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Advantages of Arbitration

Our employment law department assists employers in drafting enforceable Alternative Dispute Resolution (e.g., arbitration) agreements.  ADR methods often have advantages over litigation: 

  • Avoids litigation delay and expense: While most lawsuits settle, they often do so after protracted pleadings, motions and exhaustive discovery. As a result, attorney fees and costs often outstrip the value of the case, giving the client with the “deepest pocket” an unfair advantage.
  • Protects confidentiality: ADR proceedings are generally conducted in private and the parties can maintain confidentiality of the outcome.
  • Parties control the process: ADR is a consensual process. The parties decide whether the proceeding will be binding. They also decide who will determine what issues in what sequence. They can alter procedural rules as they choose.
  • Better results: Conciliatory ADR procedures (e.g., mediation) are particularly effective in resolving employment disputes because the parties get to participate directly in the proceedings. This often leads to better long-term results than could be obtained through litigation.

ADR procedures can be used at any stage of a dispute (even during litigation). But prelawsuit procedures have a better chance for success before attitudes harden and litigation costs become a major factor. One perceived disadvantage to early settlement is the lack of enforced discovery. But full disclosure of information can be provided by agreement between the parties or facilitated by a mediator or arbitrator if necessary.

Legal Principles Affecting Enforceability of ADR Provisions in Employment Contracts

When drafting ADR provisions in employment agreements various legal principles must be considered. First of all, most employment agreements are treated as contracts of adhesion because the employee has no ability to negotiate the terms and must usually “take it or leave it”—i.e., not accept employment or terminate employment if the proposed agreement is unacceptable. Where an employment contract requires binding, mandatory arbitration, and the employer moves for a court order compelling an unwilling employee to arbitrate his or her claims against the employer, the court must evaluate several issues in determining whether to enforce the arbitration agreement:

  • Whether the employee’s agreement to arbitrate was knowing and voluntary;
  • Whether the terms of the arbitration agreement are unconscionable;
  • Whether the arbitration clause extends to statutory discrimination claims.

Some employment agreements may be fully negotiated by parties of similar bargaining power. As such, they are not contracts of adhesion. Even so, drafters must exercise the same care as with purely “imposed” clauses because agreements calling for mandatory, binding arbitration may still be scrutinized by a court for voluntariness, unconscionability and waiver of statutory rights to a judicial forum.

Timing Considerations—Predispute vs. Postdispute Agreements

Most voluntary dispute resolution occurs because the parties agree, in an employment agreement or employee handbook, to utilize ADR in the event a future dispute arises (a “future disputes clause”).

Multi-Step ADR Process

It is common for dispute resolution agreements to contain several “steps” or a sequence of processes leading from nonbinding to binding methods; e.g., from negotiation, to mediation, to binding arbitration if necessary. Such agreements force parties to consider settling at an early point in the dispute process, before the expenditure of significant money and before the litigation process has polarized the parties.They also keep the parties moving toward settlement, even if early efforts are discouraging. The presence of a last, adjudicatory step reminds the parties that the risk of not settling is a relatively immediate determination of the dispute by a third party.