Sidestepping Court Costs

Five years ago, after Brown & Root Inc. spent almost $450,000 to defend itself and ultimately win a sexual-harassment case, the Houston-based contruction and engineering firm decided that there had to be a better way to resolve its employment disputes. "We decided that litigation was not an economic, effective, or efficient response to employment disputes," says William L. Bedman, Brown & Roots associate general counsel. Today its mandatory program for resolving such disputes outside the courtroom for its 25,000 employees stands as a model for companies that are exploring a variety of alternative dispute resolution (ADR) programs. The four-step program includes an open-door policy and a hotline to bring disputes to the table, as well as in-house conferences for dispute resolution, mediation, and arbitration. "The dollars we would have spent annually on legal fees for litigation has dropped 30% to 50%," says Bedman. Whats more, about 40% of the 400 to 600 disputes that Brown & Root processes each year are resolved within a month, and 70% to 80% are resolved within eight weeks. Only 40 of the 3,000 cases since the program started in June 1993 have ended up in binding arbitration--and all but two of those involved employees who had been fired. Indeed, fired employees file 40% of the claims at Brown & Root, which offers employees involved in an ADR claim up to $2,500 of legal assistance. Equally important, the size of the settlements employees receive and the number of adverse settlements against Brown & Root remain similar to what they were when the disputes went through the court system or the Equal Employment Opportunity Commission (EEOC), says Roger Meade, executive director of the American Arbitration Assn. (AAA). Five years ago Brown & Root was one of just a handful of companies in the U.S. willing to try ADR. Today, the AAA estimates, more than 400 employers--with workforces ranging from 800 to 300,000 workers--use some form of ADR to resolve many of their employment disputes. These companies employ 4.5 million of the 100 million workers in the U.S. who work for organizations large enough not to be considered mom-and-pop companies. However, workers compensation issues, unemployment claims, and criminal activities cannot legally be resolved through ADRs. In addition, Martin F. Payson, employment-law attorney in the White Plains, N.Y., office of Jackson, Lewis, Schnitzler & Krupman, suggests that companies not use ADR for sexual-harassment claims. He also recommends excluding disputes that involve performance evaluation, the scope of job duties, and pay scales and benefits. Most of the ADR growth has occurred in the last 24 months, and Meade predicts that by the year 2000 as many as 10,000 employers will use ADR for employment disputes, barring a court decision or Congressional action that would ban such programs. What has triggered this trend? For starters, the Gilmer decision by the U.S. Supreme Court in 1991 held that as part of a signed employment contract, a company can make it a condition of employment that employees take any disputes arising out of the contract to binding arbitration, instead of the courts. (The exception: Unions cannot consent to arbitration for members in a collective-bargaining agreement, a decision reaffirmed in October by the high court.) Second, court and administrative backlogs can be sizable. It often takes three to four years to resolve an employment-law case at the district-court level and five to eight years for the EEOC to resolve a case. "The labor-litigation system and federal agencies are becoming slow, expensive, and cumbersome," says Bedman. Third, recent federal laws--specifically the Civil Rights Act of 1991 and the Americans with Disabilities Act--encourage the use of mechanisms outside the court to resolve employment disputes. Fourth, says Payson, companies are looking to "build in mechanisms for early intervention in employee disputes" to resolve them quicker and at less cost, both in sheer dollar amount and the toll they take in terms of morale and confrontation. "A simple employment dispute involving no more than $5,000 in lost wages and benefits can easily cost several times this much to resolve--no matter who prevails," adds Bedman. "And by the time of the trial, the perceptions of the parties and the witnesses have been irreversibly colored and polarized by years of conflict." Thus, Brown & Root and its parent corporation, Halliburton Co., which adopted the Brown & Root program last year, make their plans mandatory. Interestingly, the majority of the companies that have set up ADR mechanisms are those with good labor-management relations, says AAAs Meade. "They tend to have a stable workforce and low turnover and dont want their skilled professional people to leave (as a result of an employment dispute). It is just an effort to cut down on legal costs and provide a fair forum for resolving disputes." Yet even though companies as diverse as TRW Inc., Cigna Corp., Toys R Us Inc., Honda of America Mfg. Inc., Brown & Root, and the Darden Restaurant Group (which includes Red Lobster) use some form of ADR, it clearly isnt for everyone. Nor is there one approach that will work for all, says Jackson, Lewis Payson. "You must fashion ADR so that it fits your corporate culture and organization, and design it so that it addresses your perceived needs," he says. And Payson cautions that programs should not deny employees any legal rights or potential awards. "The courts will not uphold the validity of a program unless there is due process and the arbitrator has rights equal to the federal district court. The program has to be fair, because if you try to take away statutory rights, you are opening your program to suspicion and scrutiny by the courts." Whether companies choose mediation, arbitration, or peer review for ADR, he says, depends on their objectives. "Arbitration and mediation provide an external element and distance the decision-maker from those with a stake in the outcome," says Payson. "But you will need to educate the arbitrator or panel about the company, the workforce, and the rules." By contrast, peer-review panels--with a majority of members from the workforce--are less formal, "allow people who know the company and worker relationships to make decisions," and usually lead to "quick and fair resolution of employee issues," Payson says. "What you choose depends on what you want to accomplish," he says. "If you want to avoid the court, but get a final decision--win or lose--arbitration is the vehicle. If you want conflict resolution at a minimal cost, but [want to] allow both parties to maintain control, look at mediation. If you want positive employee relations, use peer review."