California is not a friendly place for employers, and it is not a matter of whether an employer will be forced to deal with an employee claim, it is a matter of when. That makes it important for employers to understand some key points about alternative dispute resolution, and whether and how it can be a more efficient and reasonable solution than a formal court dispute. In this podcast, Steve McCutcheon explains the difference between arbitration and mediation, and what the arbitration process involves.
Hello, I am Steve McCutcheon, welcome to the Cook Brown labor and employment law podcast.
Cook Brown is a California law firm representing public and private sector employers in labor and employment matters involving everything from routine advice to complex class action litigation.
Our podcasts will focus on California law, so if you’re outside of our state, you’ll need to do some research on your own or consult an attorney admitted in your state. And of course, we want our listeners to understand that this podcast is for general informational purposes only. It doesn’t create an attorney-client relationship between Cook Brown and the listener, should not be treated as legal advice, and whether inside or outside of California it is important that you consult a local attorney for specific advice.
I’m sure most of you have heard terms like “alternative dispute resolution” or “ADR,” “arbitration,” and “mediation” before. Any agreement you’ve signed, like a credit card agreement, health insurance application, cell phone contract, or cable subscription probably included ADR language, and most likely an arbitration clause.
Those same types of provisions can be used in the employment context as well. California is not a friendly place for employers, and it is not a matter of whether you will be sued by an employee, it is a matter of when. That makes it important for you as an employer to think about ADR, and whether it can help you efficiently and reasonably handle claims.
The term ADR encompasses both arbitration and mediation. In short, arbitration is a private trial, where you opt out of using the courts, and hire someone to act as your judge. Mediation is where you hire a neutral third party to hold a conference and meet with the plaintiff and defendant separately to help the parties come to an agreement over how to settle a case.
Today’s I’m Going to Focus on Arbitration
This kind of clause requires that any claims arising out of the employment relationship be submitted to binding arbitration rather than be litigated in the courts. This has some major effects that you must consider, and arbitration may or may not fit with your company’s strategy for handling claims efficiently and controlling the cost of litigation. First, an arbitration requires that the employee bring his or her claims in arbitration rather than civil court. This gives the parties more control over the case, including who will serve as the arbitrator, how the trial will be conducted, when and where trial will be held, and frees you from extremely busy court dockets.
Second, both the employer and employee forego the right to appeal the decision. Except in very rare circumstances, and I mean VERY rare circumstances generally related to corruption and fraud, the decision is final and you cannot go to court to overturn it. When the arbitrator issues his or her ruling, the case is over, and the ruling can be taken to court and turned into an enforceable judgment. By agreeing to arbitration, the parties give up the procedural safeguard of the right to appeal, in exchange for having the case decided in quickly and finally. This means that rather than a year or two of litigation, another year of appeal, and the chance for the case to go on, the case is final. If you agree in advance, the American Arbitration Association now allows appeals to a panel of three arbitrators, but as far as the courts are concerned, when the arbitration is concluded, the case is over.
Third, the decision to arbitrate employment claims has a significant cost impact for employers, and this is an important factor for you to talk about with your attorney. Under California law an employer can’t try to discourage employee claims by making the employee pay a portion of the arbitrator’s fee. Arbitration has to provide the same rights and remedies as civil court litigation, and when arbitration is required by an employment agreement, the employer must pay the arbitration fees.
Normally, all it takes to pursue a lawsuit in civil court is to file the complaint, pay a fee of approximately $435, and the defendant has to pay a similar amount to file its Answer. Arbitration can be a lot more expensive, and any expected attorney’s fees you expected can be quickly outweighed by arbitrators’ fees. After the initial fee to start the arbitration is paid, the arbitrator will be paid on an hourly basis. The fee may be $5,000 or $6,000 per day. I have seen arbitrations that last several weeks, and the arbitrator’s fees can easily reach $50,000 to $70,000. Arbitration may have been selected because it was expected to reach a speedy and cost-effective result, but there is no guarantee it will work out that way.
Fourth, an arbitration clause will not avoid much of the discovery, expense, and formality of civil litigation. Think of it as choosing who will hear the case, not what rights either party has. California requires that employees be afforded all of the same rights and remedies that would be available in court, and that both parties have sufficient discovery available to prove their case. Arbitrary limits on the types, amount or timing of discovery, such as limiting the number of depositions a party can take will likely be found unconscionable and unenforceable.
Fifth, even carefully drafted and lawful agreements may give rise to legal challenges in court or by the National Labor Relations Board. Class actions are turning increasingly extortionary in California, and one response by employers has been to adopt arbitration agreements requiring claims to be arbitrated individually and waiving class treatment of claims in arbitration. Although the United States Supreme Court has upheld arbitration agreements in a variety of contexts, plaintiffs’ attorneys prefer pursuing claims on a class-action basis because of the massive attorney fee awards they often generate. The NLRB also takes the position that class action waivers violate employee rights under Section 7 of the National Labor Relations Act and prevent employees from undertaking protected concerted activity. Between the large financial incentives plaintiffs’ attorneys have in challenging class action waivers and NLRB hostility to arbitration agreements and class action waivers, employers may end up litigating over the enforceability of the arbitration agreement, rather than focusing on resolving the claims at issue.
The bottom line is that arbitration can be a useful tool for employers to help control litigation costs, but needs to be part of a well thought out strategy. I encourage you to talk with your attorney about whether to include an arbitration clause in your new hire agreements and employee handbook. There is no one-size-fits-all rule here, and there is no substitute for specialized advice.
Thank you for listening to our inaugural Cook Brown podcast. I encourage you to sign up for our newsletter so you can receive updates on developments in California law, legal articles, and notice of future podcasts. Thank you.