Arbitration for employers: a viable alternative to litigation.

In the 1980s, the United States Supreme Court began to enthusiastically endorse the use of arbitration as an effective and efficient alternative to litigation. Arbitration is increasingly being used by employers to resolve employment disputes because, as a general rule, it is a less expensive, quicker, and a more efficient process, and it is a procedure which benefits both employees and employers.

From the employer's perspective, arbitration is usually preferable to litigation for several reasons. First, experienced labor arbitrators usually have a better understanding of employment issues than do judges, and they do not come into the arbitration with the pro-employee bias which is often found in juries. Arbitrators also will usually not impose punitive damages without clear cause to do so, which is not always true with juries. Recent statistics have shown that of those employment cases which actually go to trial, more than 65% result in a verdict for the plaintiff. The average jury verdict is between $600,000 to $800,000, and usually a large portion of the award is for punitive damages.

Second, arbitration is much quicker than a trial, which can often take years. Most arbitrations are concluded in a matter of months. Since arbitrations are usually resolved quickly and with minimal discovery, the employer is less likely to find itself involved in a long nasty dispute which detracts from its ability to run its operations and which negatively affects employee morale and efficiency.

Third, arbitration is also usually far less expensive than litigation because it involves a simplified procedure with relaxed rules. Arbitration agreements can be drafted to minimize discovery and thus the opportunity to abuse the system which often takes place when these cases are litigated.

Fourth, witnesses in arbitration proceedings have now been given the same protections against claims of defamation as witnesses in public court trials. The California Supreme Court has recently ruled that a witness who gives testimony in an arbitration proceeding cannot be sued for defamation. This decision has reinforced the support for arbitration within the legal community and the court.

Although the courts have upheld arbitration under a number of federal statutes, the extent to which an employer could require an employment dispute to be arbitrated was far less certain until 1991. In 1991, in a landmark decision in the employment arena, the U. S. Supreme Court decided the issue of whether a claim of age discrimination under the Age Discrimination In Employment Act ("ADEA") was subject to compulsory arbitration pursuant to an agreement which was included in the employee's security registration application.

In that application, the employee agreed to arbitrate disputes "arising out of employment." In this case, which was entitled Gilmer v. Interstate/Johnson Lane Corp., the plaintiff, Robert Gilmer, signed a registration with the New York Stock Exchange and an agreement to "arbitrate any dispute, claim, or controversy" arising between him and Interstate "that is required to be arbitrated under the rules, constitution, or bylaws of the organization with which I registered."

The rules of the New York Stock Exchange require arbitration of "any controversy between a registered representative and any member organization arising out of the employment or termination of employment of such registered representative." After being terminated, Gilmer filed an action in federal court alleging age discrimination in violation of the ADEA. His employer attempted to compel arbitration based upon the arbitration agreement and the registration application. The Supreme Court found that Gilmer had waived his right to a judicial forum for his complaint by virtue of his signature on the securities registration form.

Following the Supreme Court's endorsement of arbitration of employment disputes in the Gilmer case, a number of appellate courts have also required arbitration of other forms of statutory claims of employment discrimination.

For example, in a recent federal California appellate decision the court compelled arbitration of an employee's sexual harassment claims. In this case, the employee had signed an employment application requiring her to arbitrate employment disputes. In making this decision the Court found that although the Gilmer case involved age discrimination while the plaintiff's action involved a form of sex discrimination, the similarity between these two discrimination statutes required a finding that the arbitration agreement she signed should be enforced.

In late July of 1992, a California state court of appeal held that a wrongful termination action which was founded on race discrimination in violation of the California Fair Employment and Housing Act, was also subject to compulsory arbitration. The Court relied on the Gilmer decision and found that there was no reason to treat state anti-discrimination schemes differently than federal ones.

Thus, the Supreme Court has now apparently foreclosed any argument that arbitration is inadequate or incompetent to resolve disputes between employers and their employees. It has also rejected the argument that the unequal bargaining power inherent in the employment relationship taints agreements to arbitrate.

In summary, although not a panacea for all of an employer's wrongful termination and discrimination woes, the use of well-drafted arbitration agreements which are prepared and reviewed by competent labor counsel can go a long way toward minimizing an employer's liability for these and other employment-related claims.

Diane J. Crumpacker is the partner in charge of the Labor and Employment Law practice at Greenberg, Glusker, Fields, Claman & Machtinger in Los Angeles.