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Death and Taxes

Columnist

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Brandon R. Blevans
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In any word association exercise, the phrase “death and taxes” yields references to the concept of certainty and eventuality. This is primarily due to its use in a fatalistic, if not sardonic, proverb: “In this world nothing can be said to be certain, except death and taxes.”¹ In lay terms: The only things you ever have to do in life are die and pay taxes.²

Admittedly, the proverbial construct of certainty oversimplifies life, as there are numerous conceptual permutations of “have to.” Franklin’s use is the most strict, using the verb in an imperative form by identifying only those things you cannot avoid. Another construction would be the Valley-Girl-esque, consumerist imperative: “I sooo have to have that pair of shoes,” improperly substituting the concept of desire with that of necessity. A midpoint along this grammatical spectrum is the concept of “advisability,” such as “we have to have an employee handbook,” or “we have to have an arbitration agreement.” It is this latter concept—where advisability and choice are displaced by a feeling of necessity without regard to rationale—that gives me sufficient pause to address it in writing.³

Over the past month, I benefited greatly from an influx of new clientele. (I know—they’d either never read this column or were desperate.) For many, we performed basic employment policy audits, at the end of which we broached the concept of arbitration agreements. Almost universally, we were confronted with the question: “Well we have to have one, don’t we?” It was the “have to” that struck me, since it’s only supposed to apply to “death and taxes.” It does not, under any circumstance, apply to arbitration agreements.

How, then, did “arbitration agreements” get elevated to the stature of death and taxes, becoming the talisman of employment policies—a sacred cow to be worshipped without question? History. Ancient history.

You see, in the “old days,” arbitration agreements were for more than avoiding juries in employment disputes. They were also used by employers to restrict the timeframes in which claims could be brought, limit the types and amounts of damage that could be awarded, preselect the arbitrator and otherwise dissuade employees from filing such claims. Life was good—that was, until 2000, when the California Supreme Court stepped in and required such agreements be “fair.”⁴

Now, pre-dispute employment arbitration agreements must contain a number of protections for employees. They must be mutual (in other words, both the company and the employee have to be bound to arbitrate), must have a neutral arbitrator, cannot limit the timeframe to bring the action to lower than that allowed by law, require a written decision, not unduly restrict discovery and, of course, require the employer to pay all the arbitrator’s fees.

You might ask, why do you “have to” have an arbitration agreement? You don’t. You might not even want to. Really. Those say you “have to” or you “would be crazy” if you don’t are substituting their own judgment for the role of adviser. This is because, like all things neither death nor taxes, there are pros and cons to using arbitration agreements:

Pros

No juries. The penultimate reason to use arbitration agreements is to avoid the great unknown in our civil system—juries. The decisions are made by an arbitrator, who tends to have legal training and, according to conventional wisdom, is less likely to award massive sums for emotional distress and/or punitive damages. Also, because arbitrators depend on being selected to have a livelihood, those who become known for massive awards are unlikely to ever be agreed to by an employer. Finally, because arbitrators are neither elected nor subject to having their proceedings followed, they’re less likely to be influenced by community or political pressures (as might elected judges or a jury).

Expediency. Arbitration is generally quicker than the civil justice system doled out through the courts. Because there are no juries and the setting less scripted, certain steps of the process (like jury selection, pretrial procedures, and so forth) don’t have to occur.

Less likely to have appeals. Decisions of arbitrators don’t enjoy  automatic appeal rights. Absent language in the arbitration agreement, such decisions generally can’t be appealed, providing a shorter “end-time” to the dispute.

Cons

Potential costs. Although arbitration can be faster, the litigation cost savings can be outweighed by the arbitration costs. Because employers must bear the arbitrator’s fees (whereas the courts are free), the arbitration itself can be of significant cost—especially for a longer proceeding or if interim disputes (like discovery motions) crop up, requiring the arbitrator’s time.

Lack of appeals. The limited appellate rights can mean an employer gets stuck with the rogue decision that conventional wisdom indicates is unlikely to happen.

Splitting the baby. Because arbitrators aren’t strictly bound by the rule of law, they have greater flexibility in fashioning compromise. While this might sound good at first, in employment cases, it’s usually the case that an employee who wins any amount is entitled to payment of attorney’s fees. So, that compromise decision could also result in additional fees.

No such thing as a really bad case. In the court system, employers often ask the court to “throw out” a case at the outset or after the discovery process, based on the fact that there is no legal theory under which the employee could win—even if everything the employee said was true. However, there’s no requirement an arbitrator entertain such a motion, and arbitrators have a financial disincentive to dismiss a case.

Limits on joining third parties. In some employment cases, the employer wants to bring in an additional party (either as another defendant, or to counter sue them for something else.) In arbitration, it’s difficult to join such parties because the arbitrator only has jurisdiction over the parties to the original agreement.

Only after evaluating each of these (and considering whether you want federal or state law to govern the enforceability of the agreement, which arbitration provider’s rules you want to use, and so on), can you decide whether you truly want to use arbitration. And then, just like there are lots of different ways to die, and lots of different types of taxes, there’s no “one size fits all” arbitration agreement. When it comes to arbitration, the only “have to” is: Think about it.

¹ Benjamin Franklin, letter to Jean-Baptiste Leroy, 1789, reprinted in The Works of Benjamin Franklin, 1817. For linguistic fanatics, the original formulation was by Daniel Defoe (not the actor) in The Political History of the Devil, 1726: “Things as certain as death and taxes, can be more firmly believed.”

² And under the current administration, it looks like you’ll pay taxes, die and then pay even more taxes. This might lead some to believe the word “change”in the campaign phrase “Change you can believe in” was a reference to “coin.” (Send hate mail to jfadda@northbaybiz.com.) [Editor’s note: Don’t you dare.]

³ If you just finished this paragraph and thought “What the %*$#@?, don’t worry, my editor did, too.

⁴ Obviously, the Justices were without the benefit of last month’s column (“Life Ain’t Fair,” May 2009).