Arbitration Is for Some But Not All

While exceptions exist, there are truths that experience with the arbitration of employment disputes teach. When implementing an arbitration program, every effort must be made not only to compel the arbitration of employment-related claims (ie, draft it in a manner to withstand a challenge to its enforceability), but to encourage employees that arbitration, rather than litigation in court, is better for them. The message to employees should be that when they have a problem in the workplace, they don't have to go to court to get it resolved. Rather, the company has provided the employee with the opportunity – at company expense – to have a binding outcome to the problem without the delay that invariably occurs in court.

While this approach certainly may not deter all challenges to an arbitration program, many lawyers may accept arbitration because they believe that it will mean less time will have to be invested by them – which will also result in less time having to be spent by the employer's counsel. In such a case, the employee's lawyer is also frequently less likely to be aggressive about discovery. Immediately, that produces a cost savings.

Discovery is an area of litigation most prone to unnecessary expense, and arbitration can be quite helpful in reducing cost in this area. Many times, employees' lawyers make remarkably overly broad demands for such information and the parties squabble over what should be produced. Courts do not always manage the discovery process well, and an overly zealous employee's counsel can dramatically add to the cost of a litigation. By design, arbitration should limit the opportunity for an expensive sideshow.

The parties should have an opportunity to exchange relevant documents and obtain answers to a reasonable number of written questions. Depositions, if necessary, may be taken. Counsel for both parties must recognize that they need not seek to unearth every piece of remotely relevant evidence. That alone reduces the cost of litigation and should focus the parties on what really matters. With less discovery, the parties can get to the hearing sooner, and have their dispute resolved more rapidly by the Arbitrator. Moreover, if disputes arise during the discovery process, then they can be resolved by an Arbitrator far more quickly than by an overburdened judge.

Arbitration Programs

Arbitration programs may limit the number of interrogatories or even their scope. For example, the program can provide that interrogatories are limited to identifying witnesses with knowledge of certain matters relevant to the dispute. There is little to be accomplished by propounding more than such basic interrogatories. On the other hand, there can be a significant expense to the employer's having to answer multi-part and voluminous interrogatories (particularly when the case is not in federal court and therefore subject to the interrogatory restrictions of the Federal Rules of Civil Procedure). Thus, the cost of written discovery, in most cases, can be reduced in arbitration.

Depositions

Cost-savings can be achieved with depositions as well. By rule, an arbitration program can permit each side one deposition, with the additional depositions to be permitted by the Arbitrator only upon a showing of good cause. The length of depositions can also be curtailed. Arbitration, by definition, should produce efficiencies, and it would be unseemly for one side or the other to engage in several day-long depositions.

The same is true for other discovery. Too often, third-party discovery can go off on fishing expeditions. In an arbitration, however, subpoenas must be issued by the Arbitrator, which necessitates self-restraint on the part of the counsel seeking the discovery or he or she will lose credibility with the Arbitrator before ever getting to the hearing.

Length of Discovery Period

Yet another cost savings resulting from arbitration is the length of the discovery period itself. The discovery period in an arbitration will typically be shorter that the period permitted in court.

In a case proceeding in court, the employer's counsel is working toward the filing of a summary judgment motion. If the motion is successful, then the employer need not face the unknown of a jury. In arbitration, the unknown of the jury becomes the unknown of the Arbitrator (except that something is usually known about the Arbitrator and more can be found out). In any event, a well-drafted arbitration program can include a summary disposition procedure, which allows the employer to avoid a hearing with witnesses. Thus, an employer maintains the ability in arbitration to avoid a hearing in an entirely baseless case. Further, in the case without a viable summary judgment motion, it can be tried to conclusion much more quickly in an arbitration forum.

There are other cost savings associated with the hearing itself, by proceeding through arbitration. There is no need to spend money on jury research. The briefing of in limine motions is unnecessary because arbitrators are less inclined to strictly adhere to the evidence rules and are more able to filter out irrelevant or inflammatory testimony. Additionally, when in court, the parties are preparing for at trial date that may not be real. In arbitration, however, the arbitrator and the parties select the dates for the hearing, and as a result, there is no need to prepare more than one time for the hearing. Beyond that, days spent trying the case are more productive than days spent in court. The Arbitrator has one case on a given day; a judge, on the other hand, may be juggling multiple cases, and therefore, a day in court tends to be shorter for the parties.

Conclusion

While it has the potential to reduce litigation cost and exposure, arbitration is not for all. Employers with a history of limited litigation may want to leave well enough alone. In that circumstance, rolling out an arbitration program advising the employee population how to bring claims against the company may produce unintended consequences.

And there are other issues that should be recognized as well. Arbitrators' experiences and biases impact upon their decisions. They also make mistakes, and, at times, “split the baby,” giving something to each side. When they do, there is little that either side can do, as there are virtually no avenues of appeal. On balance, though, for those employers seeking to address the problems identified at the beginning of this article — ever-increasing litigation costs and the exhaustion of corporate resources devoted to time-consuming lawsuits — arbitration should be seriously considered.

The defense of employment-related lawsuits is a significant expense for employers that, many times, cannot be avoided. At the same time, it is an expense that offers little return on investment for the employer. Despite the efforts of at least some courts to try to resolve these cases through early mediation or to move them faster through the system, claims of employment discrimination and other alleged wrongdoing in the workplace, often languish far too long.

