Ask any business owner and he or she will likely list costly litigation in their top five things to avoid. Nothing causes a drain on morale, resources and good talent like a contentious dispute in your workplace. The last thing any company needs is for a jury to tell them whether they were right in how they dealt with an employee.
Many companies have mandatory arbitration provisions in employment contracts and referenced in employee handbooks in an effort to try to control the litigation process. When used in conjunction with mediation (informal settlement negotiations conducted by an impartial mediator) and other forms of alternate dispute resolution (extra judicial efforts to get a matter resolved), it can be a very effective tool.
Similar to a lawsuit in a courtroom, arbitration involves a hearing in which both sides put on evidence and someone gets to decide the matter. For many businesses, the key difference is that there is no jury in arbitration. Instead, the matter is usually heard by a single neutral arbitrator who is likely a lawyer or a retired judge.
The general perception is that juries are unpredictable and easily persuaded by emotional arguments. Irrespective of whether this view reflects reality, most business owners would rather “take the emotion” and any related risk out of the case by having the matter settled in arbitration.
Moreover, arbitration is less formal than court and offers the parties greater flexibility in presenting their case and doing so in a relatively short period of time. This should translate into a quick and cost-effective decision, allowing all parties involved to get back to the business of the company with limited distractions. There is also a push to use arbitration provisions in employment agreements to limit the ability of current and former employees to bring class actions. You can even mandate that the parties treat the arbitration process as confidential.
While the courts continue to work through the various related issues, you cannot take advantage of arbitration if your company has not properly presented the issue to employees. Arbitration provisions should clearly explain specifics such as the scope of issues that would be covered, the process that would be used and who would pay the related costs. There are numerous arbitration services that provide a process that could be followed in an actual arbitration, and these services can be referenced in the arbitration provision.
The best place to set forth such a provision is in the offers of employment to new employees or when an employee is promoted. You can still amend employment agreements or add arbitration provisions at other times, but you always want to be careful that you are doing it in a way that guarantees you can later enforce the agreement to arbitrate. Taking the effort to briefly check with your employment attorney is recommended and will pay dividends later if you are ever challenged on this point.
In the end, arbitration is another tool that business owners can use to control some of the risk and cost of litigation. It is commonly used by businesses of every size to make sure that any disputes that must be litigated are resolved quickly and quietly. Every business owner should at least weigh the merits of using an arbitration provision to govern employment disputes.
Clarence Belnavis is a partner at the lawfirm Fisher & Phillips LLP, specializing in labor and employment law. He can be reached at (503) 242-4262.