The United States Supreme Court’s decision in Circuit City v. Adams conclusively established an employer’s ability to unilaterally require non-union employees to submit their employment disputes to binding arbitration. The Court’s decision resulted in a deluge of articles regarding the legal intricacies and the significance of the opinion itself. This article focuses on practical application of the Court’s historic decision. It equips employers with the ability to focus on issues which should be addressed before legal counsel is contacted to draft an arbitration agreement, as well as implementation issues, allowing employers to engage legal counsel more effectively and efficiently.

An arbitration program is similar to many other human resource initiatives: the most effective and efficient policies and programs are tailored to the needs of the organization. The most successful practices also avoid issues which can undermine their usefulness or enforceability. Further, knowing which matters to avoid will help employers focus on the issues which need to be addressed while maintaining realistic expectations. Moreover, a defective or poorly implemented arbitration program can result in an unenforceable agreement which, in turn, permits the employee to sue in court. Developing and implementing an arbitration program requires attention to the following key issues:

DEVELOPMENT

I. Who will be covered?

Employers must decide who will be covered by the arbitration agreement in two respects:

a. the employees who will be required to arbitrate their claims. Such agreements may be limited in application to new hires, employees within certain departments, divisions, jobs or certain types of employees such as executives, management, supervisors or line staff.

b. the potential litigation targets. This includes the company, its parents or subsidiaries, management and supervisors.

II. What matters should or should not be covered by the arbitration program?

Employers must determine:

a. the nature of the employee claims to be covered by their arbitration program. Generally, Courts interpret such agreements narrowly and hence, the agreement must include statutory claims arising under various State and Federal laws;

b. who will pay the arbitration costs and the means of payment. Employers should consider eliminating or at least limiting costs to the employee which are associated with the process itself. Requiring employees to equally share in the payment of the arbitrator’s fee could be construed as foreclosing meaningful access. Where the employer agrees to cover the costs of arbitration, the service provider should provide a payment method that prevents the arbitrator from knowing the source of his or her fees. This will render sterile any subsequent argument that the employer "bought" the arbitrator. Employers should decide whether to require employees to pay some or all of the administrative filing fee provided such is no more than the cost of access to other sources such as a court or arrange a hybrid system that provides a certain amount of free access while limiting the likelihood of abuses;

c. whether there are standards imposed by the arbitration provider prior to accepting a case (e.g., JAMS/Endispute, American Arbitration Association).

Employers should keep in mind that arbitration is a forum shifting device. The focal point is to take advantage of cost savings within a less litigious process, obtain an expedited resolution, and place such matters before a trained neutral who will apply the law to the facts and is less likely to be swayed by passion or award staggering damages. In order to retain these advantages, employers should NOT attempt to eliminate or limit any of the following:

a. access to administrative agencies;

b. remedies available to potential litigants, including punitive damages and attorney’s fees;

c. the time period within which an employee can bring a claim;

d. meaningful access to the arbitration process by:

i. imposing high costs or sanctions for frivolous claims;

ii. eliminating or greatly limiting access to information (discovery);

iii. making the program procedurally unfair;

iv. using a "company arbitrator." The program should include a process which allows, to the extent possible, joint selection of the arbitrator;

v. imposing oppressive terms. Instead, be generous in protecting employee rights, access and remedies.

III. Why should certain classes of claims be exempt from arbitration?

Employers must decide whether certain claims or issues should be excluded from the arbitration program. The number and types of exclusions should be minimized as such can cause a court to find the arbitration agreement is unenforceable. Such exclusions generally center on the employer’s need to promptly obtain a court order, for example, to prevent an the employee from violating his or her non-compete agreement. An employer should determine whether it needs to exclude the following:

a. restrictive covenants, including non-compete agreements;

b. trade secret and confidentiality issues or agreements;

c. intellectual property issues.

 

Once you have obtained a copy of the draft agreement from legal counsel review it carefully making certain it is written in plain, readily understandable language.

IMPLEMENTATION

IV. When will coverage begin?

a. parties can always enter into a post-dispute agreement to arbitrate;

b. upon formation of a valid, enforceable agreement to arbitrate.

V. How will you obtain an employee’s "agreement" and communicate the program?

Employers need to determine:

a. the quid pro quo it will provide employees in exchange for their agreement to arbitrate. This can include:

i. initial or continued employment;

ii. other incentives such as a cash payment or incentive, vacation, sick or holiday time;

iii. individual employment contracts. Employers can enter into an employment agreement with select groups of employees, such as middle management or supervisory employees, and include provisions for mandatory arbitration of employment disputes. The duration of such agreements can be limited to a one year contract with a reciprocal 30 or 60 day right to terminate the agreement with or without cause.

b. Inform employees about the program, the means to obtain access and the effect of signing it. Employees should be informed that their only means to resolve any employment related claim is through the arbitration process and that they are forever precluded from personally pursuing such matters before a jury in a court of law and, in many instances, from seeking a recovery through State or Federal agencies. In addition to the arbitration agreement itself, communicating the program to employees should include the following:

i. notify employees of the program well before implementation;

ii. include it within the company handbook or employee manual, but only for notice. Explain the entire process, but make certain that the agreement to arbitrate is a separate document. Among other things, every handbook should contain a clause in the front of it stating that it is not a contract. Consider revising your handbook to include the full description of the arbitration process;

iii. employers with a multi-lingual workforce need to make arrangements to communicate the program, orally and in writing, in the language(s) spoken by its employees;

iv. only provide responses to inquiries which do not seek legal advice. If you believe the inquiry seeks legal advice, inform the employee they should consult with an attorney;

v. provide training to employees regarding the process. Explain: the process, the types of claims covered and not covered by the process and the way to invoke the process. Encourage employees to invoke the process promptly for any covered claim;

vi. inform new hires regarding the arbitration agreement prior to their start date. Provide notices and/or the agreement within the job application. Provide all prospective employees with the agreement BEFORE they accept your offer of employment, resign from their current position with another employer and/or start with your company. Provide the agreement as a separate document enclosed with the offer letter or as part of the offer letter;

vii. use acknowledgment of receipt forms;

viii. make sure all employees execute the agreement without any noted exceptions, changes or modifications. A signature "under protest" is not valid. Be prepared to deal with those who refuse to sign the agreement;

ix. let employees negotiate with you regarding the agreement and document it. You are not required to concede to their demands;

x. post a copy of it with your other postings;

xi. avoid overselling the program to employees. An employee may be able to overcome the arbitration requirement if s/he can satisfy the a court that the arbitration agreement was obtained fraudulently. Provide a middle-of-the-road description of your arbitration program.

This article is designed to provide general information on the topic presented and is provided with the understanding that the author is not rendering any legal or professional services or advice. This article is not a substitute for such legal or advice. If such services are required, you should retain competent legal counsel.