Courts in almost all of the federal circuits have ruled that an employer may require compulsory arbitration of employment disputes as a condition of hire. The Ninth Circuit (Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington), however, will not let employers compel employees to waive their Title VII right to a judicial forum. If you’re in one of the states in which an employer has not been barred from requiring mandatory arbitration, what must you do to insure that your company’s arbitration agreement will pass legal muster? Here are some tips:
- Provide adequate consideration.
Agreements to arbitrate require a contractual relationship between the employee and the employer. New employees should be required to sign such an agreement at the time of hire as a condition of employment. As to current employees–while there is some authority that continued employment constitutes “adequate consideration”–a more cautious approach would be to give current employees something additional for signing such an agreement. It could be a payment of money, or the agreement could be presented as a prerequisite to participation in any future bonus plan or stock grant. Obviously, an employer can also wait until a dispute arises and then offer the employee an opportunity to agree to binding arbitration.
- Make a full disclosure.
Make it clear that signing a pre-dispute agreement for binding arbitration is a condition of employment by clearly describing this requirement in the employment application, any offer letter, and the employee handbook, but most importantly in a separate and clear agreement. The employee should be given such an agreement to review at the time of hire as well as be given all rules and procedures governing that process.
- Make the agreement mutual.
The agreement to use binding arbitration should be mutual, with both the employee and the employer agreeing to use the process.
- Clearly and unmistakably define what types of claims are covered.
The agreement should clearly state that it is being made under the provisions of the Federal Arbitration Act (9 U.S.C. Section 1-14) and will be construed and governed accordingly. The type and scope of claims covered should be very carefully enumerated. Will it cover more than civil rights claims? Will it cover breach of contract claims, tort claims, etc.? Further, the agreement should contain a provision stating that if any specific term is held invalid or unenforceable, then the remainder of the agreement still will be binding.
- Do not take away rights to legal remedies.
The arbitration agreement must provide employees with the same substantive relief and remedies that they could obtain in a court of law. Any attempt to “short-change” or eliminate remedies or relief, such as limitation on punitive damages, could possibly jeopardize the agreement’s enforceability. The agreement should clearly state that employees retain their right to file administrative claims with federal or state agencies, but in the event the employee files a lawsuit the employer reserves the right to have the lawsuit dismissed and to compel arbitration.
Cite: Goldstein, Joseph I. and Payson, Martin F., Compulsory arbitration: Are mandatory agreements to arbitrate employment disputes enforceable under current law? CCH Journal of Alternative Dispute Resolution in Employment, Vol. 1, No. 1, June 1999.
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