Employment contracts in California have historically included arbitration clauses seeking to limit employer risks and increase the likelihood of winning should a claim be raised. “With respect to the arbitration agreements, the arbitration contract – if successfully enforced – will channel the legal proceeding into a form that is traditionally more favorable as a venue for the employers.” Allen M. Kato explained in a recent CER webinar. This is one of the reasons employers have looked to arbitration clauses in the past. However, this trend is changing.
“In the last 2 decades or so, employers have had substantial experience with arbitration proceedings.” Kato explained. “Some employers have found that . . . the experience has not been all positive.”
Here’s a look at some of the pros and cons to including arbitration clauses in employment contracts in California. Employers should evaluate the benefits and risks when deciding whether including an arbitration clause is best for them.
Pros of arbitration clauses in California employment contracts
Pros in favor of including arbitration clauses in employment contracts in California include the following:
- There may be less risk of a “run-away” jury. This is especially important in the types of cases where a jury may be particularly sympathetic towards the employee and “inflamed” by the employer’s conduct (e.g., egregious case of sexual harassment). In these cases, huge punitive damages may be awarded by a jury, but are less likely during arbitration.
- Factually and/or legally complex cases can be decided by an experienced arbitrator (generally a retired judge). This can make it easier to prepare for an arbitration because the audience (the arbitrator) will already be well-versed in the legal aspects of the case. This requires less time to prepare for the attorneys involved.
- There are typically limited appeal rights.
- Results are confidential, whereas court decisions and rulings are published.
- Requiring arbitration can be a way to avoid or at least limit class action cases by requiring each employee to pursue their claim individually in arbitration. It can also be limited by only allowing employees to pursue class action in arbitration. (Class action suits are more costly to defend – even if you win – and run the risk of higher damages if you lose.)
Cons of arbitration clauses in California employment contracts
Cons against arbitration clauses in employment contracts in California include the following:
- The employer must pay arbitration forum fees and arbitrator’s fees. In comparison, there are little to no fees for a judge and use of a courtroom. These arbitration fees can be thousands of dollars—and that’s before legal fees (the employer still needs to pay an attorney either way).
- Arbitration proceedings are not necessarily speedy, and they may even take as long as court litigation. Arbitrators no longer limit discovery, so there is often minimal time savings or attorney cost savings in this regard.
- Arbitration doesn’t always improve the employer’s chances of prevailing. For example, if the case is one where a jury may be sympathetic to the employer, a jury trial may be a better option.
Weighing these pros and cons can help an employer decide whether to proceed with an arbitration contract with employees and when to waive it (even if you have it). “Arbitration and arbitration contracts are not a panacea. They are not a magic bullet to prevent legal liability and to prevent expensive litigation.” Kato warned.
However, “despite the negative experience that employers may have had in the arbitration proceedings that they’ve experienced, my advice is that employers should not throw out the baby with the bath water.” Kato noted. “Arbitration remains what I would characterize as an important arrow in the quiver of legal weapons that are available to you . . . to defend against employee claims by channeling the most risky claims into a generally more favorable forum for employers.”
The above information is excerpted from the webinar “Employment Agreements in California: Make Non-solicitation Clauses, Class Action Waivers, and Mandatory Arbitration Work.” To register for a future webinar, visit CER webinars.
Allen Kato is an attorney in the Employment Practices Group of Fenwick & West LLP in San Francisco. His practice concentrates exclusively on representing management in equal employment opportunity, wage and hour, wrongful termination, privacy, unfair competition, and trade secret matters, and litigating individual and class action lawsuits before courts and agencies.