MANDATORY ARBITRATION CLAUSES IN EMPLOYMENT AGREEMENTS

In employment contract negotiations, employers and employees often will focus on different points and will have different priorities.  One typical provision where the parties may diverge in their hierarchy of important negotiating points is the mandatory arbitration clause, which is an alternative way to resolve disputes other than litigation.

Arbitration clauses are not necessarily standard in every employment agreement, but their significance should not discounted.  Parties need to pay attention to them. Employers generally favor them because of the time, expense and unpredictability of litigation.  Courts are increasingly willing to enforce mandatory arbitration clauses involving employment disputes, including discrimination rights claims.  Although an arbitration process ordinarily will not have the expensive, expanded discovery process and extensive motions phase that occur in civil litigation, the arbitration hearing itself can be as expensive as a trial.

Under mandatory arbitration, the arbitrator’s decision is final and binding and enforceable in any court of competent jurisdiction.  The arbitrator is obviously supposed to be neutral and may or may not have familiarity or expertise in the subject matter.  Arbitration proceedings are much less formal than the legal rules and procedures of a court and the arbitrator may receive and consider evidence that may not pass muster in a court of law.   Because arbitration is a cousin of mediation, the arbitrator may be more inclined to split the baby, so to speak, rather than to make a draconian up or down, win-lose decision.  By arbitration, an employer usually does not run the risk of a runaway jury or a plaintiff-employee-prone judge.

An important consideration for the employee is that in the arbitration clause, the employer will designate the location of the arbitration hearing, which may not be in a locale that is near the employee.  If the hearing is required to be in Chicago, but the employee lives in Los Angeles, then that will be inconvenient and expensive for the employee.

If done fairly, arbitration could be helpful to both employer and employee.  As far as alternative dispute resolution forums go, mediation, I believe, is a more cost-effective, less onerous way to go for both employer and employee, but that is another blog post for another day.

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