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Carl Kanowsky: Is arbitration really the answer?

It's The Law

Posted: November 11, 2010 7:19 p.m.
Updated: November 12, 2010 4:55 a.m.
 

In the past few years, there’s been a big push by employers to have employees  sign agreements stating that any dispute between them would go to an arbitrator rather than a judge and a jury. 

Presumably, the logic behind this strategy is to avoid runaway-jury verdicts.  Some employers reason that going before a private arbitrator will 1) keep things private; 2) enhance the employer’s chance of winning (the belief being that the arbitrator will be less emotional, and more likely to follow the evidence rather than the employee’s “sob story”); 3) that the maximum it can lose is reduced in arbitration,;and 4) that the employer automatically has an edge going into arbitration.

The “edge” is based on the fact that the arbitrator is, first and foremost, running a business. 

The arbitrator wants to see return customers, which in this case is an employer. Therefore the arbitrator (as the argument goes) is more likely to return an award favorable to the employer to generate repeat business.

California courts have issued opinions that have challenged this reasoning, making it more difficult for employers to enforce arbitration agreements. 

Also, employers sometimes forget that forcing arbitration is not always a good thing.

For instance, the California Supreme Court ruled in Armendariz v. Foundation Health that if the employer insists on arbitration in a fight between itself and a former employee, who is claiming some type of discrimination, then the employer must pay all the expenses of the arbitration above about $500. 

How expensive can arbitration be, you may ask?  Well, the National Arbitration Forum charges $2,000 to start, plus the arbitrator’s hourly fees. 

Judicial Arbitration and Mediation Services requires a retainer fee of almost $5,500, plus the arbitrator’s hourly fees.  Arbitrator’s hourly rates start at $400 and go up from there. The result is arbitrations can cost employers from
$20,000 to more than $100,000 in arbitration fees alone — not counting what the employer pays its attorneys.

Then, even if the employer, knowing the extra expense of arbitration, decides to require arbitration anyway, there is no guarantee that the courts will allow the arbitration process to take place. 

Recently, an appellate court in Trivedi v. Curexo slammed the door in one employer’s face. In that case, Trivedi, who had been Curexo’s CEO, got fired. He sued Curexo for age, race, color and national-origin discrimination. 

Curexo tried to get the lawsuit sent to arbitration. Trivedi resisted that effort, telling the court that the arbitration clause in his employment contract was “unconscionable.”

Both the trial court and an appellate court agreed, saying that the case had to be tried before a jury rather than handled in arbitration. Thus, Curexo spent thousands of dollars preparing the employment contract, and then thousands more trying to enforce it, only to wind up back in court. The entire battle between itself and Trivedi was fully laid out in a court decision open to the public.

Finally, assume the employer successfully forces the case to be heard in arbitration and not a court.  It faces the prospect that if the arbitrator ignores the law and decides against the employer, the employer cannot appeal the decision.

There are only very limited bases to challenge an arbitrator’s award (i.e., fraud, misconduct, failure to disclose a disqualifying relationship and exceeding powers).  As you can see, the list does not include that the arbitrator got the law or the facts wrong. 

So going into arbitration can be a real roll of the dice.  An employer should consider very carefully before insisting that its employees forego court and go to arbitration.

Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by e-mail at cjk@kanowskylaw.com.  Mr. Kanowsky’s column represents his own views and not necessarily those of The Signal. It’s The Law appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. www.SCVbar.org.  Nothing contained herein shall be or is intended to be construed as providing legal advice.

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