Why Arbitrate?

Frustration with the court system’s inefficiencies and delays is a major reason why many employers insist on arbitration agreements with employees.  Arbitration agreements create a private mechanism for resolving employment claims in a more efficient and less expensive manner.  A recent example of a lengthy court battle over a wage and hour claim drives home the wisdom of arbitration.

In Bain v. Tax Reducers, the plaintiff initially filed a claim with the California Labor Commissioner in 2005.  She claimed she was an employee, not an independent contractor.  After an award in her favor, the case moved into the court system.  The litigation continued for eight years until two separate appellate decisions were announced August 28, 2013.  One can only imagine the attorneys’ fees incurred during the protracted litigation, which also included previous appeals.  And, keep in mind the amount at stake: the Labor Commissioner award of approximately $15,000.  This lengthy battle would have ended well before eight years had arbitration been the agreed-upon forum.

It is true that the entire delay in the Bain case was not due to the drag of court system; some was the fault of the parties.  For example, a private settlement agreement had been reached or so the parties thought.  They had agreed to the amount of the money to be paid, but the deal fell apart when the parties found (surprisingly) that they did not agree on the non monetary terms.  Thus, another gem to be obtained from this case is that in settlement negotiations, it is wise to at least get agreement in principal on the non monetary terms before the final monies are negotiated.  Employers who wait until after their monetary offer is accepted to tell the employee that confidentiality and liquidated damages are required or that the employer will not provide a letter of recommendation or that the money will be paid as wages with payroll deductions risk either the whole deal blowing up or the employee asking for more money.

While the Bain case contains rulings on several issues facing employers today, including the one year statute of limitations for wage claim penalties and the employee/ independent contractor distinction,  the case will likely become best known simply for the ludicrous length of time it took to resolve.  Arbitration sounds pretty sweet after this!