Do your employees sign arbitration agreements? If so, do your arbitration agreements prevent employees from joining class actions against your company? Does your company want to start requiring arbitration agreements? If “yes” is the answer to any of these questions, some recent court decisions raise a few issues to keep in mind.
Let’s first take a step back. What is an arbitration agreement? Arbitration agreements require employees to bring any claim against the company through arbitration, not the court system. This means that if a current or former employee wants to sue you for anything – including age discrimination, harassment, or failure to pay overtime – the employee must go through arbitration. The employee cannot file a civil lawsuit.
With this background in mind, below are several items to consider as you review your arbitration agreement or think about drafting one.
Arbitration agreements come in all shapes and sizes and will vary depending on your objectives. But they share some common characteristics. Make sure your agreement is:
- Clear (you don’t want to spend any significant time arguing about whether the arbitration agreement applies at all or whether it applies to a specific dispute).
- In writing.
- Signed by the employee.
The agreement should expressly state that certain disputes – be sure to include what kinds of disputes – must be brought through a specific arbitration body. And don’t forget to include what state’s law applies.
Clearly Include Class and Collective Action Waivers
In addition to forbidding individual lawsuits against the company, arbitration agreements can prevent employees from participating in class and collective actions against the company. If your company wants to include this restriction in the agreement, be sure to specifically state that the employee waives any right he or she has in bringing a class or collective lawsuit or class or collective arbitration against the company. Remember a class of individuals can bring an arbitration claim just like a class can bring a lawsuit in the court system – so make sure to state the employee waives the right to bring a class or collective lawsuit, and a class or collective arbitration.
Include Class and Collective Action Waivers – Even After a Suit Has Been Filed
The above points are relevant if you’re thinking about including arbitration agreements going forward or if you’re dusting them off and editing your current ones. But what if you already have arbitration agreements in place, but didn’t forbid class or collective action? You may not be out of luck. In Cordúa Restaurants, Inc., the National Labor Relations Board recently found that if you are sued in a class or collective action, you can update your existing arbitration agreement to include a class or collective action waiver while the lawsuit is pending. This amendment will bar employees from opting into the pending litigation. Even more, the NLRB found that you can warn employees that their failure to sign the updated mandatory arbitration agreement will result in termination. This means that if your current arbitration agreement doesn’t prevent employees from joining class or collective actions, you can update those agreements – even during pending litigation – to prevent employees from bringing or joining such actions against the company.
Pay Attention to State Laws that Affect What Can Be Included in the Arbitration Agreement
Class and collective action waivers are enforceable, but be careful to draft these waivers so they do not conflict with state law requirements. For example, in California, arbitration agreements cannot limit the remedies to which an employee would otherwise be entitled in court. Additionally, California law requires employers to pay for any arbitration costs that go beyond what the employee would be expected to pay in court.
Arbitration agreements, while not a good fit for every company, are a useful tool for many. If you decide to use them, just be sure to carefully draft them so they achieve your goals. And don’t forget to periodically review and revise those agreements to keep them up to date.