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Arbitration agreements: An epic idea for employers?

🕐 3 min read

The U.S. Supreme Court’s 5-to-4 decision in Epic Systems v. Lewis early this summer weighed in favor of business, although labor and other employee organizations were only one vote behind the curve.

The ruling confirmed that arbitration agreements are enforceable as a condition of employment and do not violate employees’ legal rights. Moreover, the ruling found that these agreements are enforceable even when they deny employees the right to purse a class or collective action.

To the contrary, said Justice Ruth Bader Ginsburg. Writing for the four dissenting justices, she called the ruling “destructive” and predicted that it would lead to under-enforcement of laws that are designed to protect workers.

For those who are not familiar with arbitration, it is a “private system” for resolving legal disputes. If an employee signs an arbitration agreement, the employee cannot pursue a lawsuit in court or be heard by a jury. Instead, the employee’s legal claim is filed with a private organization, such as the American Arbitration Association (AAA), and heard by an arbitrator. The arbitrator’s decision is not public and is usually final. In fact, the options for appeal are almost non-existent.

Arbitration agreements have been criticized by the #MeToo movement for allowing sexual harassment claims to be kept secret. Several states have passed or are considering legislation to prohibit mandatory arbitration of sexual harassment claims. It is unclear whether those laws will be pre-empted by the Federal Arbitration Act, which effectively governs the arbitration process.

Certainly, arbitration is a hot topic, and business owners are paying attention. Many are now asking whether arbitration agreements should be required as part of their hiring process. For those who want a black or white answer, that’s not possible. The answer is “it depends.”

Arbitration is generally faster than litigation; a properly handled case can be resolved in months, not years. The result is confidential, and thanks to the Epic Systems case, collective and class actions can be avoided. These factors are attractive to employers.

The biggest drawback to arbitration, especially for smaller employers, is cost. Arbitration providers generally have rules that limit what an employee can be charged to pursue a claim. For example, under AAA rules, an employee may only be charged a $300 filing fee, leaving the employer to pay the arbitrator (who is usually an experienced lawyer with a high hourly rate), AAA administrative fees, and their own attorneys’ fees.

Some employers report good results with arbitration. Halliburton, for example, has a comprehensive dispute resolution program that includes mediation and arbitration, as well as a benefit that pays up to $2,500 of the employee’s legal consultation fees. The program was upheld by the Texas Supreme Court in 2002, and Halliburton has touted its success.

Employers considering whether to use arbitration agreements should work closely with their legal counsel to assess the pros and cons. The agreements themselves must be drafted carefully to comply with applicable state and federal law. When implemented with care, arbitration agreements can be a valuable investment in controlling litigation risk.

Vianei Lopez Braun is a shareholder in Decker Jones PC. She represents employers in many business sectors and provides litigation defense, compliance assistance and practical advice.

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