Many legal observers have predicted that last week’s Supreme Court decision in the Lewis case will prompt more employers to begin requiring that employees sign mandatory arbitration agreements as a condition of employment. More than half of non-unionized U.S. employees currently work under some form of mandatory arbitration agreement. Based on this decision upholding the use of class action waivers, and other trends in employment law, employers not using such agreements may want to revisit this issue.
Arbitration agreements began as a reaction by employers to what were viewed as heavily plaintiff-friendly court jurisdictions. Litigation costs, compounded by what were viewed as judges and juries that appeared biased toward plaintiffs, prompted employers to seek alternatives to the court process. Mandatory arbitration means that the claim will be heard before a trained decision-maker and not a jury.
However, not all employers saw the merits of mandatory arbitration. For one thing, arbitration can be extremely expensive. Fees charged by arbitration organizations can often exceed litigation costs, especially in smaller matters with relatively low monetary stakes. Also, arbitrators tend to hesitate to dispose of claims prior to a full hearing on the merits, increasing costs as compared to some court litigation. Finally, some arbitrators have reputations for “splitting the baby,” finding partial liability in cases where a judge or jury might produce a complete victory for one side or the other. These concerns were especially prevalent in the Southeast, where judges and juries tended to be more employer-friendly than other parts of the U.S.
In recent years, these trends may have changed. For example, in the Fourth Circuit (which includes North Carolina and South Carolina), newly appointed appellate judges have begun routinely reversing district courts that granted summary judgment for employers before trial. As a result, federal district court judges in the Fourth Circuit are less likely to dispose of claims before trial based on concerns over the appellate court upholding their determinations.
Second, jury pools, especially in metropolitan areas of the Southeast, have changed. As populations increase and demographics change, some employers think that the number of pro-employee juries is increasing. This belief, compounded by real or perceived shifts in how judges approach these cases, leads employers to question the fairness of the judicial system.
When these factors are combined with the ability through Lewis to entirely avoid class or collective action claims, mandatory arbitration may appear an attractive option for employers that rejected use of such agreements in the past. Employers considering use of such agreements should carefully weigh all pros and cons involved in this decision, including employee relations impacts from mandating use of alternative dispute resolution mechanisms. In the end, Lewis may represent a tipping point by making judicial resolution of employment disputes the exception instead of the norm.