Arbitration has been around for decades, but it has recently become a hot-button issue in California. For example, Google made headlines when 20,000 employees walked off the job to protect the internet giant’s arbitration policy concerning claims of workplace misconduct. You may be asking yourself, “What’s the big deal? Why should I be concerned with an arbitration clause in a business contract?” Well, let’s start at the beginning.
Arbitration is a wholly private legal process where parties agree that one, or multiple, individuals will be empowered to make a determination about a legal dispute. Arbitration can be “binding” or “non-binding.” A simpler way to put it is that arbitration is the privatized version of a public trial where the arbitrator takes on the role of the judge who is bestowed with the authority to resolve the issue.
Reasons Why Arbitration Clauses are Included in Business Agreements and Contracts
There are many reasons why companies have included arbitration clauses in their agreements. Here are just a few:
- Resolving disputes confidentially – trials are public and therefore, almost all documents filed and testimony heard during a trial are open and accessible to essentially everyone.In contrast, arbitration proceedings are kept completely confidential and private. Generally, only the arbitrator and the disputing parties are able to access the information shared during the proceeding.
- Efficiency – Lawsuits can go on for years, even decades, before they are ultimately resolved. An arbitration proceeding, in contrast, is usually resolved in a matter of weeks or months.
- Ability to select the judge – When a lawsuit is filed in court, the parties have no say over who will preside over the case.Arbitration, on the other hand, allows the parties to mutually agree on who will serve as the arbitrator.
Why Have Arbitration Clauses Become Controversial?
A big reason why arbitration clauses have recently become the subject of controversy is because of the aforementioned confidentiality of arbitration proceedings. Some employees considerthe practice of confidential arbitration proceedings as an effort by management to keep disputes and serious issues, such as workplace harassment, out of the purview and scrutiny of the public eye.
After the employee walkout, Google announced it was eliminating forced arbitration provisionsin all employment contracts.Subsequently, other large tech companies like Facebook, Uber, Lyft, and Airbnb followed suit by announcing that they will cease utilizing forced arbitration for claims alleging workplace harassment.
On the legislative front, attempts to prohibit or deter use of employment arbitration agreements persist. On October 10, 2019, Governor Gavin Newsom signed a bill that outlaws forced arbitration, a common business practice that US employers use to stop workers from suing them for sexual harassment, discrimination, and wage theft. He also signed a bill that extends the amount of time employees have to file workplace civil rights complaints under state law. In the bill’s comments the authors opined that “Arbitrators who issue favorable awards to a particular company can be repeatedly-hired by that same company to serve as the arbitration-neutral without ever notifying the public about that award-history. It’s easy to predict the calls if you can hire the umpire.”
Arbitration is Not for Everyone, but Remains a Viable Option in Certain Contexts
The issue of whether or not arbitration will benefit for your particular business or dispute ultimately depends on a variety of factors including the matters of concern, the size of your company, and the parties involved. To get a better idea of whether arbitration should be pursued, or if an arbitration clause should be included in a contract, contact one of top business lawyer in Los Angeles, Afshin Hakim, to discuss your legal options.