runaway jury also has the advantage of reducing settlement values. Disadvantages of Employment Arbitration Although arbitrations are generally cheaper than jury trials, arbitration costs have skyrocketed over the past few years. Unlike litigation, employers must bear almost the entire cost of arbitration, including the fees of the arbitrator, which can reach $60,000 or more. Moreover, several months before the arbitration hearing date, the employer will be invoiced by the dispute resolution service provider for a deposit in the amount of the entire anticipated cost of the arbitrator’s fee. While initially refundable, the deposit becomes nonrefundable as the date of the arbitration hearing quickly approaches. Under California law, if the employer fails to timely pay the initial filing fee or the arbitrator’s fee, the plaintiff can automatically compel the case back to court. Furthermore, there is typically no opportunity for employers to recoup these costs from the losing party. Therefore, unlike traditional litigation,
arbitration may impose significant additional fees and costs. Arbitrators are far less likely than courts to grant dispositive motions which could result in dismissing the entire case, or part of the case. While courts are compelled to clear cases lacking in merit from their dockets, arbitrators are not similarly incentivized. Rather, arbitrators are paid by the hour, and financial considerations may factor into an arbitrator’s decision to not consider or grant a dispositive motion. Additionally, unlike litigation in court, the scope of appellate review of an arbitration decision is limited. Under the Federal Arbitration Act, a court is permitted to vacate an arbitration award only when it “was procured by corruption, fraud, or undue means,” when “there was evident partiality or corruption in the arbitrator,” when the arbitrator engaged in certain specified misconduct, or when the “arbitrator exceeded their powers.” As a result, courts are reluctant to disturb an arbitrator’s award or provide a forum for the parties to relitigate facts. Lastly, arbitration agreements can be difficult to enforce. In California, enforceable arbitration agreements must
contain numerous employee-friendly provisions, ranging from mutuality of remedy, to the prohibition against limitations on relief, to the assurance of allowing sufficient discovery (fact-finding) to satisfy due process concerns. This means that employers must carefully draft their arbitration agreements to ensure that they are legally enforceable. To Arbitrate or Not to Arbitrate, That is the Question Whether employment arbitration agreements are a benefit to California employers is a close call, made more so by the rapidly evolving case law on the arbitrability of PAGA claims. While employment arbitration agreements can provide significant benefits, they can be difficult to enforce, and arbitration can have significant drawbacks. Ultimately, employers must weigh the benefits and drawbacks of employment arbitration agreements and consider whether compelling arbitration makes sense under their individual circumstances. Such considerations should be conducted in consultation with experienced employment law counsel.
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