As we covered last year, the United States Supreme Court held in Epic Systems Corp. v. Lewis that employment contracts can legally bar employees from collective arbitration (and require instead individualized proceedings). The Supreme Court found that a provision forbidding collective arbitration violated neither the Federal Arbitration Act nor the National Labor Relations Act. This decision was a win for employers, as it continued the Supreme Court’s recent trend of enforcing agreements to arbitrate and enabled employers to specify that employees must each arbitrate their claims individually, rather than all together as a group.

Since then, as you might expect, employee arbitration agreements have become a hot topic for many employers. They’ve been a hot topic in the Supreme Court as well; in two different rulings issued in January 2019 (New Prime Inc. v. Oliviera and Henry Schein Inc. v. Archer and White Sales Inc.) the Court continued to shed light on the Federal Arbitration Act’s transportation worker exemption and to what extent parties may delegate decisions of whether a claim must be arbitrated or litigated in court to an arbitrator.

All of this activity related to arbitration provides a good opportunity to consider whether requiring your employees to arbitrate employment disputes is the right decision for your business. And, if so, what should you do to make sure your agreements with your employees are enforceable?

We’ll discuss the first topic – whether you should or should not require employees to arbitrate employment claims – in this Part 1, and we’ll cover the second issue in Part 2 (a “coming soon” blog post).

To start, what are some of the reasons you might want to require employees to arbitrate – rather than litigate in court – their employment-related disputes? Arbitration can be cheaper and faster, because discovery is much more limited than what is provided for disputes litigated in court. Pre-hearing motions are also more limited in arbitration as compared to in court; generally, a matter in arbitration will proceed much faster to a hearing on the merits.  Because of this, and due to the fact that private arbitrators generally do not have as much on their dockets, arbitrators can usually set a hearing date and reach a decision resolving the merits of a dispute faster than a court can.  Further, some employers find that having an arbitrator resolve disputes, rather than a jury, can provide more predictable results.  Unlike in court, where the parties have no input on which judge is assigned to hear their case and are subject to the opinions of a jury of their “peers,” there is no jury in arbitration and the parties have a say in which arbitrator will resolve the dispute. And although arbitration is not automatically confidential, it can be much more private than resolving a dispute in court because, for example, there are no public filings.

But arbitration isn’t for everyone or every situation. It can cause morale problems with employees, who are sometimes very concerned to find out that their employer is asking them to give up their right to a jury trial over a dispute that they may consider hugely important to them and their future career. Additionally, arbitration offers limited opportunities for appeal. While that can be a good thing if the arbitrator decides in your business’s favor, it is a double-edged sword if he or she does not. Arbitrators also tend to have a bit more room to fashion remedies that “split the baby,” giving the employee at least some measure of victory, which is less common in court.  Further, because of the limited discovery and ability to file pre-hearing motions, employers may not be able to learn about facts that help them evaluate the strengths and weaknesses of their case, so matters will generally either proceed directly to a hearing on the merits or settle without any opportunity to narrow an employee’s claims through motions practice (or have them dismissed altogether, which happens in a considerable percentage of employment lawsuits). Finally, some states place limitations or requirements on arbitration agreements, ranging from the relatively minor (such as requiring that employees specifically initial an arbitration provision in an agreement) to much more substantive (barring arbitration of certain claims, such as for sexual harassment, outright). Meeting these requirements can become complicated, particularly for employers who operate in multiple states. Although the Federal Arbitration Act generally preempts state law requirements that act as a bar to arbitration, this isn’t always a clear-cut determination and can force parties to engage in motions practice in court to determine whether the agreement is valid or if the dispute can be heard by an arbitrator at all – before ever even reaching the merits of a claim.

There are many practical and legal considerations involved in deciding whether to require that employees arbitrate employment-related disputes as opposed to resolving them in court. This is not a decision to be made lightly or without advice of legal counsel.  If you do decide to proceed in that direction, then you have to make sure your agreements to arbitrate are enforceable.  And that’s no easy trick either. Stay tuned for some thoughts on that topic and some additional issues to consider in Part 2.  In the meantime, consider reaching out to your favorite Troutman Sanders labor and employment attorney for guidance about whether arbitration is right for you and your workplace.

Have you (or others at your company) considered using mandatory arbitration agreements with your employees?  The idea is to require an employee who ends up in an employment dispute to handle that dispute before an arbitrator, rather than by filing a lawsuit.  But are these agreements valid and enforceable?  A recent decision by the Eleventh Circuit Court of Appeals (which handles cases from all federal courts in Georgia, Alabama and Florida) has a lot to say about the overall effectiveness and enforceability of mandatory arbitration agreements. Continue Reading Important Court Ruling: Employee Waivers of “Collective Action” Right Are Enforceable