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Employers Should Consider Mandatory Arbitration of Employment Disputes With Their Employees

Any employer who has been sued by an employee for employment-related claims can confirm that it is an expensive and uncertain process. Even where there is no merit to the claims, employers are forced to either pay significant settlement costs to avoid their own defense expenses or expend large sums of money to defend the action with little recourse to recover those expenses from the employee.

A growing trend has developed to impose mandatory arbitration of employment disputes on company employees. While not all employment disputes are arbitrable, many are, including claims for employment discrimination, overtime claims and claims of retaliatory discharge. Defending just one of these cases should give employers reason to consider mandatory arbitration.

Things to consider:

  1. Arbitration avoids uncertain and potentially large employee-friendly jury verdicts. While there are never guarantees as to the outcome of any dispute, the conventional wisdom is that a skilled arbitrator will return a more predictable award than a jury.
  2. The cost of arbitration is far less than the cost of defending a conventional litigation. Employers can actually litigate a winnable case to conclusion in lieu of settling solely to avoid the cost of defending a frivolous case.
  3. Arbitration is more efficient than conventional litigation. Employers can complete the entire case in far less time leaving more time to running their business without distractions.
  4. Arbitration is generally not publically available information. Other potential plaintiffs will not easily be able to scan the public record for the outcomes of cases to determine whether to pursue a claim against the employer.
  5. There is a potential for an increase in claims being asserted because employees may perceive it easier to pursue the claims. However, the converse may also be true as plaintiff's attorneys may not be as interested in pursuing a claim in arbitration for the reasons stated above.

Ultimately, the decision to impose mandatory arbitration on employees should be considered with the input of an attorney. Once decided, a detailed dispute resolution program must be established along with valid and enforceable arbitration agreements for execution by all employees.

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