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Arbitration: Don’t Let Epic Systems Lead to an Epic Mistake Arbitration: Don’t Let Epic Systems Lead to an Epic Mistake

Arbitration: Don’t Let Epic Systems Lead to an Epic Mistake

The recent epic Epic Systems decision from the U.S. Supreme Court may cause employers to rush to impose arbitration agreements on their employees. Beware what you seek!
Properly executed mandatory arbitration provisions in the employment context are enforceable in the federal courts, and we have known that since 2001. What is new is that now we also know employees can be forced to arbitrate cases on an individual basis and not as a class or collective action.
Accordingly, parties to such agreements may obtain stays on any proceedings or lawsuits that are properly arbitrable under the agreements, require each other to arbitrate any applicable claims, and have judgments entered on any awards issued by arbitrators as a result of any arbitrations conducted.
Very few of our clients have adopted such programs, and we generally advise clients to thoroughly consider and analyze the costs and benefits of adopting such programs. Here is why.
            Requirements of Mandatory Arbitration  
Although the following list of considerations is not exclusive, it should provide some idea of the issues involved with adopting a mandatory arbitration program.
a)         A first step in the process is to analyze the historic trends and costs of the company's defense of employment disputes. How many times has the company been sued? What have been the costs of defense? Have there been large judgments? These are all pertinent considerations that should be compared to the expected costs of arbitration. In evaluating the number of claims, the company should consider the following: a mandatory arbitration policy that pertains to any and all claims arising out of the employment relationship actually makes it easier for employees to pursue claims against the company and may thereby increase the number of claims. First, the Company may be forced to arbitrate numerous claims of general employee dissatisfaction that are entirely unrelated to unlawful conduct it would not otherwise have been forced to defend. Second, the procedures for raising such claims are easier, and the time for resolving such claims is quicker than the corresponding procedures for and duration of lawsuits. The effect of instituting a mandatory arbitration program, therefore, may be an increase in employee claims, not a decrease. Moreover, a mandatory arbitration program cannot prohibit employees from filing claims with outside agencies, such as the Equal Employment Opportunity Commission or the National labor Relations Board. Programs that prohibit such claims may be subject to successful legal challenge. In fact, such agencies may pursue legal claims against the company on their own volition.
b)         While mandatory arbitration programs are advocated as less expensive than litigation, we doubt this is always true, especially if the effect is to increase the number of claims against the company. Moreover, it may actually cost as much to try a case in front of an arbitrator as it does to deal with a case in court. Typically, it will cost tens of thousands of dollars to arbitrate a claim to its conclusion. Additionally, the employer cannot require employees to split the costs of arbitration. Courts have been very clear on this point. At most, an employer can require employees to pay no more than they would have paid to file the case in court, typically $150 but not more than around $350 depending on the local courts. In light of Epic Systems, plaintiff employment attorneys now vow to file hundreds of arbitration demands if they are thwarted from filing class and collections actions. Ergo, costs may be no less, and may be more, for employers, if one takes the arbitration route.
c)         We litigate cases that are filed against our clients with an eye on obtaining summary judgment or dismissal. We take every measure to avoid our clients going before a jury. Our track record in getting cases dismissed or settled favorably is quite good. Arbitration does not have a similar procedure. Employers generally cannot file a motion to dismiss or a motion for summary judgment; the case must be arbitrated. Likewise, litigation now often features a mandatory mediation component. No such mandatory procedure ordinarily exists in arbitration.
d)         Litigation in court is often better for the employer than the employee, while arbitration is usually more favorable to the employee. A company has a deeper pocket and can defend itself well in litigation, while this is more difficult for employees. Additionally, sometimes the delay that is associated with litigation actually works in the employer's favor. Thus, the speed of arbitration may be a detriment in many cases.
e)         Arbitrators are notorious for reaching "split decisions"—that is, they depend on future business from employers and employee advocates. Therefore, they do not like to become known as pro-employer or pro-employee, and this leads to many compromised decisions. On the other hand, employers typically win a fair number of cases that are litigated in court. The problem is the risk of going before a jury and being hit with a large judgment.
f)         However, going before a jury is not necessarily worse than being in front of an arbitrator. Under the law, arbitrators must have the right to award the full measure of damages that are available under the civil rights laws. In other words, arbitrators' remedies are no different than the remedies juries have available to them—this includes compensatory and punitive damages, attorneys' fees, and all other forms of equitable redress. Arbitrators can award the same large judgments for which juries have made headlines. Arbitration agreements that do not provide the same remedies as allowed by law are likely not valid.
g)         In order to be bound by a mandatory arbitration provision, an employee must knowingly and voluntarily agree to have his or her claims heard exclusively by an arbitrator. Conversely stated, he or she must knowingly and voluntarily waive the right to have his or her claims heard in a court of law, by a judge or jury. Accordingly, it is not a good idea to bury an arbitration agreement in a handbook or in the fine print of an employment application. It is best to provide information regarding the arbitration program in several places—by a statement and acknowledgment in the application, in a formal policy provided along with the application, in any offer letter sent to successful applicants, and as a part of the employee handbook.
h)         Finally, in the event of a runaway jury decision, at least in federal and state court, we can ask the judge to overrule the jury's decision. We can also appeal the decision to higher courts. In fact, one study showed that 43.61% of plaintiffs' victories on employment claims in federal court were reversed on appeal. This right of appeal does not exist in arbitration except in extraordinary (i.e. fraud) cases. Win or lose, employers are stuck with the decision they get from the arbitrator.
In conclusion, consider the arbitration route carefully, and only make the move if it works for your business.

For more information, contact David Carr or another member of our Labor, Employment and Immigration Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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