Editor’s Note: In a three-part series, Howard Kurman and Julius Steiner discuss termination without litigation. The first article focused on proper workplace investigations as a predicate to terminations. Part Two covers proper documentation of prior disciplines as a prelude to termination. Part Three discusses using jury trial waivers, mediation and arbitration as methods to ward off judicial litigation

One of the great risks associated with claims of wrongful termination is the potential for a jury to resolve these issues. In many jurisdictions, and in several venues in heavily populated states where most employees are employed, juries are heavily pro-employee.  This bias in favor of employees can expose employers to excessive liability and damages.

However, there are several strategies for limiting the impact of juries that can be included in an employment agreement.

First, an employment agreement can contain a clause in which the parties waive their right to a trial by jury.

If a trial by jury is waived, the matter can still be brought in court; however, a judge will rule on all issues of fact, instead of a jury. The main advantage of this approach is that all issues, whether legal or factual, are decided by a judge. A disadvantage of this approach is that you must still incur all the costs associated with litigation.

Jury trial waivers can be set forth in a handbook or separate policy, but should ideally be acknowledged in a discrete document. In order to avoid claims that the employee/applicant didn’t really notice the waiver language, make sure to bold the language or have it stand out from the other language in which it appears. To increase the chances of the waiver being enforced with existing employees as opposed to new employees, it is always advisable to give the employee something of “value” (consideration) in exchange for the waiver, e.g., an extra day of vacation, another holiday, etc.

Jury trial waivers have been recognized as being valid between employer and employee, but the more explanation that is given by the employer who is proposing the language the greater is the chance that the clause will be judicially enforced. Not only does a bench trial greatly reduce the risk of a “runaway verdict”, but the costs associated with a bench trial are usually a fraction of what it may cost to try a termination case before a jury.

Arbitration: Pros and Cons

Second, the parties can agree to waive their right to litigating any dispute in court, and instead agree to be bound by the ruling of an arbitrator.

This approach, which is binding on both the employer and the employee, allows the parties to preclude the litigation of claims in court and instead allows the dispute to be resolved by an arbitrator or a panel of arbitrators selected by the parties.

A major advantage of this approach is that it can substantially limit litigation costs, as arbitration generally involves far less pretrial discovery and motions practice than litigating in court. The disadvantage of this approach is that an arbitrator, who may not be as qualified as a judge (though many arbitrators are retired judges) and have less accountability to appellate courts than judges, have autonomy to rule on all issues.

Additional considerations in utilizing arbitration in termination cases:

  • In order for the arbitration provision to be upheld, generally it will have to be perceived as “fair” to the employee. Generally that means that the employee will pay a minimal or no portion of the arbitrator’s expense. Most arbitrators will charge anywhere from $1,000 to $2500/day for their services.
  • Arbitrators will have to be cloaked with the same authority to award monetary and non-monetary relief that is comparable to what the employee would be able to achieve if the case were tried in court.
  • Arbitrators may be chosen “ad hoc” or by utilizing outside agencies such as the American Arbitration Association (“AAA”). However, the AAA is expensive, cumbersome and  sometimes problematic to deal with.
  • Choice of arbitrators is extremely important and you obviously want someone who specializes in employment disputes; not simply a regular commercial dispute arbitrator. Outside attorneys frequently can provide assistance on researching the bona fides of any particular arbitrator. Many arbitrators are experienced labor arbitrators who are now seeking to broaden their practices by doing non-union arbitrations.


Whether to mediate

Third, in addition to a jury waiver or a compulsory arbitration clause, employers and employees can also agree to mediate their dispute prior to instituting a lawsuit or an arbitration.

A mandatory mediation clause in an employment agreement would force the parties to mediate a dispute before instituting a formal proceeding, whether it be a lawsuit or an arbitration. Mandatory mediation forces the parties to have a meaningful conversation about the issues prior to more expensive litigation.  Mediation, unlike arbitration, has no decision-making aspect to it. Attitudes toward mediation are extremely important if the process is to work.   

An extremely beneficial aspect to mediation is that even if no settlement is procured, valuable discoverable information is often obtained. So, you may very well find out contentions that you may never have suspected involving the terminated employee.

As with arbitration, you will need to decide how the costs of mediation will be allocated. Generally, employees will be much more amenable to mediation if the costs of the mediation are borne by the employer. Costs of mediation may generally run from $3,000 to $10,000 depending on the particular fee structure of the mediator, how much pre-mediation work is done by the mediator, how complex the case is, and how resolute each side is.

No mediation should ever be concluded without at least a written Memorandum of Understanding (MOU) or even a more comprehensive settlement agreement that can generally be prepared in advance of the mediation. Generally mediation works best if you choose a forceful mediator-someone who will “beat on both sides” to get an agreement. The choice of an effective mediator will make a huge difference in whether an acceptable settlement is ever reached; but, beware, good mediators don’t really care what the terms of the settlement are-they just want the settlement.

Mediators can be chosen in a myriad of ways and employment attorneys always can make recommendations regarding good local mediators. There usually is no need to choose a mediator who must travel to the mediation from a distant location.

Unfortunately, terminations today pose far more legal risk than they did even 20 years ago. Irrespective of the size of the employer, a disgruntled employee who has been involuntarily terminated is likely to challenge the termination through a myriad of legal avenues. The truth is that even if such a challenge is frivolous, the costs to the employer can be very high, in terms of legal costs, administrative time and expense, lost productivity and potentially damaging publicity. For all these reasons it is critical that even what appears to be a routine termination be well thought-out, carefully documented, and effectively implemented.

In a unionized context termination is often referred to as “industrial capital punishment.” While this is an old phrase it is often descriptive of how outside agencies, judges and juries still perceive terminations. Thus, an employer’s attitude should always be that it faces a potentially uphill battle in sustaining terminations, even when the employee is, without a doubt, an at-will employee.

It is imperative that employers regard all terminations as though they will be reviewed under a microscope, and with this perspective intact litigation risks associated with termination may not be eliminated, but will certainly be dramatically reduced.
      
Howard K. Kurman is Chair of Offit Kurman’s Labor & Employment Practice Group. His e-mail address is [email protected]. Julius Steiner, a principal in Offit Kurman, provides counsel to clients on the entire spectrum of human resources management, employment and labor relations issues. His e-mail address is [email protected]. Offit Kurman is a full-service commercial law firm with offices in Maryland, Pennsylvania, Delaware and Virginia.