A General Counsel’s View of Arbitration Clauses in Employee Contracts
Litigation has its place, but most in-house counsel agree: avoid it if at all possible. That’s why Chris Fairey is a proponent of arbitration clauses in his employee contracts. Fairey is General Counsel for American Residential Services (ARS), one of the nation’s largest residential and commercial heating, air-conditioning, and plumbing services companies. ARS earns approximately $1 billion dollars in revenue annually and has more than 6,000 employees across the country. Like any legal leader of a company that size, Fairey spends a lot of time thinking about risk.
“Litigation comes with the territory, but I’m not a fan of inefficiency,” Fairey said. “I’ve found that litigation – no matter who initiates it - can often be an extensive impediment to a company’s day-to-day operations. So I like arbitration, which is usually a more efficient process and, depending on the circumstances, tend to lean that way when I can.”
One of the big upsides to arbitration from Fairey’s point of view is that the process takes a lot of the emotion out of a dispute. He points out that presenting a case to an experienced arbitrator, rather than a jury, removes many of the emotional elements that can go along with litigation, especially when employees or consumers are on the other side. A jury trial can be subject to grandstanding by plaintiff’s counsel, which is not the case in arbitration.
Arbitration clauses in employment contracts can be a “game changer” when it comes to driving down litigation costs. Fairey notes that before the advent of arbitration clauses employment cases accounted for close to 90% of ARS’s total litigation expense.
We found that a lot of plaintiffs’ attorneys, if they’re not going to have that avenue to a state courtroom immediately like they otherwise have, are at the very least going to be faced with challenging the arbitration agreement. They just don’t see that it’s worth their while, and if they know they can’t get in front of that jury to draw that sympathy and create that emotion to get a decision done that way, then it may not be worth the risk for them.
- CHRIS FAIREY
“We found that a lot of plaintiffs’ attorneys, if they’re not going to have that avenue to a state courtroom immediately like they otherwise have, are at the very least going to be faced with challenging the arbitration agreement,” Fairey said. “They just don’t see that it’s worth their while, and if they know they can’t get in front of that jury to draw that sympathy and create that emotion to get a decision done that way, then it may not be worth the risk for them.”
But having an arbitration agreement in place with an employee is not just about combatting costs. Fairey has found the agreements to be an effective communication tool that helps resolve disputes with employees before they become a more challenging matter.
“Going to the Equal Employment Opportunity Commission or filing a lawsuit is always an option for employees, but having an agreement in place that lays out a very specific process has often been effective in resolving their concerns,” Fairey said.
Mark Henriques, a business litigator in Womble Bond Dickinson’s Charlotte office, notes that not all states allow arbitration clauses in employment agreements. California, for example, adopted a law earlier this year prohibiting these types of arbitration clauses, however the law is being challenged in court.
“I would also urge companies to consider which arbitration provider to use,” Henriques said. “The American Arbitration Association (or AAA) is the most widely used, but other companies, like JAMS, also offer arbitration services.”
Arbitration agreements may not resolve every employee dispute but as Fairey notes, if managed well they can be tremendously efficient.
“I can’t think of an arbitration I’ve ever been involved in where the arbitrator is not acting as mediator the entire time, trying to get the parties to resolve the dispute informally, short of his or her ultimate ruling,” he said. “The same thing usually happens in litigation as well, but having an arbitration agreement in place has a way of speeding up the inevitable.”