California Labor and Employment Law

Is Arbitration Good or Bad for Employees?

Answer: Bad.

This question is often debated among attorneys, judges and arbitrators. Judges like arbitration because they’re chronically overworked. For instance, the U.S. District Court for the Central District of California had the honor of being the second busiest federal district court in the entire country, with 11,585 civil cases filed in 2006 alone. Judges view arbitration as a way to get disputes out of their overburdened courts. Arbitrators love arbitration because they charge lots of money. And some (but not all) defense lawyers like arbitration for exactly the same reasons most employees should run away from arbitration.

What is Arbitration?

But before we get to that, what is arbitration? It is a way to resolve legal disputes between parties outside of the court system by hiring a paid referee who acts as the parties’ private judge.

Here are the main ways in which arbitration differs from lawsuits:

1. A judge gets his salary from the State of California. An arbitrator gets paid by the parties (that means YOU), and the bill is usually a whopper.

2. Like a judge or jury, an arbitrator’s decision is binding on the parties. But unlike a judge or jury, if you think the arbitrator made a serious mistake, you CAN NOT appeal it (except in a few extraordinary cases). You’re stuck.

3. Arbitrations are decided by one person, the arbitrator. You can’t request a jury.

4. The arbitrator does not need to be a lawyer (although most tend to be lawyers or retired judges).

5. Arbitrators can set and change all the rules outside of those, if any, which the parties have specifically agreed to. Judges are bound by detailed codes of procedure, rules of court, etc.

6. You and the other parties get to pick the arbitrator. You can’t pick a judge, the court assigns you one when you file your lawsuit.

Why Is Arbitration Bad?

Now, here are the reasons why arbitrations are a bad thing for you, the employee.

1. You could be on the hook for the arbitrator’s fees, especially if you lose. What kind of fees are we talking about? A lawyer told me her client just went through an arbitration regarding a claim worth $100,000. They lost and her client had to pay $60,000 in arbitration fees. Ouch!

2. Arbitrators can limit you in crazy ways which prevent you from proving and winning your case. I heard about one arbitrator who ruled that the plaintiff would not be allowed to conduct any depositions or introduce witnesses. Not even one. For employees who need to rely on witnesses to give critical testimony about what happened, which is probably many of you, you can kiss your case goodbye. Even if you get a good arbitrator, you will still be much more restricted in your ability to gather evidence, request documents from the other side, or conduct witness interviews than you would in court. This hurts the plaintiff (who has the burden to prove her case) and helps the defendant.

3. Arbitrators tend to favor the employer. Why? Simple economics. Big companies are likely to be sued again, so they are more likely to be repeat customers for arbitrators. You the employee are just one individual whom the arbitrator will probably never see again. Statistics have overwhelmingly shown that arbitrators rule more often in favor of the employer against the employee. This keeps the employer coming back for more arbitrations.

4. Arbitrator awards tend to be much smaller than what you might get from a jury. Many arbitrators end up cutting the baby in half. If you are seeking $10,000 and the other side is offering $0, some arbitrators split the difference and award $5,000. This raises the question, did you really need a high-priced arbitrator to do that for you? Arbitrators are also less likely to award punitive damages, designed to punish the wrongdoer, than courts. This hurts because punitive damages can in some cases be bigger than the rest of your damages combined.

5. Arbitrations are hush-hush and confidential. This is great for the employer who doesn’t want its dirty laundry aired in public, which is what happens in a lawsuit. Why does this matter? Public embarrassment is often a powerful threat which employees can use to get employers to come to the negotiating table and settle a dispute.

Can You Avoid Arbitration?

Unfortunately, in many cases, you won’t have a choice about arbitration. Chances are, when you were hired, your employer asked you to sign an arbitration agreement. Which you then promptly forgot about. Or the arbitration agreement may have been contained in the employee handbook which you signed when you received it. If that’s the case, even if you file a lawsuit in court, your employer could drag you kicking and screaming into arbitration by filing a motion with the court telling the judge, hey, we’ve got an arbitration agreement! The judge, being very overworked, will quickly agree and ship you out of his court and into the hands of the waiting arbitrator.

You may still be able to challenge the motion, though. For instance, there is an important California Supreme Court decision called Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4^th 83 which said that arbitration of employment disputes may be denied where the arbitration agreement is “unconscionable” or “fundamentally unfair”.

Also, if you have discrimination, retaliation or medical leave claims under the Fair Employment & Housing Act, Armendariz imposes special requirements on arbitration:

1. Arbitrator must be neutral

2 .Discovery must be adequate

3. Plaintiff must be permitted to recover all types of relief otherwise available in court (monetary damages, injunction, reinstatement, etc.)

4. Final arbitration award has to be issued in writing so as to permit limited court review

5. Employer must pay arbitrator’s fees and all costs unique to arbitration

BUT, these special requirements don’t apply if “an employer and an employee knowingly and voluntarily enter into an arbitration agreement AFTER a dispute has arisen.”

Contact an Attorney

This is exactly why, you should contact an attorney right away if you think you have an employment-related claim. Among other things, he’ll stop you from entering into that arbitration agreement your employer is waving in front of your face after you just complained about racial discrimination.

Here’s to hoping you can stay out of arbitration.