Avoiding Employee Benefits Litigation: An ADR Checklist

Labor and employment disputes cause the greatest concern to companies as they look ahead, significantly more so than last year, according to Fulbright & Jaworski's just-released 2006 Third Annual Litigation Trends Survey Findings. Further, the survey reports that legal costs and the threat of punitive damages are leading concerns among respondents. The average litigation expenditure for U.S. companies surveyed has increased by 50 percent from last year, to $12 million, a number that does not include ultimate case settlement or judgment payments. One-third of the survey participants had at least one class action pending, as compared with 18 percent from the year before.

Expanded use of alternative dispute resolution (ADR) can avoid or minimize the need to go to court. Many lawyers mistakenly believe that ERISA claims are not arbitrable, and that an employee is entitled to his day in court. ERISA claims cover a broad field, including claims for benefits, severance pay, breach of fiduciary duties, actions challenging investment decisions, plan interpretations, anti-retaliation and discrimination, and executive compensation, and they are all appropriately subject to mandatory mediation and arbitration. Comer v. Micor, Inc. , 436 F. 3d 398 (9th Cir. 2006); Simon v. Pfizer, Inc ., 398 F. 3d 765 (6th Cir. 2005). See Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) ('[The] duty to enforce arbitration agreements is not diminished when a party bound by an agreement raises a claim founded on statutory rights.')

The relationship between employer and employee is one that generally starts out friendly and optimistic: I like you, you like me. However, if you read employee benefits cases for fun or profit, you will be struck with the fact that these cases drag on for years, turn on procedural and statutory interpretative arguments that only an ERISA lawyer could love, are very expensive, and leave employee and employer bitter and exhausted. See Feibusch v. Integrated Device Technology, Inc., Employee Benefit Plan , 2006 App. LEXIS 22743 (9th Cir. 2006), (an unhappy administrative assistant with shoulder pain spent seven years trying to get to a reversal and remand by the 9th Circuit); Abatie v. Alta Health and Life Insurance Company , 458 F. 3d 955 (9th Cir. 2006) (en banc) (a widow seeking insurance benefits in 2000 spent six years en route to a lengthy en banc opinion, reversing prior law on the subject of standard of review in a conflict of interest situation, and remanding for more proceedings at the trial court.)

Going to court is certainly one form of dispute resolution, but hardly a cost efficient one, and certainly not one to use if there is any interest in preserving the relationship between the parties, who aren't getting along right now but might want to get along again in the future. Nor is it an efficient way to analyze the nature of a fiduciary obligation between parties, or to sort through the complicated and emotional facts that surround the employment relationship, especially when an employee's health and retirement benefits are at stake, emotions are running high, and time may be of the essence.

ADR procedures can be tailored to the employee benefits area. The following are some steps that employers should consider implementing to create a well-functioning ADR policy to handle employee benefits disputes:

Review all employee benefits plans.

Are they current? What corporate changes have occurred that might necessitate revisions?

Insert consistent and tailored mediation and arbitration procedures in all plans and related documents.

Develop an internal and progressive grievance procedure.

Employee submits an informal written statement of grievance, supervisor meets and responds, establish a three-person panel with an officer and various levels of other employees.

Require mediation if internal resolution fails, followed by mandatory arbitration.

Specify an ADR provider that has deep roster of experienced and trained mediators and arbitrators and has a set of clear employment arbitration rules that will withstand judicial scrutiny for procedural and substantive fairness. (See JAMS Employment Arbitration Rules and Procedures, www.jamsadr. com/rules/employment-guide.asp.)

Communicate, communicate, communicate!

Explain the procedures at the time of hiring, and have supervisors and managers revisit them annually. Communicate any plan changes as soon as possible in writing and in detail.

Establish employee ombudsmen with the responsibility and the resources to recognize and intervene in problems early.

Assign HR employees to business units with the mandate to keep on top of employee concerns and discontent.

There are no guarantees, but these procedures have helped reduce litigation in companies that have used them, and have fostered a better workplace environment.

Published November 1, 2006.