Businessweek Archives

`Tell It To The Arbitrator'


Labor

`TELL IT TO THE ARBITRATOR'

Arbitration would eliminate large settlements--but would protect more workers anda J. Anderson was furious last year when Duke University Hospital fired her for missing too many days of work. Doctors' appointments had kept her out from her job as a food preparer. And as a five-year employee, she thought it unfair to be dismissed without warning. So she filed a complaint with the university's arbitration board. A panel of university officials heard her story and her boss's. Three weeks later, Anderson was back at work with the understanding that she would be fired immediately if she missed too many days over the next year. She hasn't. "No one gave me a chance until I went to the board," says Anderson.

Anderson's story may become typical in the next several years. This summer, a national legal commission charged with drafting proposed state laws suggested a new employment statute that would let most fired employees take their case to a neutral arbitrator. In states that pass such laws, virtually all private-sector employers would be required to set up a process similar to the one Duke installed eight years ago. Employers would either rehire workers with whom an arbitrator sided or pay them up to three years' severance.

'A LOT OF SENSE.' Such a system would bring a sea change to the often turbulent relationship between employers and workers. Under a century-old legal doctrine called employment-at-will, companies can fire employees at the drop of a hat. Over the past decade, however, tens of thousands of people have filed lawsuits charging unfair dismissal. Courts in some 45 states have accepted such cases, undercutting the employment-at-will doctrine to various degrees. The result: jury trials and large damage awards for a growing number of employees.

The commission, called the National Conference of Commissioners on Uniform State Laws, says its plan would cover some 60 million workers. A quasi-official body funded by the states and composed of lawyers appointed by each state, the commission cites studies estimating that up to 10% of the 2 million workers who are fired each year would have valid claims under the model law -- without resorting to suits. "This would be the biggest change in employment law since the 1964 Civil Rights Act," says Theodore J. St. Antoine, a University of Michigan law professor who helped draft the model law.

Although it will be years before many states act, several key ones may do so relatively soon. Groups such as the AFL-CIO and the American Civil Liberties Union will push the idea. And many companies may, too. In states where employers have been hit hardest, such as California, Michigan, and Illinois, "this statute makes a lot of sense," says Jim Paras, a member of the U. S. Chamber of Commerce's labor-relations committee. He says the chamber likely will support the idea in such states but oppose it where employment-at-will hasn't been abridged by the courts.

In California, where the courts have been the most active, workers win 70% of jury trials and collect awards averaging $300,000 to $500,000, the commission says. And that's before legal costs. Clyde W. Summers, a University of Pennsylvania law professor, says companies spend an average of $75,000 in legal fees on such cases, which can drag on for a year or more. Workers spend up to $40,000. By contrast, arbitration takes a few weeks and costs about $15,000--total--per case, says Summers, who advised the commission.

MORE JUSTICE. Employee groups don't like the current system either. There is little hope of challenging a dismissal in states such as Georgia, where employment-at-will has been eroded only slightly. Even in California, a suit's outcome is highly unpredictable, as is any jury trial. What's more, it's primarily middle- and upper-level employees, not hourly workers, who bring suit. "They're the only ones who can afford it," says Paul Grossman, a Los Angeles management attorney who helped draft the proposal.

These lucky few might not fare as well under arbitration. But many more workers would be protected, in much the same way as grievance procedures protect union members. "The model law eliminates the jackpots but gives a reasonable measure of justice to everyone," says Summers.

At least one group doesn't like the idea: trial lawyers, who often get fat fees if they win employment-at-will cases. Lawyers' groups could thwart support from both business and labor. "They're very strong in some states," says Lewis L. Maltby, an ACLU lawyer.

Still, arbitration looks likely to catch on. Montana and Puerto Rico have passed arbitration statutes. And a dozen states are considering the idea. If more follow the commission's proposal, a lot more employees will get a second chance after the boss says: "You're out."Aaron Bernstein in New York, with Zachary Schiller in Cleveland


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus