Employment Law Q&A: Should I require my employees to sign arbitration agreements?

Q.        WHAT IS AN ARBITRATION AGREEMENT?

A.        Arbitration is a legal alternative to court used to settle disputes. Each party to the dispute presents their case before a professional judge or arbitrator that is chosen by agreement of the parties. Arbitration can be binding or non-binding. In binding arbitration, the decision is final and can only be overturned on appeal in very limited situations. Non-binding arbitration, on the other hand, is simply a tool that parties may use to determine the value of their case or choose to accept the outcome by agreement. Typically, there are one to three arbitrators selected and cases are presented in a hearing format, similar to a bench trial. 

Q.        MAY  I REQUIRE EMPLOYEES TO SIGN ARBITRATION AGREEMENTS THAT INCLUDE CLASS WAIVERS?

A.        Yes. The United States Supreme Court recently resolved this issue in Epic Sys. Corp. v. Lewis, No. 16-285, 2018 WL 2292444 (U.S. May 21, 2018) by holding that class action waivers in mandatory employment arbitration agreements are enforceable under the Federal Arbitration Act (“FAA”). In the Epic decision,  the Supreme Court ruled that arbitration agreements limiting employees’ ability to file a class action or a collective action under the Fair Labor Standards Act (FLSA) do not violate Section 7 of the National Labor Relations Act, which gives workers the right “to engage in … concerted activities for the purpose of … mutual aid or protection.”   This was a significant decision for employers who now have the ability to limit federal class actions and FLSA collective actions by requiring employees to agree that such disputes are subject to arbitration.  

Q.        SHOULD I REQUIRE EMPLOYEES TO SIGN ARBITRATION AGREEMENTS AS A CONDITION OF THEIR EMPLOYMENT?

A.  Although the Epic decision gives employers a significant advantage, employers must still evaluate their specific business needs prior to requiring that employees sign arbitration agreements.   Proponents of arbitration agreements believe that they provide the following advantages to employers:

1. Efficiency: Cases before an arbitrator can be heard more quickly than in a traditional court setting and the hearings tend to be less extensive and shorter than traditional trials.
2. Privacy: Hearings are confidential and private, and decisions are not published.
3. Convenience: Hearings may be held at a date, time and place where the parties agree.
4. Expertise: Rather than a judge or jury who are typically not experts in certain subject matters, the parties may select an arbitrator who is an expert in the area of law that is applicable to the case, and/or the specific industry.
5. Finality: Limited right to appeal.
6. Cost: Generally, any damages awarded will be less.
7. Limitation of Collective/Class Actions: Employers can limit burdensome class or collective actions.

Alternatively, other factors to consider include:

1. Cost:The cost of arbitration is not always less than the cost of litigation.In arbitration, the employer is typically required to pay the entire amount of the arbitrator’s fees.Many times, arbitration includes written and oral discovery, just as in traditional litigation.Arbitration filing fees are typically greater as well.
2. Finality or Lack Thereof: Finality may not always be a good thing.In fact, the lack of an appeal process can be negative if the arbitration decision is not favorable to the employer.
3. Inconsistent Awards: Arbitrators are known to “split the baby.”While most arbitrators follow the law and evidence, they are not bound by precedent and given the nature of the proceedings, may issue decisions that tend to appease both parties rather than provide a decisive ruling for one side or the other.

Whether to use an arbitration agreement, which includes a class waiver, is an individualized decision for your business.  Factors, such as having a large class of employees who are susceptible to wage and hour violations, how it will effect morale, the demographics of the locale in which your business is located, and size of your work force, are all issues to consider.   However, employers should definitely consider the use of such agreements for their business and mitigation of potential risk.  If you have not already done so, you should contact counsel and discuss whether an arbitration agreement is right for your business.