Binding Arbitration -- A Not Unmixed Blessing for Employers?

Jay Shepherd at Gruntled Employees writes recently about binding arbitration provisions in employment agreements, employee handbooks, etc., and comes down thusly:  bad idea.  Employers shouldn’t put them in their materials.  Hard to get unbiased arbitrators, and usually really expensive.

I agree with Jay’s assessment that employers make a mistake to blindly pursue mandatory arbitration in employment matters, for two reasons:  first,  in non-punitive damages matters, arbitrators, particularly retired judges, can outstrip juries when it comes to generous awards.  Judges have just seen too much.  But more importantly, I can tell you as an employer, as well a lawyer, that trying to superimpose binding arbitration on an existing employment relationship casts a real pall over the employer / employee relationship. 

Having said that, however, there are two features about binding arbitration, at least in California, that can't be discounted.  First, California has a reasonably well thought out mechanism for having the trial courts appoint arbitrators.  It appears at  California Code of Civil Procedure section 1281.6.  On motion of either side, the trial court names five prospective arbitrators. The parties have five days to agree on one of them.  If they don't, the court selects one from the list of five.  This eliminates the "vendor interest" problem you refer to in your posting.

But there's a more significant reason California employers want to force binding arbitration:  it eliminates the high end for punitive damages in discrimination, retaliation and harassment cases.  Arbitrators are simply less likely to render large punitive damages awards.  So for middling cases, binding arbitration may well be too expensive.  But for large cases, it can save employers a lot of heartache. 

(Full disclosure:  While I represent businesses in a variety of litigation, our firm does represent employees in employment litigation.  We don’t take “middling cases,” and for the reasons discussed in the last paragraph, we resist binding arbitration whenever we can.)