Arbitration savers and killers Featured

7:00pm EDT November 24, 2006

Arbitration is becoming more prevalent as an alternative resolution dispute method in today’s employment environment. Business owners look at it as a cost-effective, simple and less combative way of resolving disputes with employees. A growing number are including arbitration clauses in their employment contracts and even making them a condition of employment for at-will employees.

It’s helpful for business owners to work with attorneys to craft arbitration agreements that courts will approve and that will help alleviate some misconceptions of the way the judicial system resolves disputes. Enforceable agreements must include some of the “savers” that make an agreement enforceable and exclude the “killers” that have the opposite effect.

Smart Business spoke with Amy Dunn Taylor, a partner at Godwin Pappas Langley Ronquillo LLP, about recent developments in the use of arbitration agreements within the employment law context and to gain more insights into arbitration “savers” and “killers.”

How are arbitration savers and killers defined?

In general terms, killers may mean that the client's arbitration agreement is not enforceable. Savers give clients the best chance of making advantageous, yet enforceable, arbitration agreements. For the most part, the killers are the corollaries to the savers. As long as clients include the savers, they can avoid the pitfalls that might render an agreement unenforceable.

What are the perceived advantages of arbitration, and are they a reality?

Arbitration is perceived to be cheaper, quicker, simpler and less combative. None of these ideas is necessarily true.

Realistically, arbitration can be just as expensive, or more expensive, than traditional litigation. It can take as long or longer, and it may not be simpler or less combative, because it involves human dynamics and interactions. Since it is a dispute, people can be less than cordial, particularly in cases where employees feel that the process puts them on unequal footing with their employers.

There is also the danger of runaway arbitration awards, just as there is with some jury verdicts. These factors are not always present, but ‘bulletproof’ arbitration plans can help allay the fears of parties to employee disputes and facilitate their equitable resolutions.

How does a client enhance enforceability?

The client has to communicate unequivocally, clearly and formally with employees about the terms of the agreement and should consider an outward act by the employees that signifies their acceptance of it. For example, employees can sign a written document signifying their agreement to arbitrate any dispute or use voting buttons, which are a common feature used in many e-mail applications nowadays.

Another way to assure even ground and fairness is to split the cost of arbitration in a fair manner. For instance, the client can limit the employee’s financial liability to paying only the cost of filing a traditional case in court.

Next, check the policy for all elements of enforceable agreement, such as the Federal Arbitration Act and applicable state contracts and arbitration laws.

Consider including a de novo review provision in the policy. Some courts allow parties to agree that a trial court could review an arbitrator’s award on a de novo basis, which means that trial courts have the power to review and set aside part or all of the arbitrator’s decision.

De novo provisions add a safety net to the arbitration process and help alleviate fears about out-of-control arbitrators. Arbitration agreements can also help control costs by limiting the amount of discovery that will be allowed. This is beneficial for both sides. It helps them realize the benefits of limitations on discovery if a cheap, quick and unbiased decision is handed down from an arbitrator with sufficient knowledge of the underlying facts.

What can an attorney do to implement an arbitration policy that a client cannot?

An attorney may offer objectivity, counseling and advice that a client might not readily have available. The extent of the attorney’s involvement sometimes depends on the nature of the dispute. For example, if the dispute is about the payment of overtime wages or a holiday employment policy, the client may be able to handle the arbitration with little or no help from an attorney.

But if it is about something more complex, such as ERISA benefits, a client might have a difficult time handling it alone. It is always advisable to have attorneys involved in the drafting stage of any written agreement. This will help clients avoid the pitfalls that can be arbitration killers.

AMY DUNN TAYLOR is a partner with Godwin Pappas Langley Ronquillo LLP in the Houston office. Reach her at (713) 425-7404 or ataylor@godwinpappas.com.