Trent Cotney, Partner, Adams & Reese, LLP
President Biden is expected to sign and approve a new bill prohibiting pre-dispute arbitration agreements for sexual harassment and sexual assault claims. On February 7, the House approved the bill. Although several states, such as New York and California, already have similar laws on the books, the bill would apply nationwide.
Flowing from the tide of litigation that ensued during the Me Too movement, the ban’s intent is to allow victims of sexual harassment or sexual assault to not be silenced through contractual mechanisms such as arbitration. It allows victims to speak publicly about their issues. The ban only applies to pre-dispute claims, meaning before a claim is filed in court. Therefore, a party alleging sexual harassment or sexual assault can file a claim in court or choose arbitration. If the matter is filed in court, then the employer can enforce arbitration. Post-dispute arbitration is allowed in almost all circumstances.
So why would an employer or an employee want arbitration? There are a variety of factors to consider. Arbitration does not involve the use of a judge or jury to resolve disputes. Instead, the arbitrator or a panel of arbitrators decides the dispute after each side presents their case. Like litigation, the arbitrator(s) decision is binding.
There is no right or wrong answer to the question of whether arbitration or litigation is the better choice to resolve a dispute. Each dispute has to be evaluated on its own set of facts and with the parties involved. The reason many employment cases are decided in arbitration is the greater likelihood that it avoids the disclosure of allegations to the public. There is no way for the public to search for the filings or orders in an arbitration proceeding.
Generally speaking, it is less expensive to arbitrate a case rather than litigate a case. There is typically less discovery in arbitration than in litigation and it is easier to obtain limits on discovery in arbitration than it is in litigation. For example, the rules governing American Arbitration Association (AAA) limit the amount of discovery parties can take in arbitration.
Discovery includes things such as depositions of witnesses, requests for production of documents, interrogatories (questions directed to the opposing party) and requests that parties admit or deny certain facts in the case. Although in litigation there are
some limits to discovery, discovery is liberally allowed by courts, thereby increasing the time and expense an attorney has to devote to pursuing and/or defending a case.
Because arbitration limits the amount of discovery parties can obtain, the cost to arbitrate can be less than the cost to litigate. But,
without discovery, it is more likely that a party will be surprised at the arbitration hearing by an undisclosed document or witness.
In addition, arbitration often allows a dispute to be resolved in less time than litigation through the court system. Normally, arbitration from start to finish takes a year or less, while litigation is rarely concluded in less than a year and may take several years before the dispute is brought to trial and appeals are concluded.
An advantage of arbitration is that the arbitrator(s) are usually knowledgeable in the field relevant to the dispute. For example, if the dispute concerns an employment issue, then the arbitrator will generally have some experience with employment law. In the court system, the judge that is assigned to your case and the jury usually do not have a construction background and may not be familiar with the intricacies of the construction industry as well as an arbitrator.
If you are defending a claim, the benefit of having someone knowledgeable in the construction industry act as an arbitrator for your case also helps to prevent every contractor and subcontractor’s worst fear – the runaway jury (e.g., $40,000,000 jury award for the spilled McDonald’s coffee). There are certain types of cases such as sick building cases, which, if put in front of a jury, could result in extraordinarily high jury damage awards against the contractor or subcontractor that is ultimately determined to be responsible for the damage. Arbitrators generally are less likely to render an exorbitant award and are more likely to limit damages that are awarded to actual damages rather than damages for pain and suffering, mental anguish, etc. However, an arbitrator may award such damages if provided for in the arbitration provision. Technically, arbitrators are not required to follow the law.
In litigation the court uses statutory authority, precedent set forth in case law and the rules governing evidence and court procedure, among other things, which act as guidelines for attorneys when pursuing or defending a claim. In arbitration, arbitrators are not required to adhere to any law, statute or rule other than the procedural rules provided by the arbitration
association. In general, arbitrators apply the applicable law but do not strictly enforce the rules of evidence and court procedure.
A final factor to consider before deciding on arbitration rather than litigation is access to the appellate system. If a party receives an unfavorable arbitration award, any appellate review is extremely difficult and limited. Appeal of an arbitration award is usually only granted where a party has been unduly prejudiced by the arbitrator’s administration of the arbitration or the arbitrator has engaged in some form of fraud or deception. Although the grounds for appealing a lower court decision in litigation are limited, it is much easier to appeal a trial court verdict or judgment than an arbitration award.
To the extent allowed by state law, including arbitration provisions in employment agreements makes sense if you are an employer. However, be aware of state and federal laws such as this new ban that may prohibit certain types of arbitration. For example, California’s broad ban on arbitration is currently being challenged – the ban extends not only to sexual harassment and assault claims but also state-based claims of discrimination and labor code violations.
The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. Trent Cotney is National Construction Team Leader for Adams & Reese, LLP and General Counsel for FRSA. For more information on this subject, please get in touch with the author at trent.cotney@arlaw.com.
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