Originally from Dispute Resolution Journal

Using the recent Circuit City decision as a departure point, Paul Nicolai discusses the importance of an effective employment ADR program and the need for employers to adopt an ADR policy that reflects the changing needs of the workplace. He notes the advantages of employment arbitration, but also examines the issues surrounding the process. He cites numerous court decisions to show that now, more than ever, employers need to take control of their exposure to litigation stemming from employment disputes. His warning: “The war over whether employee handbooks are contracts is over. Employers need to rethink their employment policy strategies to live with this fact.” The following is part 1 of a two-part series.

Employers have lost the war over whether handbooks can be enforceable contracts. Most states now hold that they can. The tests used to make this decision case by case are fact and motive driven. This means more cases require more discovery and trials. This increases cost and exposure to all parties.

The “standard” employment policy strategy has for the past decade or so been a combination of (1) creating a set of employment policies; (2) publishing those policies in an employee handbook; (3) including language in the employee handbook that it is only a guide; (4) including language in the employee handbook to the effect that it is not a binding agreement; and (5) hoping for the best.

The recent decision by the United States Supreme Court in Circuit City v. Adams,1 along with other legal developments, should cause employers to reconsider their employment policy strategies. They create a situation where employers can take a much more positive approach to controlling the process and limiting the cost of employment disputes.

A new strategy for handling employment disputes will benefit employers by reducing the legal costs associated with employment litigation and reducing some potential risk associated with these litigations. Even if an employer has employment practices liability insurance, setting up new employment policy strategies should lead to better underwriting and lower premiums.

ADR Policy

There are several reasons why an alternative dispute resolution (ADR) policy2 makes sense, especially for employers:

1. Cost. The cost of litigating an employment dispute with one employee can reach several hundred thousand dollars. On the other hand, one large national company experienced average costs per dispute of about $11,000 per case—including attorney fees —after it set up an ADR program. A four-year survey of litigation cost versus arbitration cost showed that arbitration cost was, on average, half the cost of traditional litigation, and mediation was one-third the cost of traditional litigation.

2. Time. ADR typically resolves disputes faster than litigation. Generally, an arbitration is over in several months. A lawsuit may take up to five years depending on the jurisdiction. Arbitration gives finality because an arbitration award is rarely appealable. A quick, inexpensive resolution of a dispute can be advantageous to both employees and employers. ADR also allows the parties to tailor the procedures they use, such as controlling the amount and type of discovery and remedies available.