Bespoke tailoring or off-the-rack misfits for arbitration systems?

Much has been written following the Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion, 563 U.S. ____, 131 S. Ct. 1740 (2011); Oxford Health Plans, LLC v. Sutter, 569 U.S. ____, 133 S. Ct. 2064 (2013); and American Express Co. v. Italian Colors Restaurant, 570 U. S. ____, 133 S. Ct. 2304 (2013). Yet, in this crowded field, there is a need for clear thinking on the most pragmatic issues: deciding whether to adopt arbitration and, if so, how to draft pre-dispute mandatory arbitration agreements.

The threshold question is whether your organization should have arbitration agreements. Some employers adopt arbitration agreements without a considered cost-benefit analysis of whether its advantages (e.g., reduced costs, faster resolutions, greater privacy, no jury, increased predictability, etc.) will be realized. Others do this analysis but then fail to tailor arbitration to meet their organization’s needs. As a result, there are employers who have been disappointed to discover that their arbitration systems yield a greater number of claims, significant expenses, no guarantee of arbitrator expertise, and no effective appellate review of unsatisfactory arbitration decisions.

More sophisticated analysis and a deeper appreciation for the flexibility of arbitration can avoid those disappointments. Here are the key questions to start determining what type of arbitration agreement (if any) fits best for your organization:

• Has your organization been facing too many employment-related claims?
  • What types of claims?
  • Where are those claims being brought (because arbitration cannot short-circuit government agencies like the NLRB or the EEOC)?
  • Are those claims being brought on an individual, joint, collective or class basis?
  • By which classifications of employees?
• How important is privacy in the outcome and in the adjudication process?
• How important is the absence of a jury?
• Does the absence of meaningful appellate review make arbitration untenable?
• What are your current transactional costs in handling employment-related claims?
  • What are your objectives to reduce those costs?
  • Are those objectives reasonable in light of modern arbitration practice?
• Will arbitration increase the volume of claims or otherwise adversely impact corporate culture or morale?
• Would a simple jury waiver work better than arbitration?

Depending upon the answers to these inquiries, you can custom fit arbitration to your best interests. Upon closer analysis, you might decide that universal arbitration agreements in applications, handbooks, and/or employment agreements are just right. Alternatively, you may decide to limit the classifications of employees and/or the types of claims for which arbitration is required.

There are precious few limits legally: e.g., an arbitration agreement must provide for a neutral arbitrator, it must limit the costs of arbitration to employees, and it must not contain a limit on statutorily available remedies. Thus, there is a real opportunity for creativity and customizing. Indeed, asking the right questions might even prompt consideration of pre-dispute agreements that have no arbitration but which waive the right to a jury trial and agree to a bench trial (perfectly proper) or waive any right to bring a class action (which federal courts and some state courts will enforce).

Evolving legal developments have now given employers the option to customize. There is no reason to wear hand-me-downs anymore. This is decidedly one of those places where one size does not fit all and where you owe it to yourself and your organization to get custom-fitted.