Are Arbitration Clauses Good For Executive and Professionals in Employment or Severance Agreements?

Executives and professionals, when you are negotiating your new employment agreement or your severance package, do you pay attention to the conflict resolution provisions? Many such agreements have mandatory arbitration provisions. Should you even worry about them?

The answer is that you should. Although many people will sell you on the virtues of arbitration agreements, alleging that they will make any dispute cheaper and shorter to resolve, the fact is that arbitration agreements have serious consequences that often outweigh their alleged benefits.

First, arbitrations are often more costly than trials. Why? Except in some states that require employers to cover all arbitration fees, participants in arbitration, including in Utah, usually are required to share the arbitration fees (unless the parties agree otherwise). This means that you will not only be paying your lawyers, you may also be paying the arbitrator (or arbitrators) whose fees are often set higher than your own attorney’s.

Second, arbitration restricts your ability to appeal from a bad result. If an arbitrator makes a mistake, Utah statutes preclude you from appealing an arbitrator’s decision except for the most egregious conduct only. In other words, if the arbitrator makes a clear mistake in applying the law, you are stuck with the bad decision without any recourse.

Thus, all executives and professionals should think long and hard before agreeing to an arbitration provision in an employment or severance agreement.