One of the strongest trends in human resource management is the dramatic increase in the use of mandatory employment arbitration agreements. In late 2017, a study by the Survey Research Institute at Cornell University determined that the number of private sector, non-union employees subject to mandatory arbitration agreements had dramatically increased in recent years. The study was conducted on a national level and secured responses from more than seven hundred employers. Between 1992 and the early 2000's, the percentage of employees subject to mandatory arbitration agreements had risen from just over two percent to almost one quarter of the U.S. work force. The study concluded that as of the fall of 2017, the percentage of private sector, non-union employees subject to mandatory arbitration had more than doubled and now exceeded fifty-five percent. Thus, over sixty million American employees are now likely subject to mandatory employment arbitration agreements.
This dramatic growth preceded the landmark decision handed down in May 2018 by the U.S. Supreme Court in
Epic Systems Corp. v. Lewis. In this decision, the Supreme Court held that under the Federal Arbitration Act, an arbitration agreement that provides that an employee waives the right to bring a class action in court must be enforced. This decision is widely expected to increase even further the use of mandatory arbitration agreements by private sector employers. The decision put to rest a potential stumbling block to the enforcement of class action waivers in arbitration agreements that had been created by a decision of the National Labor Relations Board during the Obama administration and by the decisions of several federal Courts of Appeals. Thus, the Supreme Court has made the use of such agreements even more desirable by employers who now can generally be assured that their employees cannot bring class action arbitration or court cases against them. In other words, such agreements are now an even more effective means for employers to cope with the rapid increase in recent years in the numbers, costs and risks posed by employment-related lawsuits.
The advantages that the use of mandatory arbitration agreements offer private sector employers are several and are quite substantial:
- Generally speaking, these agreements can be used to prohibit covered employees from bringing class actions against their employers
- These agreements can require employees to waive their right to a jury trial; indeed, this has long been the principal advantage of the use of mandatory arbitration agreements
- Instead, these agreements typically establish a procedure that permits employers and employees to select a decision maker from a panel of experienced former judges and/or licensed attorneys or other respected neutrals to hear and decide their cases, rather than juries
- Because these procedures remove the risk of runaway jury awards and reduce the cost of litigation, employers are much more likely to be in a position of declining to agree to unreasonable settlement demands in cases that they believe involve meritless claims
- Indeed, some studies indicate that employers are somewhat more likely to prevail in arbitration than in court proceedings
- At the very least, and as alluded to above, the use of arbitration agreements will enable employers and employees to resolve their claims in a less costly manner than in courts; typically such agreements involve limited amounts of discovery and fewer procedural disputes
- Claims are typically more quickly resolved in arbitration than in courts; faster resolutions benefit both employers and employees - they both avoid the years of discovery and delay that often characterize court proceedings
- Conventional wisdom and some anecdotal evidence indicate that some plaintiffs' attorneys are deterred from even pursuing employment-related claims once they become aware that doing so will involve arbitration rather than a potential jury trial
- As opposed to court trials that are matters of public record and sometimes involve considerable publicity, arbitration procedures are private processes and are not as likely to result in the damage to goodwill, reputation and brand as may public trials
- While arbitration agreements are indeed contracts, these contracts typically provide that the employees who sign them remain employees at will
The very real and apparent advantages to employers of the use of arbitration agreements is confirmed by the opposition to their use, especially since
Epic Systems. Recent writings and publicity have often cast these agreements as vehicles designed to "destroy workers' rights". Arbitration agreements are strongly opposed by plaintiffs lawyers groups, civil rights organizations, and some politicians. Some plaintiffs law firms now espouse the filing of hundreds of individual arbitration demands on behalf of employees of an employer in order to pressure such employers to settle rather than having to absorb the costs of defending against large numbers of such claims. Opponents of arbitration agreements have recently argued that claims of sexual discrimination and sexual harassment should not be subject to arbitration. Significant political pressure not to utilize arbitration agreements has been applied against law firms, law schools and some private sector employers. The American Bar Association has adopted a resolution urging legal employers not to require mandatory arbitration of claims of sexual harassment. The State of New York has recently passed legislation that would prohibit private sector employers from requiring arbitration of sexual harassment claims. California will soon follow suit, and other states are considering similar legislation. Such state laws may well be found to be preempted by the Federal Arbitration Act and, thus, unenforceable.
Some courts will find arbitration agreements to be unenforceable if they are both "procedurally and substantively unconscionable". But the bottom line is that well drafted and carefully implemented arbitration agreements will be enforced, and will provide employers with a much improved context in which to defend against claims. [1] Thus, the surge in the use of arbitration agreements documented by the 2017 Cornell study is likely to continue and indeed to expand rapidly.
[1] For example, well drafted agreements should place most if not all the costs of arbitration fees on employers; the obligation to settle disputes by arbitration should apply to employers as well as employees; the process for selecting an arbitrator must be fair; the waiver of the right to a jury trial must be clear and unambiguous; and so forth. The implementation of an arbitration agreement must be preceded by adequate notice, the ramifications of such agreements must be clearly summarized for employees in some appropriate fashion; the method utilized to secure employee consent to an agreement must be considered; and analysis must be accomplished as to what form of consideration is necessary to render such consent binding.