STAYING OUT OF COURT
A Recommendation to Business Owners/Managers/Executives and Employers
for the Utilization of Arbitration Clauses to Avoid Court Litigation
No matter how carefully you operate your business, disputes are bound to occur, especially when the other side is being unreasonable. An important business planning goal is to ensure that your business and (non-union) employment disputes are resolved in the most cost-effective, fair, and efficient manner.
Litigation Too Costly. A survey by Business Week found that most business leaders believe something is seriously wrong with the legal process in this country. The headlines on its cover story summarized its findings:
"Too many lawyers, too much litigation, too much waste. Business is starting to find a better way."
An overwhelming 97% of the surveyed executives favored a greater use of alternative dispute resolution, such as arbitration and mediation. Staying out of court is what alternative dispute resolution is all about.
The Advantages of Arbitration. Compared with litigation, arbitration has the following significant advantages:
Economy: Arbitration's informality and streamlined procedures are designed to quickly get at the crux of a dispute, and eliminate the time-consuming and paper shuffling burdens of formalized litigation, which reduces attorney's fees and costs.
Fairness: An able arbitrator with experience in the subject matter of the dispute is far better equipped to deal with complicated issues than is a jury or an inexperienced trial judge struggling in an unfamiliar area.
Convenience: Arbitration hearings are scheduled promptly according to the convenience and availability of the parties, rather than the vicissitudes and postponements of a congested court docket.
Privacy: Businesses can avoid unfavorable publicity, and people prefer the privacy, sensitivity and informal setting that arbitration provides.
Finality: Binding arbitration eliminates the delays and costs of appeals that can occur in litigation.
A significant advantage of arbitration is that all questions of fact and law are decided by a person who has high expertise in the subject area of the dispute and who is also fair, able, and conscientious.
- Some questions and answers about arbitration and mediation.
- A basic arbitration clause to use in business and consumer agreements.
- A sample one-page employment agreement containing an arbitration clause.
QUESTIONS COMMONLY ASKED ABOUT ARBITRATION:
Q: What is arbitration?
A: Arbitration is the referral of a dispute to an impartial third person chosen by the parties who have agreed in advance to be bound by the arbitrator's decision after a hearing in which both parties have an opportunity to be heard. The hearing typically takes place in a conference room and is conducted in a dignified but informal manner. After listening to witnesses and the evidence submitted, the arbitrator (who is usually an attorney or retired judge) decides the case by rendering an award, which can be submitted by either party to a court clerk for confirmation as a judgment of the court.
Q: Is arbitration binding?
Q: Is arbitration legal?
A: Absolutely. Federal and state laws not only permit arbitration, but actually encourage its use. Recent court decisions show a strong judicial trend favoring arbitration (which, as a byproduct, helps relieve congested court dockets).
Q: What is the role of an arbitration organization (like Arbitration Service of Portland)?
A: An arbitration service acts as a procedural umpire and provides a qualified panel of arbitrators (from whom the parties select an arbitrator) and an all-encompassing set of procedural rules. Arbitration Service of Portland (ASP) has arbitrators throughout Oregon. ASP is located at: 620 SW Fifth Avenue, Suite 1010, Portland, OR 97204; telephone (503) 226-3109 and (800) 423-1216; fax (503) 226-3072.
Q: Do I pay any up-front costs when I use an arbitration clause in my agreements?
A: No. Nor is it necessary or customary to inform the arbitration organization when you designate it in your arbitration clause. If and when a dispute later arises, whoever files the claim pays a filing fee to the arbitration organization. (ASP's filing fee for a typical two-party one arbitrator dispute is $400.) The parties jointly share in paying the arbitrator's fees later on in the process.
Q: Do I have to use an attorney to take part in arbitration?
A: It's up to you. Because of arbitration's informality, it is much easier in small cases to represent yourself in front of an arbitrator than in a formal court proceeding. But, when more money is at stake or when there are complicated legal issues, it is customary to let your attorney represent you.
Q: What if the other side doesn't cooperate or take part in the arbitration process?
A: Once a claim is filed with the arbitration service, the process will continue with or without the other side's participation, just as in a court proceeding.
Q: How does arbitration act as a shield for my business?
A: Because it discourages frivolous lawsuits (by removing the tantalizing attraction to a consumer (or employee) of a jury prejudiced against businesses) and it dramatically increases the likelihood of a successful and less expensive defense by having the matter decided by a truly impartial person who possesses expertise in the subject area of the dispute.
Q: How does arbitration act as a sword?
A: When you are entitled to recover because the other side has breached its agreement with you, your entitlements almost always can be obtained through arbitration more quickly, more efficiently, and less expensively.
Q: How can I implement the benefits of arbitration?
A: Arbitration requires a written agreement to arbitrate. You can ensure the benefits of arbitration by inserting arbitration clauses whenever appropriate in your business agreements, especially agreements with your customers. The following is a basic arbitration clause:
Q: If the employee handbook contains an arbitration clause, is it binding?
A: No, unless the employee handbook is itself a contract that binds both parties. Merely having an employee sign a statement acknowledging receipt of the handbook is not enough, because employer and employee must both agree to be bound by the arbitration process. Most employers do not want their employee handbooks to be construed as contracts (because employers want to unilaterally change their handbooks whenever necessary). Moreover, it may be burdensome to maintain a signed handbook for each employee as evidence of the arbitration agreement. Therefore, a separate employment agreement signed by both sides is an easier and safer procedure. A sample form appears below.
Q: Can I require binding arbitration as a condition to hiring a new employee?
A: Yes. You may condition new employment upon the prospective employee's execution of an agreement to arbitrate all disputes.
Q: Can an employer require its existing at-will, non-union employees to sign an arbitration agreement?
A: Probably. As long as the employer's termination policy for refusals to sign are applied uniformly (and without regard to race, creed, sex, age, etc.), requiring arbitration agreements as a condition of continued employment should be an acceptable policy. A logical time to obtain signed arbitration agreements with existing employees is during review meetings.
Q: What is mediation?
A: Mediation is a settlement process assisted by a trained neutral, the mediator, who acts as a settlement facilitator. The mediator does not take sides or render a decision. The mediator helps each party (in joint sessions and in private caucuses) to share emotions and different viewpoints in a constructive fashion, to focus on the real interests of the parties, to develop and refine settlement options, and to use objective criteria. Although mediation is a voluntary process that can be terminated at any time by any party for any reason (good or bad), the mediation process will resolve many disputes. An arbitration clause that requires dispute resolution by arbitration operates as the final safeguard if one party refuses to participate in mediation or if mediation does not succeed.
Form of simple employment contract
containing arbitration clause
Dated this ______ day of ____________, 20__.