The arbitration of employment-related claims has been advocated by some management-side employment counsel for years, as a means of reducing litigation expenses and limiting a company's exposure to large damage awards. There is little published empirical evidence, however, demonstrating whether the assumption that cost and exposure are actually limited proves to be true in a garden-variety, single employee dispute. One study of cases in the United States District Court for the Southern District of New York suggests that there is little cost benefit to employers in arbitration. Certainly, in those instances where an arbitration program is challenged, there can be a significant cost. The premise of this article, however, which is based on anecdotal evidence, is that an arbitration program, while not a solution for all employers, properly implemented and administered, can indeed achieve the twin objectives of cost containment and limiting exposure in many cases.

Why Arbitration Is Cost-Effective

While exceptions exist, there are truths that experience with the arbitration of employment disputes teach. When implementing an arbitration program, every effort must be made not only to compel the arbitration of employment-related claims (ie, draft it in a manner to withstand a challenge to its enforceability), but to encourage employees that arbitration, rather than litigation in court, is better for them. The message to employees should be that when they have a problem in the workplace, they don't have to go to court to get it resolved. Rather, the company has provided the employee with the opportunity – at company expense – to have a binding outcome to the problem without the delay that invariably occurs in court.

While this approach certainly may not deter all challenges to an arbitration program, many lawyers may accept arbitration because they believe that it will mean less time will have to be invested by them – which will also result in less time having to be spent by the employer's counsel. In such a case, the employee's lawyer is also frequently less likely to be aggressive about discovery. Immediately, that produces a cost savings.

Discovery is an area of litigation most prone to unnecessary expense, and arbitration can be quite helpful in reducing cost in this area. Many times, employees' lawyers make remarkably overly broad demands for such information and the parties squabble over what should be produced. Courts do not always manage the discovery process well, and an overly zealous employee's counsel can dramatically add to the cost of a litigation. By design, arbitration should limit the opportunity for an expensive sideshow.

The parties should have an opportunity to exchange relevant documents and obtain answers to a reasonable number of written questions. Depositions, if necessary, may be taken. Counsel for both parties must recognize that they need not seek to unearth every piece of remotely relevant evidence. That alone reduces the cost of litigation and should focus the parties on what really matters. With less discovery, the parties can get to the hearing sooner, and have their dispute resolved more rapidly by the Arbitrator. Moreover, if disputes arise during the discovery process, then they can be resolved by an Arbitrator far more quickly than by an overburdened judge.

Arbitration Programs

Arbitration programs may limit the number of interrogatories or even their scope. For example, the program can provide that interrogatories are limited to identifying witnesses with knowledge of certain matters relevant to the dispute. There is little to be accomplished by propounding more than such basic interrogatories. On the other hand, there can be a significant expense to the employer's having to answer multi-part and voluminous interrogatories (particularly when the case is not in federal court and therefore subject to the interrogatory restrictions of the Federal Rules of Civil Procedure). Thus, the cost of written discovery, in most cases, can be reduced in arbitration.

Depositions

Cost-savings can be achieved with depositions as well. By rule, an arbitration program can permit each side one deposition, with the additional depositions to be permitted by the Arbitrator only upon a showing of good cause. The length of depositions can also be curtailed. Arbitration, by definition, should produce efficiencies, and it would be unseemly for one side or the other to engage in several day-long depositions.

The same is true for other discovery. Too often, third-party discovery can go off on fishing expeditions. In an arbitration, however, subpoenas must be issued by the Arbitrator, which necessitates self-restraint on the part of the counsel seeking the discovery or he or she will lose credibility with the Arbitrator before ever getting to the hearing.

Length of Discovery Period

Yet another cost savings resulting from arbitration is the length of the discovery period itself. The discovery period in an arbitration will typically be shorter that the period permitted in court.

In a case proceeding in court, the employer's counsel is working toward the filing of a summary judgment motion. If the motion is successful, then the employer need not face the unknown of a jury. In arbitration, the unknown of the jury becomes the unknown of the Arbitrator (except that something is usually known about the Arbitrator and more can be found out). In any event, a well-drafted arbitration program can include a summary disposition procedure, which allows the employer to avoid a hearing with witnesses. Thus, an employer maintains the ability in arbitration to avoid a hearing in an entirely baseless case. Further, in the case without a viable summary judgment motion, it can be tried to conclusion much more quickly in an arbitration forum.

There are other cost savings associated with the hearing itself, by proceeding through arbitration. There is no need to spend money on jury research. The briefing of in limine motions is unnecessary because arbitrators are less inclined to strictly adhere to the evidence rules and are more able to filter out irrelevant or inflammatory testimony. Additionally, when in court, the parties are preparing for at trial date that may not be real. In arbitration, however, the arbitrator and the parties select the dates for the hearing, and as a result, there is no need to prepare more than one time for the hearing. Beyond that, days spent trying the case are more productive than days spent in court. The Arbitrator has one case on a given day; a judge, on the other hand, may be juggling multiple cases, and therefore, a day in court tends to be shorter for the parties.

Conclusion

While it has the potential to reduce litigation cost and exposure, arbitration is not for all. Employers with a history of limited litigation may want to leave well enough alone. In that circumstance, rolling out an arbitration program advising the employee population how to bring claims against the company may produce unintended consequences.

And there are other issues that should be recognized as well. Arbitrators' experiences and biases impact upon their decisions. They also make mistakes, and, at times, “split the baby,” giving something to each side. When they do, there is little that either side can do, as there are virtually no avenues of appeal. On balance, though, for those employers seeking to address the problems identified at the beginning of this article — ever-increasing litigation costs and the exhaustion of corporate resources devoted to time-consuming lawsuits — arbitration should be seriously considered.