Arbitration is a form of alternative dispute resolution, aimed at resolving disputes outside of the traditional court system. You can find more information about arbitration, and alternative dispute resolution generally, here. In context of employment agreements, mandatory arbitration requires employees to utilize arbitration instead of the public court system and these agreements are typically entered into as a condition of employment. If you decide that mandatory arbitration is right for your business, you need to ensure that the arbitration agreement you have in place is enforceable and effectively achieves your goals.
Are Mandatory Arbitration Agreements Enforceable?
When determining whether mandatory arbitration agreements are enforceable, courts will look at the substance of the agreement, as well as the procedures followed when the employee signed the agreement. When reviewing the substance of the agreement, courts will consider many provisions including:
- The cost of arbitration to the employee;
- Limitations on relief available to the employee in relation to available relief in the public court system;
- Whether both the employer and employee are bound to arbitration; and
- Overall imbalance in the obligations imposed on the parties.
Proper procedures also need to be followed when entering into mandatory arbitration agreements with employees. Courts may hold an agreement is “unconscionable” and, thus, unenforceable if the process isn’t seen as being “fair.” Factors a court will consider when determining if an agreement is enforceable are:
- The time an employee was given to review and consider the agreement;
- Whether an employee was permitted to speak to an attorney about his rights before signing the agreement;
- Whether the employer threatened the employee with the loss of his job or other employment benefits if he didn’t accept the arbitration agreement;
- Whether the employee was told the agreement wasn’t important or it wasn’t necessary to read before signing; and
- Whether the agreement was in fine print inconspicuously located on the bottom or back of documents.
What Provisions Should Be Included in a Mandatory Arbitration Agreement?
There are many issues for employers to consider when drafting arbitration agreements. The following discussion considers many of those topics, but is not intended to be an exhaustive list. Business owners should consult with experienced counsel before implementing arbitration agreements. Additionally, different states have different standards regarding the enforceability of mandatory arbitration agreements, and seeking counsel will help ensure the agreement you utilize will be upheld in your state.
Some key topics employers should consider including in their mandatory arbitration agreements include:
- What claims are covered;
- The statute of limitations or time allowed to assert a claim;
- The process to be followed to resolve a claim, including how many arbitrators should be involved in the process and the scope of the arbitrator’s authority;
- The selection of a neutral arbitrator;
- Discovery process;
- Who is responsible for arbitration costs and fees;
- A requirement for a written award to allow for adequate judicial review;
- A provision allowing recovery of all types of relief that would otherwise be available in court;
- Mutuality Clause – employers should consider making the duty to arbitrate employment-related disputes binding on both the employee and employer. This “mutuality” is required in some states and often increases the likelihood a court will uphold the agreement;
- Survival clause – this clause should indicate that the duty to arbitrate survives termination of the agreement; and
- Employers should avoid language that reserves the right to modify, amend, or revoke the policy at any time without notice. If a right to modify or revoke the agreement is included, it should also include language requiring a notice period and limits on the timing and method of modification.
There are claims that cannot be arbitrated, such as workers compensation and unemployment compensation claims, so an arbitration agreement should exclude application to these types of claims. There may also be claims that the employer doesn’t want to go to arbitration, because they’d rather seek relief in the traditional court system. For example, if an employer believes they may want to enforce restrictive covenants, such as non-compete and non-solicitation agreements, they may want to exclude these claims under the agreement or provide language specifically allowing the employer to seek injunctive relief from the court. The agreement should also be kept separate from the employee handbook, since typically documents indicating receipt of the employee handbook also include language that it doesn’t create a contract of employment.
Call General Counsel PC Today
There are various other provisions that can be included in such agreements and employers should seek counsel from attorneys experienced in drafting and litigating these agreements so they can help you tailor an agreement that best fits your business, as well as remains enforceable. Attorneys at General Counsel PC are experienced in employment law and arbitration matters and have helped businesses and individuals across Virginia, specifically in Fairfax County, Arlington, Loudoun County, and Prince William. Call General Counsel PC at 703-991-7973 today to see how we can help you.