Arbitration or Litigation for Resolving Employment Disputes?

Arbitration or litigation — which approach should your K-12 school use? Under the Federal Arbitration Act (FAA), passed in 1925, arbitration agreements are generally enforceable; in 2001, the U.S. Supreme Court confirmed this rule extended to arbitration of employment matters. In recent years, many independent schools have chosen to arbitrate employment disputes. Specifically, schools condition employment on the acceptance of contracts that include a mandatory arbitration clause, requiring arbitration to resolve conflicts.

Legal Limits on Mandatory Arbitration

Not all employment disputes, however, are subject to arbitration. As of March 2022, a federal law, the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, generally prohibits mandatory arbitration in employment matters involving sexual misconduct.

In addition, states such as California, Illinois, New York, and Washington previously passed their own laws restricting mandatory arbitration in certain employment disputes, although various state and lower federal courts disagreed whether those laws were enforceable in light of the FAA. In February 2023, the U.S. Court of Appeals for the Ninth Circuit held that California’s law limiting mandatory arbitration agreements, which would impose civil and criminal penalties on employers, was preempted by the FAA and therefore invalid. Although that decision is binding only in California and other western states within the Ninth Circuit, the court’s reasoning may be persuasive to other federal courts.

Costs of Arbitration

While arbitration may seem to save your school significant time and money, this may not always be true.

For example, in one United Educators (UE) claim, a California school terminated an instructor for insubordination. The instructor had signed an employment contract requiring arbitration. After his termination, the instructor filed a complaint seeking arbitration, alleging whistleblower retaliation based on workplace safety complaints he made, as well as age and disability discrimination and harassment. Despite objections from the school, the arbitrator permitted a lengthy discovery process involving depositions of more than 30 witnesses and complex document requests. After an 18-day hearing — originally scheduled to last 10 days — the arbitrator ruled in the school’s favor. This win cost the school more than $1.3 million in defense fees, including arbitrator fees, for which the school was solely responsible.

This claim wasn’t unusual. UE has handled several independent school claims where defense costs for arbitrating employment disputes soared into the high six-figure range. As in the above example, many employment-related arbitration proceedings closely resemble litigation in terms of discovery and motion practice, leaving little savings in time or cost.

UE’s Recommendations

When determining whether mandatory arbitration is a good choice for your school, explore these considerations with legal counsel:

• Jurisdiction: Your school’s location will largely influence whether mandatory arbitration is a favorable alternative. Know whether recent local court decisions support dismissal of claims by motion, since this may make litigation preferable.
• Appeals: Arbitration offers limited appellate rights. Arbitrations are governed by the FAA, which severely restricts the circumstances under which an award can be reviewed. Under the FAA, even a mistake of law is not a sufficient ground for review.
• Dismissal: Due to changes in federal lawsuit pleading standards, some courts are increasingly dismissing employment complaints at the outset. However, arbitrators are more reluctant to dismiss complaints because of the limited appeal rights.
• Time to trial: Discuss the length of time it generally takes to get to trial in your jurisdiction. Certain courts steer cases through the litigation process relatively quickly while others have a backlog that proceeds slowly due to strained administrative resources. If you’re in a jurisdiction where the latter is true, arbitration may be a better alternative.
• Enforceability: Understand any limitations relevant courts have placed on the arbitration process. Some courts have addressed specific language in arbitration agreements that renders them unenforceable.

If, after careful consideration, your school chooses mandatory arbitration to resolve employment disputes, ensure your counsel stays abreast of changes to the laws regarding arbitration and routinely reviews your mandatory arbitration provision for enforceability.

In jurisdictions where the law is settled on an employment issue and arbitration clauses are generally enforced, or where the resolution of cases is significantly delayed due to congested courts, arbitration may be the best option. Consultation with legal counsel will determine the best alternative for resolving your school’s employment disputes.