Overview: Arbitration is a voluntary dispute resolution process that is available to employers with both unionized and non-unionized employees. While many collective bargaining agreements (CBAs) include arbitration clauses, private employers with non-unionized workforces may also create arbitration programs to handle employment claims. The voluntary nature of arbitration requires, however, that both the employer and the employees agree to arbitrate their claims. If the parties are in agreement, either before or after the incident occurs which requires resolution, arbitration is an extremely useful tool for employers seeking to reduce their litigation costs and their exposure to litigation.
The Federal Arbitration Act (FAA) legitimizes interstate arbitration agreements by elevating them to the same legal standing as employment contracts. Thus, the FAA provides employers with substantial legal authority from which to build arbitration agreements and, depending on whether the agreements are enforceable, arbitration can be used to handle many types of costly employment disputes. Importantly, employers must be familiar with both the FAA and state law pertaining to arbitration procedures, if any, in order to ensure that arbitration programs and awards are legitimate and binding on the parties.
Trends: While private employers with a non-unionized workforce have other dispute resolution methods available to them like mediation, employers are increasingly moving toward arbitration because it typically involves a binding decision by the arbitrator which the parties must accept. This fact, combined with a typically narrow arbitrator selection process, may convey an advantage to the employer. In most cases, arbitration can deliver a fair and binding result, while substantially reducing costs associated with litigation, including investigative fees and attorney's fees.
Employers with a unionized workforce typically opt to negotiate for labor arbitration clauses to be contained in CBAs as a cost-reduction and efficiency measure. Labor arbitration includes a formalized process of selecting an arbitrator, presenting information to the arbitrator, and of course, the receipt of a binding arbitration award from which appeals are only permissible if the award was fraudulent, the arbitrator exceeded his or her authority or the arbitrator committed misconduct.
Author: Michael Jacobson, JD, Legal Editor
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Updated to reflect information on a Supreme Court ruling concerning collective action waivers in arbitration agreements.
HR guidance on the benefits of creating arbitration programs and how arbitration programs can help employers reduce costs and exposures associated with litigation.