Saturday, March 8, 2008
Be Careful What you Wish for: Have the High Costs of Arbitration Succeeded in Diminishing That as a true Alternative?
I attended an excellent Law & Employment Symposium put on by the L.A. County Bar Association this week. My colleague and friend, Lisa Klerman, a full-time mediator specializing in Employment Law chaired the conference. It's now been over a decade (I think) since safeguards were thrust into place to protect employees from the high cost of "mandatory" arbitration in employment matters. Employers eagerly insisted upon every case they could therefore compel to go into Arbitration, a forum in which they believed they'd get a lower verdict, based upon an arbitrator being less likely to be carried off onto an emotional or irrational tangent when reaching a verdict on the intangibles, such as emotional distress and punitive damages. Employee's and their lawyers resisted this, demanded the employer pay 100% of the costs, and built in other protections to ostensibly level the playing field. What the employer's lawyers have discovered, however, is that arbitration can be much more expensive than litigation (because the employer assumes the costs of the arbitration from both sides) and no faster. Last evening, I had dinner with a friend who is revising an old family LLC agreement and inquired whether he'd be better off including a binding or non-binding arbitration clause. I had to think for a few minutes (before I finished my margarita!) and honestly respond that I thought he should include a mediation clause, in a family agreement, and omit the arbitration provision. This lead me to do some introspection on whether we've taken this too far in terms of "fairness" and "accessibility". My last case as a litigator was taken out of the court system (over my protest) and sent to a binding arbitration. My client couldn't afford the costs, so I advanced them. We lost the arbitration after 5 days and several thousand dollars in costs alone. We had no right of appeal and no explanation. I still think the retired Judge got it wrong. Has Arbitration outlived its usefulness as a true alternative to Court?