Do Courts Create Moral Hazard?
State courts are creating conditions for moral hazard in the arbitration of employment disputes. The problem begins when employers compel individuals to arbitrate their legal claims, denying them access to juries and other benefits of a trial. This empirical study identifies a disturbing trend. State courts vacated many arbitration wins for employees, but not for employers. My database has 443 federal and state court rulings from 1975-2007. Remarkably, state appellate courts confirmed only 56.4% of employee wins in arbitration. But when the same courts ruled on employer victories, they confirmed 86.7% of awards. The difference in rates was statistically significant. Similarly, federal appeals courts upheld 85.7% of employer wins. Lower courts behaved like appellate courts. These state courts confirmed only 77.6% of employee wins, while federal district judges enforced 92.7% of these awards. The lopsided results suggest a moral hazard. When courts vacate many awards that rule for employ
