“ADR” is the acronym for Alternative Dispute Resolution — usually mediation and/or binding arbitration as a means of resolving legal disputes.  BFAS has been promoting ADR instead of litigation, especially in the employment law arena, for years.

Now, however, we are convinced that ADR has become an essential ingredient of any well-run business.  I can briefly explain why with two words – litigation avoidance.  Any employer that has suffered through even one employment-related lawsuit understands. The legal expense necessary to defend, the business interruption to both your operations and personnel, and the one-sided attorney fee shifting process can combine to result in severe economic pressure to settle even frivolous claims.  Another benefit, and just as important, is that an ADR agreement can keep your business out of hostile environments, like California’s Labor Commission, where alleged violations of California’s ever-expanding wage and hour laws are often litigated and won by employees, whether deserved or not.

Is ADR a perfect solution?  No, but few things are perfect.  Nonetheless, ADR can provide substantial benefits to your business  Such benefits can include (1) reduced dispute resolution expense and time, (2) elimination of jury unpredictability and even hostility, (3) greater privacy and (4) faster finality.

Further, by eliminating the threat of a public lawsuit and the risk of an extreme jury verdict, some plaintiff/employee lawyers will lose interest, especially in pursuing weak or meritless claims.  Thus, ADR can accomplish a substantial shift of the balance of power in favor on the employer, generally resulting in improved defense and settlement opportunities.  In addition, there is good evidence that arbitrators disfavor punitive damages and will typically award lower emotional distress and “front pay” damages in most cases.

Of course, ADR does have critics and some perceived drawbacks. For example, “finality,” which connotes the complete resolution of the dispute, is a double-edged sword.  On the one hand, the resolution process is generally streamlined with ADR.  On the other hand, the parties will usually be stuck with the arbitrator’s decision, like it or not, without a meaningful right to appeal.  In addition, enforceable ADR agreements must be mutual, meaning applicable to  claims which could be asserted by either the employer or the employee against the other. For businesses involved with important intellectual property, trade secret and unfair competition issues, waiving a right to litigate such critical issues can be a legitimate concern and a reason to disregard the many benefits of ADR.

One universal consideration is an ADR agreement’s potential adverse effect on employee morale.  While there should be no fear requiring new employees to sign ADR agreements at the time of hire, compelling existing employees to waive their right to a potential jury trial may concern some employers, even though it can legally be accomplished.  Such a concern, however, should not present an insurmountable problem and can usually be solved through education and, at least initially, through only requiring voluntary participation in your new ADR program.

Regardless of how your business chooses to implement ADR, it should be accomplished through a stand-alone ADR agreement between the employer and each of its employees—you should not rely solely on a provision in your business’ employee handbook.  The importance of this subject, and the need to confirm a knowing and voluntary waiver of constitutional rights, dictate that a separate agreement be executed by both parties.

In short, it is not only prudent for your business to implement an ADR agreement with its employees, but it would be foolish not to.  So you can make an informed decision, please contact anyone in BFAS’ employment law practice group regarding the type of ADR agreement best suited for your business. You and your “bottom line” will be glad you did.

  Douglas B. Large

                   Partner

                   DLarge@BFASLaw.com

            (Direct) 805.966.7757

www.BFASLaw.com

                  December 2016 

DISCLAIMER:  This Advisor  is one of a series of business, real estate, employment and tax advisories prepared by the attorneys at Buynak, Fauver, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution of this Advisor.