Wednesday, April 15, 2015

To Arbitrate or Not To Arbitrate?

Let’s say an employer has an opportunity to put an arbitration clause in its employment contract. Should they do so?  There has been a great increase in arbitration in recent years, especially the arbitration of employment disputes.  Recent studies even suggest that arbitration and litigation outcomes are not significantly dissimilar; however this study excludes civil rights claims.  Employers should be aware of the advantages and disadvantages of including arbitration clauses in their employment contracts.


1. Privacy
Unlike trial, arbitration provides a private arena where the employee and employer can settle their disputes.  Therefore, employers who desire confidentiality might consider including an arbitration clause in their employment contract.  

2. Cost
Trial is expensive. Even if an employer’s conduct is justifiable, they might be persuaded to settle in order to avoid the burden of trial expenses.  In contrast, arbitration is relatively inexpensive.  Employers who are interested in minimizing legal costs should consider arbitration.  

3. Employer Controls Forum
Employers have the ability to tailor its arbitration clause to specify where the arbitration will be held.

4. Expeditious
Unlike lengthy trials that might drag on for several months or years, arbitration is over after a couple of hours.  Arbitration might be favorable for those employers (or employees) who need an immediate decision.

5. Enforceability
Just like a trial court judgment, arbitration rulings are enforceable.


1. Relaxed Rules of Evidence
Often the rules of evidence are more lax in arbitration and it’s easier for parties to sneak in information that would be excluded at trial.

2. Appeals
Unlike at trial, unfavorable arbitration decisions are very difficult to overturn.

3. Access to Information 
Litigation involves long periods for discovery and party disclosures.  In contrast, arbitration has limited or no discovery.  Therefore arbitration would not be advisable for an issue that requires substantial, formal discovery.  

4. No written decision
After trial, judges often write lengthy opinions where they present the reasoning behind their decisions.  Arbitrators, on the other hand, do not need to justify their decisions in writing.  

5. Case Not Fit for Arbitration  
Parties who seek a unique or unconventional remedy should not look to arbitration.  Although arbitrators can issue a decision requiring specific performance, monetary remedies are the most common.  In addition, cases that involve major constitutional issues would not be appropriate for arbitration.  

6. No Precedent
In arbitration, parties rely on the facts and not prior case rulings.