Most employers understand that employment-related disputes are an unfortunate but unavoidable cost of doing business. While employers can of course take proactive steps to reduce the chances of such disputes, and while they can also take steps to increase the likelihood of favorable outcomes, these measures won’t necessarily prevent employees from claiming that they were treated unfairly. Whether or not an employee’s claims have merit, whether or not all their allegations are true, the lawsuits that they file will be expensive.
For these and other reasons, many employers prefer to resolve disputes with employees through a binding and confidential process presided over by a neutral arbiter according to an abbreviated set of procedures (i.e., arbitration) rather than in court (i.e., litigation). When agreeing to arbitrate claims with an employer, employees waive their rights to have their alleged grievances heard by a judge or a jury in court. They may also release their rights to participate in a class or collective action lawsuit. Fortunately, the U.S. Supreme Court held in 2018 that class and collective action waivers in employment arbitration agreements are enforceable and don’t conflict with the National Labor Relations Act. See Epic Systems Corp. v. Lewis, 138 S. Ct. 1612, 1622–24 (2018).
Special considerations should be taken when preparing agreements to arbitrate between employers and employees because the parties to employment arbitration agreements, in contrast to arbitration agreements between sophisticated commercial entities, have unequal bargaining power.
There are several vehicles for employers and employees to indicate their agreement to arbitrate employment-related disputes. For example, employers and employees may enter into separate arbitration agreements (which make it difficult for the employee to deny their agreement to arbitrate employment-related disputes). Alternatively, arbitration provisions may be contained in other agreements signed between the employer and employee (for example, offer letters, non-compete agreements, confidentiality agreements, or severance agreements). Employers should also consider explaining their policy to arbitrate employment-related disputes in their employee handbook, which employees should always give written acknowledgment of having received.
As mentioned, arbitration agreements can help employers avoid costly class or collective actions, including costly suits alleging wage and hour claims or other employment-related claims. Arbitration may also be less expensive because it frequently requires the parties to engage in less extensive motion practice and discovery by comparison to court proceedings; for the same reasons, it may also be quicker. Arbitration also lets employers avoid potentially negative publicity to the extent that arbitration proceedings are generally less public than court proceedings; although it should be noted that arbitration proceedings are not automatically confidential under existing law.
While arbitration certainly has its advantage, it may also have a number of drawbacks. Arbitrators are paid by the hour. For this reason, whether subconsciously or unconsciously, they may be less inclined to grant dispositive motions (e.g., motions for summary judgment, motions for judgment on the pleadings, motions to dismiss) in favor of allowing the dispute to proceed to a full hearing on the merits. Arbitrators are also more likely to allow irrelevant or potentially prejudicial evidence to the extent that the rules of evidence are much more relaxed in arbitration proceedings than those that apply in court.
Employers must also understand that court decisions and laws regulating the enforceability of arbitration agreements—as well as what kinds of employment-related claims are properly arbitrated—are in a state of constant flux. Changes in this dynamic area of the law can happen rapidly, and there can be significant differences between jurisdictions. For these reasons, employers should regularly review their arbitration agreements and any other contractual documents with their employees, as well as their employee handbooks and policy manuals, to ensure that their arbitration agreements, clauses, and policies are current and enforceable under applicable law.
A full discussion of agreements to arbitrate and related issues surrounding their drafting and enforceability in the employment context is beyond the scope of this article. A number of factors can inform an employer’s decision over whether to require employees to agree to arbitrate employment-related disputes. Each set of circumstances is unique, no risk can ever be fully eliminated, and no particular strategy or outcome can ever be predicted or guaranteed with certainty.
If you have questions or concerns about arbitration agreements, then you should contact an attorney licensed to practice in your jurisdiction. The different facts and circumstances surrounding a particular employer-employee relationship will determine what options may be available. You should contact an attorney licensed to practice in your jurisdiction for additional information about this area of the law.
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A, and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.