Employers: It Is Time To Maximize Your Arbitration Agreements– Posted by Tyler J. Moore
If an employer spends time, money and effort drafting and entering into arbitration agreements with its employees, the employer should maximize return on that investment. When creating an enforceable arbitration agreement, employers should consider provisions designed to maximize the company’s benefit and/or minimize the company’s liability and litigation expense. Arbitration agreements are a contract entered into by the parties; parties to a contract are presumed to be bound to any term agreed upon, as long as the term is not illegal (such as agreeing to commit a crime).
Employers should strive to maximize the value of their arbitration agreements by including terms that will provide the greatest benefit. The first term the employer should consider is what disputes should be covered by the arbitration agreement. Do you want to arbitrate any and all disputes? Do you want to allow the parties to litigate specific issues, such as unfair competition and/or enforcement of a non-competition agreement, to allow immediate access to the judiciary and fast relief in the form of a temporary restraining order or preliminary injunction? Another consideration should be what arbitration rules will apply to the agreement. All courts have adopted state and local “court rules” that govern the litigation of a specific case. Arbitration proceedings do not necessarily have such rules, and some arbitrators have adopted rules that can be included by the parties. Employers may want to adopt rules that limit burdensome discovery, which can reduce the cost to the employer in having to litigate the issue. In addition, the agreement can set the location of the arbitration, limit liability, and possibly set a shorter statute of limitations. Arbitration agreements are not “one size fits all” and should be tailored to specific company needs; there is no limit to the different ways an arbitration agreement can be drafted to meet particular corporate needs.
Employers must still proceed with caution; courts do not blindly enforce provisions in arbitration agreements that are severely tilted in favor of the employer. The courts and arbitrators recognize the inherent leverage that employers have in entering into arbitration agreements, and employers who abuse that leverage can have their arbitration agreements thrown out by the court. The courts will review specific terms under the arbitration agreement based on the legal doctrine of “unconscionability”. There are two situations where a court will consider an arbitration agreement “unconscionable.” The first is known as “substantively unconscionable.” Adler v. Fred Lind Manor, 153 Wn.2d 331, 344-45 (2004). This term refers to an arbitration agreement or even an individual term of an arbitration that is “shocking to the conscience” or “exceedingly harsh” to the employee. Basically, the employer went too far in protecting themselves, and created an arbitration agreement that denies the employee his rights. A court can look at each provision individually, and may remove those provisions that tilt the scales in favor of the employer. However, “where an employer engages in an ‘insidious pattern’ of seeking to tip the scales in its favor in employment disputes by inserting numerous unconscionable provisions in an arbitration agreement, courts may decline to sever the unconscionable provisions” and refuse to enforce the agreement. Id. at 359.
Employers need to consider their arbitration agreements carefully and understand how each and every provision of the arbitration agreement affects a potential claim. If drafted correctly, an arbitration agreement can be a very powerful tool for an employer seeking to defend itself from time consuming, and expensive litigation. Employers and employees alike need to understand the provisions of the arbitration agreements they enter into. The employment law attorneys at Lasher Holzapfel Sperry & Ebberson can help both parties understand their arbitration agreement and how the value of arbitration agreements can be maximized.