248-409-1900 dburke@mi-worklaw.com


Would Employers Pay A Bit More In Arbitration Fees For Improved Justice?

          Employers rejoiced when the U.S. Supreme Court announced its decision in Circuit City Stores v Adams in 2001, holding that arbitration agreements with employees were generally enforceable in civil rights actions. They welcomed the opportunity to avoid runaway juries and multimillion-dollar verdicts.

          Since 2001, Circuit City has disappeared from the landscape and employers everywhere are pulling back from using or enforcing arbitration agreements. Pilchak & Cohen understands why. We have not generally advised clients outside of Wayne County or Genesee County to adopt them.

          The main reason that employers have cooled to arbitration agreements is that they have learned that every case “goes to trial” in the arbitration process. Conversely, in litigation, P&C generally has a viable summary judgment theory at the close of discovery. While arbitration agreements and even rules of the arbitration forum may provide for a dismissal upon motion if there is a legal defect in the plaintiff’s case, dismissals seldom occur for one main reason: the arbitrator gets paid an admirable hourly rate for sitting through the proofs at trial and then writing an opinion. Attorneys often become arbitrators because corporate clients are not knocking down their door. They fill their otherwise open schedules and barren coffers by sitting as arbitrators. It is thus against the arbitrator’s financial interest to dismiss a case early on.

          Employers have grown to dislike arbitration for other reasons as well: Arbitrators must deliver a sufficient (i.e., artificially high) percentage of opinions in favor of plaintiffs, or their reputation will become known and plaintiffs will not agree to pick them on future cases. Additionally, employers are sometimes saved in litigation by appellate decisions, which are generally not available in arbitration. Finally, even when one picks a management-side attorney as an arbitrator, some have a nasty, well-known, habit of second-guessing his/her competitor’s strategy by delivering a verdict against the competitor.

          Given all of the above, P&C was interested in one item of chatter discussed by Worklaw® Network attorneys recently, regarding an arbitration agreement that provided for one arbitrator to be selected for discovery and dispositive motion proceedings and a second arbitrator to be selected if the dispositive motion was denied and the case went to trial. Wow! That certainly takes away the financial incentive for the arbitrator to deny a dismissal motion. The other problems may remain, but the concept is interesting enough to discuss further.

          Some have suggested that the two-tier process would increase costs. I’m not so sure. Arbitrators don’t need to know the history of discovery disputes to prepare for the “trial.”

          Certainly, there may be other hurdles. Arbitral forums have established (usually exorbitant) fees based upon their current model, and they may balk at a second round of selections, or increase their fees even more for the extra work. Moreover, the agreement would have to be carefully drafted, and not many models exist. Finally, one would have to flyspeck the Federal Arbitration Act and Michigan’s new arbitration act to see if any provisions preclude the two tier system.

          Nevertheless, it’s an intriguing idea that P&C would be willing to explore further for any company interested in an alternative to jury trials and the current arbitration system.