It’s hard to say what the impact of arbitration clauses are on the workplace because a hallmark of the alternative dispute resolution process is privacy.
Unlike court proceedings, arbitrations are not a matter of public record, and evidence of whether they tend to favor employers or employees is scant. And, because the clauses are also adopted by companies out of public view, it isn’t known how widespread the practice of prohibiting employees from banding together to sue the boss has become.
A Carlton Fields Jorden Burt survey does show accelerated adoption of arbitration clauses among almost 350 companies in diverse industries since the Supreme Court’s AT&T v. Concepcion ruling in 2011, which upheld the use of class action waivers in clauses.
Some 45.8 percent of general counsel or senior legal officers reported using arbitration clauses at their companies, up from 21.4 percent in 2011, with most explicitly banning class actions, the firm’s 2015 Class Action Survey showed. It also said 88.6 percent of participants use the clauses in their employment contracts.
But the National Labor Relations Board says that requiring employees to sign away their right to class action violates federal law. While some courts reject this position, the NLRB has continued to sue employers who use the clauses, causing some to wait on the sidelines for a resolution, said Gerald Maatman, partner and co-chair of Seyfarth Shaw’s complex discrimination litigation/class action practice group.
More employers are “looking at the viability of these clauses as risk management tools,” Maatman told Advisen, adding that they “are migrating to the system.”
Lawyers and arbitrators interviewed for this article agreed that arbitration can allow for quicker resolution of disputes and reduce the threat of class actions, which are expensive for companies to defend against even before a determination of liability has been made.
“A single employee with a single plaintiffs lawyer can cost (a company) hundreds of thousands of dollars,” said Mark Neubauer, managing shareholder of CFJB’s Los Angeles office. “Employers are paying blood money to settle class action lawsuits as quickly as they can.”
Maatman said the arbitration process makes it “easier and cheaper for employees to bring claims” as well, but added that the clauses “are not a magic wand for employers. They are compelling arbitration, not eliminating complaints.”
Michael Loeb, an arbitrator and employment specialist with JAMS and a former practicing employment lawyer, has mediated and arbitrated employment cases for 25 years. He told Advisen that beyond saving litigation costs, the process saves time when compared to the judicial system and can result more often in hearings of cases on their merits.
Loeb estimated that 10 percent of arbitrations go to hearings on the merits, compared to 2 to 3 percent of court cases.
An arbitrator also has more discretion than a judge in deciding a case as his or her adjudication is final, he said. Awards can be reviewed by the courts under the Federal Arbitration Act, but they can only be vacated on narrow grounds, such as when shown to have been procured by corruption or other undue means, or when there is evident partiality in the arbitrator, he said.
The awards also tend to be “flatter,” neither as high or low as in courts, Loeb said, and “the rate at which arbitrations find in favor of employees is as high or higher than judges or juries.”
But arbitration clauses with class action bans still mean that “employees can’t band together and even out the playing field,” said Jahan Sagafi, partner in charge of the San Francisco office of Outten & Golden LP.
“This isn’t about efficiency” achieved through faster resolutions or fewer court-related costs, he told Advisen. “Arbitration is a tool to cut down the exposure” of employers.
The process can even result in inefficiency, he said, “when similar workers are bringing similar claims in individual proceedings” as a work-around to the ban on class actions, “causing employers’ managers to be deposed again and again.”
Employers typically pay for the arbitration process, and they must reach agreement with employees on who will arbitrate, though the lack of public records available on their case history can make vetting difficult.
The process of selection “can be quite opaque,” Sagafi said, and “creates huge risks for both employees and employers.”
Both sides strike or rank names on a list of arbitrators beforehand to come up with a “neutral,” who must disclose potential conflicts.
“An arbitrator who is not viewed as scrupulously independent will not be used,” Loeb said, adding that “I disagree that arbitrators favor employers because they are ‘repeat players,’ or they pay for the cost of the arbitration and therefore the arbitrator’s fees in most employment cases.”
One thing may be certain, according to Carlton Fields’ Neubauer, and that is “the jury is still out on the impact of arbitration clauses on class actions or complaints.”
