Gregory Valenza of Shaw Valenza thinks so. I agree. In his review of the California Supreme Court decision Gentry v. Superior Court in the Los Angeles Daily Journal (LADJ) September 21, 2007, he notes that pre-dispute arbitration agreements are now “nearly pointless”.

Earlier cases have clarified the limited utility of these agreements. They can’t be used to (i) waive punitive damages, (iii) shorten the statute of limitations, (iv) force the employee to arbitrate in an out-of-state forum, or (v) unreasonably limit discovery. The Gentry case holds that class action claims can’t be waived.

So what’s left of the benefits of requiring arbitration? First and foremost, it avoids a jury trial. Conventional wisdom holds that most jurors will be employees who will identify more with the employee-plaintiff, increasing the likelihood of unfavorable results.

One may argue that another benefit is that an arbitration agreement can be used as a litigation tactic to create a procedural hurdle to an employee’s potential recovery. By forcing a plaintiff to respond to a motion to compel arbitration, the defense may be able to increase the cost of the case to plaintiff’s counsel and delay its adjudication. However this may be more of a benefit to defense counsel than her client.

It used to be said that arbitration was cheaper than litigation. With arbitrators charging between $2,500 and $5,000 a day, the cost has gotten very high and is now comparable to litigation. In 2000, Armendariz v Foundation Health held that the employer had to pay it all. That’s when I threw in the towel, reasoning that, by lowering the plaintiff attorney’s out-of-pocket costs, arbitration made his risk/reward calculation more favorable and could actually lead to more claims, especially marginal ones.

Another cost is administrative. The legal expense of preparing an enforceable agreement and the process of distributing them, nagging employees to sign them and chasing employees down to get them back creates burdens on an employer’s staff, especially a small employer.

Did I mention that employers must offer employees the right to “opt out” of arbitration? So even if you go through the effort of pushing arbitration agreements out to your employees, some will opt out and you’ll end up litigating some cases anyway.

Oh, and there’s also the right of appeal, which you won’t have if you arbitrate. If the arbitrator makes a mistake and you lose big, you’re stuck with the result.

So remind me again why I need to get my employees to sign arbitration agreements?

Jerry Bloch