What Employees Should Know About Arbitration Agreements

Article provided by Kilgore & Kilgore

Included in many employment contracts is an agreement to resolve any disputes between employer and employee through binding arbitration. At first blush, binding arbitration sounds like a win-win proposal, allowing the parties to both choose their own arbitrators and avoid the cost and delay associated with litigation. And where the subject of the dispute might be technical or might require some specialized industrial knowledge, an agreement calling for an arbitrator familiar with the industry to resolve the dispute seems logical. But employees agreeing to resolve disputes through binding arbitration may be giving up important rights and, as one recent study has found, may be less likely to receive compensation for their injuries.

Cornell University professor Alex Colvin recently examined American Arbitration Association ("AAA") dispute resolution statistics and found evidence of strong "repeat player bias" favoring employer over employee, particularly when the employer has multiple cases pending before the AAA. Professor Colvin found that employees have a 31.6 percent chance of winning disputes with their employers when the employer has no other cases pending before the AAA. When the employer has multiple cases pending before the AAA, the employee has only a 16.9 percent chance of winning his or her case. When the employer has multiple cases pending before the same arbitrator, an employee’s chances of winning plummet to 12 percent. Colvin suggested that arbitrator bias stems from the desire of the arbitrator to be selected for the employer’s future cases.

Colvin also found that the arbitration process produces less frequent wins for employees and less favorable outcomes for employees whose claims are successful than does federal or state court litigation. According to Colvin, employees win 36.4 percent of discrimination cases in federal court and 43.8 percent in state court, but only 21.4 percent in arbitration. The average monetary award for successful discrimination cases in arbitration is 27 percent of the average federal court award and only 18 percent of the average state court award.

The proposed Arbitration Fairness Act of 2009, currently before House of Representatives Subcommittee on Commercial and Administrative Law, would render mandatory arbitration agreements illegal. This may be good news for employees, particularly since many binding arbitration agreements are not voluntary, but are instead imposed as a condition of employment.