Employers With Arbitration Clauses Win – Part Two: Factors Employers Should Consider When Determining Whether to Incorporate an Employee Arbitration Program

Ruth Binger

By Ruth Binger

arbitrationOne of the many employment-related decisions a company must make is whether it wishes to require employees to give up their rights to file an employment action in court, and instead to require employees to use arbitration.

In Part One, we discussed how employers can require employees to arbitrate claims on an individual basis. This much-anticipated U.S. Supreme Court decision in Epic Systems Corporation v. Lewis allows employers to use arbitration agreements as a tool to avoid costly class action claims with more certainty that they will be enforced by the courts.

The decision in Epic also added an additional favorable factor to the arbitration choice column. The Court ruled that employers can require employees to arbitrate claims on an individual basis and thus avoid class actions. Epic Systems (which was decided along with two sister cases) involved employees seeking class action litigation, despite having employment contracts with provisions that required individualized arbitration proceedings.

Although Missouri is an employment at will state, employees can sue employers under various state and federal statutes in state or federal court. Some of those statues, for example, the Fair Labor Standards Act, allow class actions. Litigation is very costly and there could always be a runaway jury. Arbitration, on the other hand, is designed to avoid complex and time-consuming litigation and to provide an alternate source of justice. An arbitration could take six months to resolve but the decision will be final and binding and unappealable, while a court proceeding through a jury trial could take 21-41 months and the decision is always appealable.

The Epic Systems decision is not a deal breaker in making the decision as to whether you wish to add an arbitration clause to your employment contracts/manual and set up an arbitration program. There are many other factors you should consider. Those factors include:

  1. History of claims
  2. Number of claims filed
  3. Number of claims dismissed before trial
  4. Amount spent in settlement
  5. amount spent in legal fees
  6. Number of employees
  7. Amount of money spent on human resource professionals
  8. Location of branches and jurisdictional law
  9. Desire and necessary budgetary support to create and enforce an arbitration program.

There are additional costs in arbitration versus litigation including the company pays for the cost of the arbitrator’s time from $350 and up per hour (judges are not paid), the hotel and meals of the arbitrator are charged to the company, and the arbitration organization, unlike the courts’ minimal filing fees for administration, can average $10,000 and up.

Some takeaways are that arbitration programs are generally good for large employers but may increase the cost for smaller employers without providing the necessary benefits. Eighty percent of the Fortune 100 Companies use arbitration for workplace disputes. In contrast, for smaller employers, the lower cost of filing produces more claims and administrative and arbitration costs increase. Arbitration programs and clauses must be carefully crafted so they are not used on a frequent basis by employees.

The Epic Systems decision gives the employer an additional tool to limit expensive and prolonged class action litigation. However, employers still need to determine if (1) they want to introduce an arbitration clause into their employment policies and (2) if they do whether they wish to prohibit class actions. Employers are encouraged to contact one of Danna McKitrick’s experienced employment lawyers in consideration of the Epic Systems decision.

Click here to read “Employers With Arbitration Clauses Win – Part One: The U.S. Supreme Court Embraces Arbitration Agreements with Class Action Waivers by Katherine M. Flett which discusses class waivers in employee arbitration agreements.

Click here to read the Epic Systems Corporation v. Lewis decision

Posted by Attorney Ruth A. Binger. Binger serves both emerging and mature businesses concentrating in corporate law, intellectual property and technology law, cybersecurity, digital media law, and labor and employment law. Her commitment to the success of small to medium-sized businesses, and her understanding of multi-faceted issues inherent in operations, are what distinguish Binger’s practice. 

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