Jury panels in the Los Angeles Superior Court (which is often referred to as “The Bank” by the plaintiffs’ bar) have recently delivered multimillion-dollar verdicts to former-employee plaintiffs. Many employers doing business in California already have insulated themselves from such disasters by adopting comprehensive arbitration regimes, which would require that such cases be heard by a retired judge or employment lawyer rather than a jury of the employee’s (not the employer’s) peers.

In one recent case involving alleged wrongful termination and racial discrimination, the jury awarded the former employee $16.6 million, which is the largest such verdict in California state history. The verdict consisted of $373,514 in lost wages; $2.5 million in emotional distress damages; and $13.8 million in punitive damages. Added to this will be another $1 million or so in prevailing-party attorney’s fees that will go to the former employee’s lawyer. Another Los Angeles jury recently awarded $15 million to a former employee who claimed he was discriminated against on the basis of a disability. That verdict consisted of $5 million in lost wages and emotional distress damages and $10 million in punitive damages.

The fact that such monster verdicts are stalking the land pushes up the settlement value of all cases — and the risk of not settling means the employer is subjecting itself to funding the winnings of those who play the California litigation lottery. The best antidote? Arbitration agreements. Although arbitration is hardly a panacea and carries with it a number of significant limitations and disadvantages, the time has come for employers to shut down this game by choosing arbitration once and for all.

The top three reasons for adopting an employment arbitration agreement today are:

  1. Arbitrators generally provide reasonable awards that fairly compensate an employee who has actually suffered some form of discrimination, harassment or other wrongful treatment. Unlike a jury, however, they generally do not get carried away and award gargantuan amounts of money for alleged emotional distress and punitive damages — both of which are basically unlimited under California law.
  2. The mere existence of an arbitration agreement functions as a form of “Wolfsbane” that wards off the most aggressive plaintiffs’ lawyers. Once they find out their client signed an arbitration agreement, they know they have no chance of ever bamboozling a gullible jury into awarding them millions of dollars and they will usually drop the case or settle it on the cheap.
  3. The arbitration agreement can and should include a class-action waiver provision. This means that any employee who signs such an agreement agrees not to lead or participate in a class action against the employer. These provisions are perfectly legal (even in employee-friendly California) and alone justify the adoption of such an agreement.