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Employment practices insurance will be significantly impacted by a decision of the U.S. Supreme Court upholding agreements which require employees to arbitrate any employment disputes, rather than sue in court. The ruling provides an incentive for employers — and insurers writing Employment Practices Liability (EPL) policies — to manage more effectively the risk of costly litigation by implementing mandatory arbitration agreements, as well as other alternative dispute resolution procedures (“ADR”). Certainly, claims personnel always should ascertain whether the insured has in place ADR mechanisms — including mandatory arbitration — once a claim is received. THE COURT’S DECISION The Supreme Court has made it easier for employers to resolve workplace disputes through the use of arbitration procedures rather than the courts. In ruling that employment agreements containing arbitration provisions are enforceable under federal law, the Supreme Court settled conflicting opinions among the lower courts as to whether employers could require employees to submit disputes to arbitration rather than file lawsuits. Employers now have a reliable alternative to courtroom litigation as a means to redress employee complaints. See Circuit City Stores, Inc.v.Adams, 121 S. Ct. 1302 (2001). In its 5-4 majority ruling in favor of arbitration, the Court considered Jackson Lewis’ “friend of the court” brief on behalf of the Society for Human Resource Management. While highly unusual, the Court specifically referred to the various amicus briefs in its decision. Although the Supreme Court now has said arbitration agreements are enforceable, it did not address the practical issues regarding implementation. Employers wishing to construct these agreements must be very careful in how they draft them, because the lower courts have been deeply troubled by arbitration processes that are one-sided. The Supreme Court did not address the details. Considerations and Implications For EPLI Carriers and Employers In the wake of the Circuit Cityruling, employers now should be evaluating the pros and cons of arbitration to decide whether it is right for their workplace. There are, in fact, a number of points favoring arbitration over courtroom litigation: disputes may be resolved more quickly and efficiently; proceeding through arbitration is generally less costly; arbitrators are believed to be “expert” decision-makers bringing specific knowledge and experience to the table, as opposed to lay jurors; arbitration may provide a “user friendly” vehicle for both employee and employer; and arbitration may provide a system that insures fairness and due process. Of course there are employer concerns, for example: a fear of proliferation of employee disputes; the difficulty of overturning an arbitrator’s unfavorable decision; a tendency among arbitrators to “split the baby” to resolve the dispute; and inclusion of evidence that normally would be excluded from a court proceeding. Nonetheless, ADR has been given a tremendous impetus by the Court’s recent ruling. As part of an overall risk management program, insurers may consider reductions in premiums/retentions for EPL insureds who adopt mandatory ADR procedures. Steven D. Baderian and Paul Siegel, partners at Jackson Lewis Schnitzler & Krupman, may be contacted at [email protected], (914) 328-0404 or [email protected], (516) 364-0404.

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