Question:  Someone recently told me that I should put an arbitration provision in my employment agreements to keep my company out of court. Do they work and are they worth it?


Answer:  As with most employment law questions in California, the answer to your question is a definitive maybe. A valid arbitration agreement can result in employment disputes being decided by a professional neutral party (frequently a retired judge) as opposed to proceeding to court. There are pros and cons to arbitration agreements that each employer should carefully consider before requesting its employees sign one.
Arbitration is often a streamlined process that can be faster and more affordable than resolving a dispute in court. The more limited formal procedures that go along with arbitration can translate to spending less money on lawyers, and taking less time away from the important task of running your business. Another significant advantage for businesses that draw their customers from the public is the private nature of arbitration. Unlike in a court case, the arbitration itself, as well as any award the employee may obtain, is frequently confidential. For many businesses, this can be extremely valuable.
However, there are disadvantages to consider as well. In many cases, arbitration can be just as expensive as a traditional court case. Employers generally pay all arbitration-specific costs, such as the hourly rate of the arbitrator and related filing fees. These fees can be substantially higher than those associated with court filings. Arbitration can also be more expensive in particularly weak or frivolous cases. In court, an employer would have the opportunity to bring a motion to have the case tossed out part way through the process if it did not appear the employee had sufficient evidence to support their claims. That is usually not the case in arbitration.
Other issues can cut both ways. For example, there are very limited circumstances in which an arbitrator’s decision can be appealed. For smaller companies with more limited resources, that finality can be advantageous. However, it does prevent you from continuing to fight what you may view as an unjust decision or overly large award.
Finally, it is important to be aware that in California the rules governing arbitration are complex and constantly changing. Statutes and case law have provided employees with numerous protections in the arbitration process, and many of these protections come into play in the drafting of the arbitration clause itself. Additionally, recent Supreme Court decisions have further changed the landscape for arbitration provisions. If your arbitration agreement violates these protections, it may simply be ignored by the courts. This can make disputes even more expensive, as you first seek to enforce the arbitration agreement and then wind up in court anyway. Whether your company already has an arbitration provision in its agreements, or is considering implementing one, it is essential to ensure that the provision is fully enforceable.