The substantial increase in lawsuits by disgruntled employees and former employees is forcing employers to look for alternatives to the high cost of litigation and the disruption to their business attendant with litigation and full-scale discovery. Binding arbitration is the alternative most often suggested and/or utilized to reduce these costs -- in both time and money. Employment disputes can often take years to litigate in court. Arbitrations typically are heard much faster. Arbitration also enables an employer to remove from a jury questions about employment decisions. A jury frequently appears to base its decision on what it perceives to be "fair." An arbitrator, particularly one familiar with employment issues, is more likely to follow the law. Arbitration also provides a greater measure of confidentiality than litigating in court.
If the parties agree, arbitration, or other dispute resolution mechanisms (e.g. mediation, non-binding arbitration, etc.), may be used at any stage of the dispute, even on the eve of (and as an alternative to) a jury trial. Obviously, more significant cost savings will generally be had if the entire dispute is handled through a binding arbitration process. Pre-trial discovery is often one of the largest expenses incurred in litigation. Typically, in an arbitration there will be only limited discovery. Arbitration can also force an employee to bring all of his or her claims in one suit rather than spread claims between federal and state courts if relying on both federal and state theories. An agreement to arbitrate can also minimize exposure to federal, state and local authorities who might otherwise investigate an employee's claim.
We have recommended, and many employers around the country are adopting, agreements requiring the employer and employee to arbitrate any dispute concerning the employment relationship or termination of the employment relationship. The provision should expressly state it covers all discrimination claims, harassment claims, wrongful termination claims, employment contract claims and other disputes relating to employment or termination of employment.
Many employers have included a mandatory arbitration of employment disputes provision in their employee handbooks. However, many courts have ruled that an arbitration provision buried in an employee handbook is not a voluntary agreement to arbitrate and waiver of the right to a jury trial. While courts have in the past favored arbitration in general, many courts have expressed hesitancy in requiring employment disputes to be arbitrated rather than tried in court. Courts have refused to require arbitration if the agreement
- would deny the employee a substantive right (e.g., front pay, punitive damages if allowed, attorneys fees);
- appears to be imposed rather than agreed to;
- was without consideration; or,
- otherwise appears unconscionable.
A recent decision from the Eastern District of Pennsylvania, Venuto v. Insurance Company of North America, No. 98-96 (E.D. Pa. July 22, 1998) (1998 WL 414723), provides help to employers in establishing an enforceable agreement to arbitrate employment disputes. In that case, Ms. Venuto, an at-will employee of INA, took a leave of absence from INA after being diagnosed with a medical disability (depression). While Ms. Venuto was on leave, INA implemented a new policy requiring arbitration of certain specified employment disputes. Notice of the new policy was mailed to Ms. Venuto and, after her return to work, she received another notice by interoffice mail.
INA's policy expressly covers all "serious employment-related disagreements and problems" including discrimination claims, equal pay claims, ERISA, ADA, and other statutory or common law claims both during employment and arising out of the termination of employment.
After her return to work, Ms. Venuto claimed she had been the victim of discriminatory conduct and harassing remarks because of her medical disability. She also claimed that she had been demoted and denied promotions and training opportunities because of her disability.
INA moved to compel arbitration of the dispute on the basis of its policy. Ms. Venuto claimed the arbitration provision was unenforceable. The Court held that an agreement to arbitrate does not have to be negotiated with each employee or signed by each employee to be valid and enforceable. The Court also rejected Ms. Venuto's claim that INA's unilateral issuance of the arbitration policy rendered the policy unenforceable. See also Seus v. John Nuveen & Co., Inc., 146 F.3d 175 (3d Cir. 1998) (the appellate court upheld the decision in the Eastern District of Pennsylvania requiring a brokerage worker to arbitrate her discrimination claims based on an arbitration clause contained in an application for registration with the National Association of Securities Dealers).
The Court found that Ms. Venuto was aware of the arbitration policy. "It was not buried in [an] employee handbook or form, but instead was a separate and distinct document sent to each individual employee, accompanied by a cover letter introducing and explaining it." The policy clearly explained the types of claims and disputes that are covered and which are subject to final binding arbitration.
The Court was satisfied that Ms. Venuto's decision to continue working with INA for a substantial period of time after the arbitration policy went into effect demonstrated that Ms. Venuto had accepted the terms of the policy. Accordingly, the Court ordered Ms. Venuto and INA to arbitrate their dispute. One note of caution: not all courts will necessarily follow this view. The federal appellate courts for New England and the West Coast have refused to enforce an arbitration provision which has only been distributed as part of an employee handbook.
The Venuto court has provided a step-by-step guide for employers seeking to establish a mandatory arbitration policy for employment disputes. A separate, clearly stated policy, expressly identifying various employment related disputes to be covered, which is sent to each employee should enable most employers to take advantage of this beneficial and cost-saving measure.