a courtroom jury. Having a neutral third party hear a case instead of a jury can reduce the potential for a jury sympathizing with the plaintiff. Arbitration can also possibly avoid awarding a judgment that could be damaging to the business.
Providing Information-In arbitration, there is less discovery than in a traditional courtroom trial. At the same time, hearings can be heard and scheduled faster than in the court system. Having a quicker resolution is more cost effective for the company and avoids unnecessary expenses.
CONS:
Class Actions-If an organization chooses to include a class action option in their arbitration agreement, there will be multiple arbitration agreements that will arise. Arbitrators do not decide class action arbitrations; rather, they only decide one case at a time. Having multiple hearings can result in the organization having to defend multiple, similar claims. If there are several cases, the organization may have to spend more money to settle the larger number of hearings that arise.
Award-The decision of the neutral third party is final and cannot be appealed. If the award favors the plaintiff, the business will have to pay a sum of money without the possibility of appealing the verdict.
There are many factors that a company needs to evaluate when creating an arbitration agreement. First and foremost, the organization should decide if they would like to have an agreement in place to begin with. Having an arbitration process in place can be more cost effective for the business in the long run. It will avoid all parties from having to go to court. Further, arbitration allows for the case to be heard in front of a neutral third party as opposed to a jury in a courtroom. An arbitrator is less likely to be sympathetic to one side over another party.
If the organization chooses to have an arbitration agreement, then they must decide if they would like to include a class action clause or not. Having a class action clause could potentially lead to a number of similar arbitration cases. This could benefit a business in the sense that if they receive a ruling in their favor, other plaintiffs could be less likely to file a similar claim. However, if the company loses an arbitration ruling, they may be on the hook to pay more out more money down the road for similar claims.
As always, it is a good idea for a company owner or organization to speak with a business attorney before making any decisions regarding an arbitration agreement. Doing so can allow the organization to get an idea of what type of arbitration agreement would benefit them and what should be included in the terms of the agreement.