Why arbitration is tailor made for professional firms

Dispute Resolution Journal, Feb-Apr 2003 by Shumaker, Edward E III

Safeguarding a reputation for professional expertise and good judgment is of paramount importance to business professionals. Whatever profession you are in, a good public image is difficult to earn and easy to lose. In today's litigious, media-driven times, negative publicity (e.g., from a financial fraud claim by a disgruntled partner, a malpractice claim by a dissatisfied client, or a discrimination or harassment claim by a terminated employee) can have a devastating effect on the reputation of the business, even if the story is completely untrue.

Today, every professional practice is potentially vulnerable to lawsuits by employees for termination and other employer decisions that adversely affect the employee's life. For example, take a professional practice that terminates a receptionist after she reveals that she is pregnant, or after she rebuffs the romantic advances of the managing partner. Or a firm that does nothing after an employee makes repeated complaints about sexual harassment by a junior partner. These firms should expect to be the subject of a charge with the Equal Employment Opportunity Commission, or the analogous state agency, and very likely a lawsuit.

Administrative and support staff are not the only potential plaintiffs in employment litigation against the firm. Lawyers, architects, engineers, accountants, and others have been plaintiffs in lawsuits against their firms. Although they may be partners or shareholders, they are nevertheless employees who can assert federal and state civil rights statutes when they feel their rights have been violated. Even a decision by a professional firm not to extend an offer to join the partnership, according to the U.S. Supreme Court, can be challenged under the employment discrimination laws.

It was not always the case that professionals sued each other. Historically, when disputes arose within a professional practice, such as between doctors or lawyers in partnership, they were resolved privately. If the dispute was serious and the partners could not reach an agreement, the partnership dissolved, and the partners went their separate ways. It is only in recent decades that members of professional partnerships will seek to resolve their disputes in court.

Large professional firms, such as those with nation-- wide and international offices, are particularly vulnerable because they are more impersonal (some partners in the larger law and accounting firms have never met each other). Past a certain size (which may not be all that large), there is a diminished sense of loyalty to the enterprise and a greater willingness to challenge its authority.

Whenever a professional firm is involved in litigation, it is a virtual certainty that the plaintiff will make allegations that do not place the firm in a good light. Moreover, the plaintiff undoubtedly will seek disclosure of information that the firm will not want to make public. During the litigation, the firm's fee structure, profits, client list, personnel policies, past personnel problems, malpractice claims or professional conduct complaints may become fod- der for the jury and the media, which is always hungry for new stories. A medical provider, architect, lawyer or accountant can easily imagine the harm that may result from such disclosure.

The litigation will not only gobble up lots of employee time defending the claim in court, it will have other costs as well (even if the firm's insurance company is paying to defend it). One is the emotional stress of litigation. When the allegations go to the competence and judgment of a professional firm-its main commodity-the emotional toll can be awful. Even if the firm prevails in the lawsuit, the stain of bad publicity is hard to remove.

Professional firms should have good legal counsel to advise them how to navigate in the litigious waters in which they must swim, and how to reduce their litigation exposure, particularly to statutory employment lawsuits.

To minimize the potential for bad publicity and other impacts of litigation, they should contemplate using arbitration to resolve as many kinds of disputes as possible. Arbitration has the advantage of being more efficient and less costly. Unless the parties otherwise agree, or the proceeding involves a public agency, the arbitration is private and conducted outside the presence of the public and the media. An agreement to arbitrate claims can also help control the cost of settling a case, since plaintiffs' lawyers believe that an employer will often pay a high premium to keep certain kinds of cases out of the public eye.

The agreement providing for mandatory employment arbitration should be drafted by an experienced employment lawyer with the applicable laws and judicial standards of fairness in mind. This is not difficult and well worth the effort, since the Supreme Court has left no doubt that the law favors arbitration, that arbitration is a legitimate method of resolving employment disputes, and that when a valid employment arbitration agreement is in place, employees will be held to that agreement. This is so even if the claims are based on statutory violations, such as discrimination.