Publications

Arbitration: Is It The Answer?

By Robert M. Steiert, Esq.

Although Joe was a top executive at his company, he considered finding a new job when the Board of Directors began discussing a possible merger with a Houston corporation. The new company would need only one Vice President of Distribution, and, even if he got the job, his ski-racing daughter would hate Texas. As Joe picked up the phone to return a headhunter’s call, the CEO stopped in his office. She gave him a Change of Control Agreement that promised one year’s salary and benefits, a maximum bonus, and full vesting of his stock options if he were laid off as a result of a change of control of the company. Feeling protected, Joe decided to stay with the company and help make the merger successful.

The merger went through and Joe was laid off. When he requested his severance benefits, the new company denied his claim. Joe felt comforted knowing that he wouldn’t have to sue anyone since the Change of Control Agreement required the parties to arbitrate all disputes.

Unfortunately, Joe quickly learned that arbitration isn’t always the answer. The arbitration had to be filed in Houston, he had to pay $5,000 as his share of the arbitrator’s fees, and he still had to prove his case with the same evidence he would need in court. He couldn’t get the key records from the company or depose any witnesses because the arbitration provisions did not provide for discovery. After he received the list of potential arbitrators, he learned why the employment agreement required the parties to use the “XYZ Arbitration Association." XYZ Arbitrators had a habit of ruling in favor of the employer.

Joe’s story is fictitious, but some real cases have been worse. Fortunately, if the arbitration provisions are overly oppressive, a court may strike them down as unconscionable. If an employee’s claim involves the violation of a statute, like an age discrimination claim, the arbitration procedure must provide an effective means to remedy the violation.

If you have a claim subject to an arbitration agreement, you may need an experienced attorney to handle the difficult issues which arbitration usually involves.