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STRATEGY

A Win for Arbitration, But Do You Ultimately Lose?
 

Surprising news about arbitration.
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For the first time, employers across the country can require new hires to agree to arbitration if they later sue for discrimination. Such clauses in employment contracts are common in many states, but they were held to be unconstitutional in California until recently, when the Ninth U.S. Circuit Court of Appeals decided to allow them.

Arbitration is thought to save companies from the "outrageous costs" of litigation, explains Richard W. Naimark, of the American Arbitration Association, a provider of mediation services based in New York City.

California's embrace comes, ironically, at a time when arbitration's benefits appear to be diminishing. As demand for mediators has increased in the U.S., so have the prices for their services and filing fees. And because it is common to name an arbitration firm in an employment contract, "that arbitrator essentially has a monopoly and will charge up to three times as much as it will to a customer who can walk away," says Jackson Williams, of Public Citizen, Ralph Nader's consumer advocacy group.

Besides cost, some say arbitration is a tactical mistake. "Employers are just as safe if not safer with a bench trial, where you have preserved the right to appeal," advises Arthur F. Silbergeld, a partner in the Los Angeles office of law firm Proskauer Rose.

Last updated: Feb 1, 2004




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