Every employer should immediately implement a mandatory arbitration policy.
Read on to understand why and how employers should institute this policy. You’ll thank me.
California employers face tremendous challenges when it comes to defending lawsuits filed by employees against them. In fact, when it comes to taking precautions to compensate for the danger of lawsuits, many employers seem to forget they are situated in California, the undisputed lawsuit capital of the world.
Consider the following:
• Most employers instinctively know that they can be sued at any moment, due to the thousands of laws that regulate California workplaces.
• Employers who are sued are required to defend the lawsuit before a jury in state superior court if they don’t have an arbitration policy in place.
• It is not unusual for defense costs alone to approach or exceed a million dollars in employment cases tried before California juries. This staggering sum does not include awards against the employer for damages or attorneys’ fees, which are mandatory if the plaintiff-employee wins a judgment in any amount.
• Employers lose the overwhelming majority of cases decided by juries in California.
Taken together, these factors mean that employers who are sued by their employees will be forced to pay out enormous sums for their defense, whether or not they are ultimately found legally responsible.
These amounts are not recoverable, even if the employer wins at trial. Since lawsuits often arrive without warning, defense costs are rarely anticipated — and never budgeted.
Oftentimes, small employers find that after months or years of paying steadily-increasing bills to defense counsel with no end in sight, they simply cannot afford to stay the course until a jury trial. They conclude that the only alternative to insolvency is to pay the plaintiff’s settlement demands, no matter how unreasonable, even in cases that could have been won at trial.
History shows us that employers rarely win employment cases at trial. Legal commentators explain that because juries are made up of employees and not of business owners or managers, they are naturally-inclined to accept the plaintiff’s version of events. Studies have shown that employment litigation is literally the only area of law where the same party (employer) loses overwhelmingly year after year.
For small business owners, the stakes are highest, because they are in effect unwittingly disarmed and deprived of the ability to defend themselves, even in those cases when they have done nothing wrong.
Some employers have attempted to address this problem by purchasing employment practices liability insurance (EPLI). However, this is an imperfect solution, because insurance policies are prohibited by law from covering awards for punitive damages. Since punitive damages present the greatest risk for employers in employment cases, the problem remains unaddressed.
The good news is that the solution to this nightmare is already at hand, yet most small business employers don’t take advantage of it.
In 1992, the U.S. Supreme Court authorized employers, for the first time, to implement mandatory arbitration policies in the workplace.
Although arbitration has, predictably, met furious opposition from plaintiffs ever since, it remains a powerful equalizing force for employers, but only if a policy is distributed in writing to employees in accordance with mandatory procedural safeguards.
Employers with such policies in place before a dispute arises can demand that lawsuits be immediately diverted from the traditional civil litigation system (jury trial), to mandatory arbitration. While employers still have to prove their defense to the satisfaction of an arbitrator, this solves problems related to anti-employer jury bias summarized above.
Jay G. Putnam (jaygputnam.com/blog/) is a Petaluma labor lawyer representing California employers for more than three decades.