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Should You Have An Arbitration Agreement With Your Employees?

May 22, 2018 Should You Have An Arbitration Agreement With Your Employees?

Most employers have struggled with this question over the last 20 years.  When the Supreme Court first said employers could require employees to sign arbitration agreements if they wanted a job, employers thought it would be the answer for the risk posed by jury trials and increasing legal costs associated with employment litigation.  The excitement over arbitration steadily cooled, as employers realized the upsides were not as good as advertised and that there are some downsides, namely the near impossibility of summary judgment and the effective loss of the right to appeal.  Mandatory arbitration can also lead to some morale concerns.

As a result of the Supreme Court’s March 21, 2018 decision in Epic Systems v. Lewis, employers have another reason to consider mandating arbitration agreements with their employees.  The Court ruled that arbitration agreements can legally contain a “class action waiver.”  That is, arbitration agreements can require that an employee only bring individual claims personal to them, as opposed to claims on behalf of a group of employees and former employees.  The biggest impact of this decision will be in the area of overtime claims under the Fair Labor Standards Act.  Those claims are often brought on behalf of employees who have held a particular job.  On an individual basis, these claims are worth small amounts.  On a collective basis, the amount in controversy can be staggering.  The opportunity to avoid the risk of wage and hour claims brought by a group of employees may be too good to pass up for many employers.

If you have arbitration agreements with your employees, you should see if they contain a class action waiver. If they do not, you should consider adding one. If you do not currently have arbitration agreements with your employees, this new development is reason to at least reconsider the option.  Arbitration agreements are not for every employer.  There are still significant cons.  However, the list of pros just got longer.  All employers should talk to their HR team and employment lawyers about whether the pros now outweigh the cons in their workplace.

Employment arbitration programs are not one size fits all.  There are options and features to consider in tailoring them to your workplace culture.  The Starnes Davis Florie Labor and Employment Group is available to counsel you on this matter and help you put together an arbitration program, if you decide one may be right for you.

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