Labor Employment Law Blog

Q. Are Mandatory Employment Arbitration Agreements A Good Idea?

A. That depends. Arbitration agreements are an excellent risk-reduction
vehicle for some employers but not a good fi t for others. A company should carefully consider the costs and benefits of a mandatory arbitration program before implementing one.

What are the cost considerations? They include:

• the cost of keeping your arbitration program compliant with the ever-changing law
• the cost of litigating the enforceability of the arbitration agreement when employees file suit instead
• the cost of an arbitrator’s hourly rate to preside over your dispute (as opposed to having a civil judge preside over the matter for a mere filing fee)
• the cost of a bad arbitration award when no appeal rights are written into the agreement

What are the benefits? When the arbitration program is written correctly, they can include:

• an opportunity to resolve disputes before they escalate to the point of litigation
a more confidential resolution to the dispute
• a more streamlined and cost-effective system for investigating and hearing the dispute
• a finder of fact likely more predictable and less volatile than a California jury.

Given the exposure presented by employment disputes in California, arbitration agreements should be on every employer’s short list of considerations for risk-reduction strategies.