On May 21, 2001, the Supreme Court ruled in Circuit City Stores, Inc. v Adams, 121 S. Ct. 1302 that arbitration agreements in nonunion workplaces are legally enforceable. In the Circuit City case, Adams signed an employment application at Circuit City, requiring arbitration of all future employment disputes with the employer. Two years after being hired, Adams sued Circuit City for employment discrimination under the California Fair Employment and Housing Act. Circuit City subsequently filed suit in federal court to enjoin the state court action and compel arbitration. The case ultimately went to the Supreme Court, which ruled that the arbitration agreement signed by Adams was fully enforceable and barred court litigation.
ESCALATING USE OF ALTERNATIVE DISPUTE RESOLUTION
As the number of lawsuits and damage awards continues to escalate, companies are increasingly employing alternative dispute resolution (ADR) as a means of resolving a wide variety of disputes with customers and employees, in lieu of litigation. ADR is widely used in resolving commercial disputes in such areas as real estate, auto retailing, banking, and securities. The American Arbitration Association reports that the number of mediation and arbitration cases filed with that organization has tripled between 1996 and 2000. The use of ADR is also rapidly expanding as a means of resolving employment-related disputes. ADR can involve a number of different dispute-resolution procedures such as mediation, arbitration, mini-trials, fact-finding, private judging, and summary-jury trials. Of the latter, arbitration is the most frequently employed procedure. In arbitration, the disputing parties submit the issues in conflict to a neutral third party for resolution. The parties agree in advance to be legally bound by the arbitrator's decision.
Historically, most unionized companies jointly negotiated arbitration clauses in their contracts with their respective unions. In the last decade, however, growing numbers of nonunion employers are imposing mandatory arbitration of employment disputes as a condition of employment. Nonunion employers may incorporate arbitration provisions into job applications, employment contracts, separate arbitration agreements, or employee handbooks. Additionally, employers may make such an agreement a condition for promotion, stock options, or other benefits. By accepting arbitration as a condition of employment, employees are precluded from taking their employers to court over disputes covered under the agreement.
ADVANTAGES AND DISADVANTAGES OF ARBITRATION
Arbitration provides a number of clear advantages to both employers and employees in resolving employment disputes in nonunion settings. First, arbitration provides a more cost-effective alternative to conventional litigation. Employers are frustrated with the court system and with mounting litigation costs. For example, Coca Cola recently paid 192.5 million dollars to settle race-- discrimination charges, while Texaco paid 176.1 million to settle similar charges. With arbitration, both employers and employees avoid extensive legal fees and court costs associated with litigating a dispute. Further, employees avoid being at a marked disadvantage to an employer with deep pockets. Second, arbitration provides a more timely resolution of disputes than litigation. With the latter, cases can wait years on the court docket before being heard. In addition, the litigation process permits appeals, which can substantially increase the time and the costs associated with settling a dispute. With arbitration, the parties can quickly schedule a hearing with an arbitrator. In turn, the arbitrator's decision is final, binding, and virtually unappealable. …