Costs and results of arbitration of employee disputes

Law department managers are bombarded by data about ADR, yet unbiased conclusions are hard to reach about its cost effectiveness compared to litigation. Inc. Magazine (June 2005 at pg. 34) summarized a report by the National Workrights Institute, based in Princeton, NJ. The article did not indicate any particular leaning of the Institute, although by its name it is probably pro-employee, nor anything about the study’s methodology, but here are the salient stats.

Employees who arbitrated disputes prevailed 62% of the time, while those who litigated prevailed 43% of the time. The median monetary awards were close: $63,000 for arbitration, $68,000 for court. Arbitrations were resolved in a median eight months, whereas court cases took a median twenty-four months. As to this cycle time, most studies find that total costs of outside counsel increase faster than linearly as cases drag on, so I assume that external costs of litigation were more than three times the arbitration costs – but the excerpt in Inc. says nothing about this supposition.

In short, comparing arbitration to litigation, you lose more often when you arbitrate (about 50% more), pay a smidgeon less in awards, but conclude the matter in one-third the time (and likely at less the cost).

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