10 Compelling Reasons for Employment Arbitration: Confidentiality

There may be no single, more efficient step an employer can take to manage litigation risk from its workforce than a properly administered mandatory employee arbitration program. An employee arbitration program is a powerful tool for employers to avoid risk, control costs, and achieve effective dispute resolution. Although there are some tradeoffs, the benefits of an arbitration program for employers are numerous and significant.

Fundamentally, arbitration is “court by contract.”  The parties, in this case, employer and employee, enter into a contract that sets the terms of how they will resolve disputes. Exactly which disputes, who will decide the disputes, and the rules implemented to decide covered disputes are all set forth in the arbitration agreement.

The arbitration agreement will also govern jurisdiction, parameters of discovery, and the applicable state or federal law, among other provisions upon which the parties agree.

In this first installment of a series of 10 articles, we tackle the first of the compelling reasons for employment arbitration to demonstrate the pros, while considering some caveats, of this strategic litigation avoidance device.

The First Reason: Confidentiality

In contrast to typical public court proceedings, arbitration is a private process that can be kept confidential by designation in the arbitration agreement. This protection is significant for several reasons. First, anyone can file a complaint alleging pretty much anything. A complaint filed in state or federal court becomes a public record and thus is available for consumption by the masses, including other employees, vendors, and competitors. Even the most conscientious employers can be subject to wild allegations of discrimination, wage and hours violations, Medicare fraud, or worse. These kinds of allegations are often couched as violations of state or federal “whistleblower” statutes and—especially if picked up by the press or on social media—form an immediate, and often completely undeserved, cloud over an owner/operator’s reputation. Conversely, complaints in arbitration are kept out of the news and allow for the resolution of virtually all types of claims away from public scrutiny.

There are some employment-related claims that are not subject to arbitration. One example is a claim under the End Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “EFAA”). Effective March 3, 2022, the EFAA amended the Federal Arbitration Act to allow employees to resolve disputes involving claims of sexual assault or sexual harassment in court, even if they have signed an otherwise valid and enforceable arbitration agreement. Dealing with complaints that include claims under the EFAA along with other claims that are arbitrable under a pre-existing agreement now requires a more nuanced analysis with legal counsel.

Additionally, in some jurisdictions, some parts of the parties’ disputes are not permitted to remain confidential by law.

Finally, an employee who is a party to an arbitration agreement could file a complaint in court in violation of the agreement (thus requiring a motion to compel arbitration to move the complaint out of court and into arbitration). However, the vast majority of employment disputes begin with the receipt of a demand letter from legal counsel for the employee, or some other pre-filing communication, and thus having an arbitration agreement in place prevents substantially all unwarranted dissemination of false and potentially damaging allegations.

The next installment of the 10 Compelling Reasons for Employment Arbitration will examine “Choosing the Judge.”

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