For years, arbitration has been the preferred method of employers to resolve employment cases. The reason is simple: litigation is expensive. Defense costs in single-plaintiff employment cases can easily reach $150,000 to $250,000 through trial. As a result, employers have utilized arbitration agreements as a line of defense against these costs.

Although arbitration has often been touted as a more efficient and less costly means of resolving employment disputes, a recent article by Kirsten Hotchkiss of Labor Law Plus, noted that there are other, just as important factors for an employer to consider.  For example, in terms of the time and money involved in arbitrating a workplace dispute:

Arbitration can last as long as litigation. If the hearings have to be scheduled over several days or if there is more than one arbitrator on a panel (or even if there is only one and the hearing is to last more than a day or two), scheduling hearing dates for all parties, witnesses and arbitrators can be extremely burdensome, sometimes spread out over weeks and months, requiring counsel to re-prep the case each time.

Arbitration can be just as costly as litigation. Arbitrators do not have to follow rules of evidence or discovery rules, and some plaintiffs’ attorneys are able to abuse the discovery process without limitation and cost the parties a significant amount of money.

It’s also important to note that if binding, arbitration decisions are not appealable, unless a party can prove fraud or a fatal flaw in the process.

In a comparative study by Inside Counsel that analyzed 19 employment-related disputes (nine resolved through arbitration and 10 resolved in court), the findings revealed that arbitration—on average—is more expensive and slower than litigation. On average, outside counsel fees, total costs and time to resolution were as follows:

Arbitration Litigation
Outside Counsel Fees $78,924.84 $63,144.33
Total Costs & Attorney Fees  $102,338.02 $70,490.82
Life Cycle 21 months  19 months

 

But the case for arbitration is not all doom and gloom. Properly drafted, with fair and balanced procedures, arbitration can be a valuable dispute resolution tool in employment-related claims. And the agreement can be tailored to specify such items as the number and background of the arbitrator(s), the location of the hearing, a time limit to get to the hearing, and whether the prevailing party should recover attorneys’ fees and costs.

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