Court Boosts Arbitration Agreements

Jul 2010

(July, 2010) In a 5-4 decision, the Supreme Court of the United States held that if an employer’s arbitration agreement includes a term delegating fairness challenges to the arbitrator, a court must enforce that agreement and send the matter to arbitration. (Rent-A-Center v. Jackson, June 21, 2010). The Court's decision arose out of employment discrimination claim. When the former employee sued, the company invoked its arbitration agreement and claimed that, under the agreement, any challenges as to whether the agreement was unfair had to be decided by the arbitrator.

According to John Sarno, president of the Employers Association of New Jersey (EANJ) “while the question is a bit technical, it’s crucial for the validity of arbitration agreements. Parties can’t get out of these agreements by claiming that they are unfair or too one-sided.”

Labor groups and employees do not necessarily like arbitration. They think arbitration is biased toward employers because unlike judges who may lack business experience, arbitrators tend to be experienced business people, who tend to lean in one direction in their decisions.

However, in 2009, the Harvard Law and Policy Review reported that from 1979-2006, federal plaintiffs won only 15% of job discrimination cases, as opposed to 51% in all other cases.

“Discrimination is easy to allege and unsophisticated employees think they are going to win a retirement fund by suing. The real world doesn’t work that way,” says Sarno.

Earlier this year, the Third Circuit Court of Appeals concluded that a former employee in an age bias suit could not prevail on his termination claim under the federal Age Discrimination in Employment Act despite evidence that the employer wanted to get rid of “older and better paid” employees and to retain “younger and cheaper” employees. The court found that the employee’s poor job performance justified his discharge. 

An employee can win the same award in an arbitration as they can in court. But for employers, arbitration is usually faster than litigation in court and is usually cheaper and more flexible. Outcomes can be kept confidential and generally non-public. Yet, despite these benefits, less than 10% of employers require employees to sign arbitration agreements.

Sarno thinks that employers do not understated arbitration. But EANJ surveys suggest that employers use other ways to stay out of court.
           
For example, one quarter of EANJ members practice progressive discipline, while another 22% employ some type of fact-finding before firing an employee. Forty percent utilize an "open door" policy to facilitate communication and problem solving.

Moreover, 52% of the EANJ survey reported that employers provide training to managers and supervisors on legal issues in the workplace, more than half spending $10,000 or less per year. Thirty-five percent of the survey spend $5,000 or less per year in training; 25% spend between $5,000-10,000 per year. Seventy percent of the survey reported that training was an effective way to minimize employment litigation.

Training is typically conducted by the human resources department or a legal expert. Click here for EANJ legal compliance training at your location.

According to Sarno, most employment disputes do not belong in the courts. The winner-take-all legal system is unfair, slow and costly. Yet, employees resort to courts more frequently because few alternatives exist for fair and efficient dispute resolution. “Arbitration presents a fair and efficient alternative.  It’s perfectly legal and appropriate and no one’s rights are being watered-down,” he says.