Arbitration: High Court Says Employers Can Require Workers To Arbitrate Employment Disputes; Make Sure Your Agreements Will Hold Up

State and federal courts have grappled for years with the question of whether employers can compel workers to submit their employment disputes to arbitration. Now, in a major victory for employers, the U.S. Supreme Court has cleared up the confusion, giving employers the go-ahead to use mandatory arbitration agreements. The high court decision, coupled with a recent ruling by the California Supreme Court approving arbitration of employment disputes, means you can now compel employees to take employment-related claims to an arbitrator instead of the courthouse. We’ll explain what happened in the case and how to make sure your arbitration agreements will stand up to scrutiny.

Job Application Requires Arbitration

When Saint Clair Adams applied for a holiday sales job at a Circuit City store in Santa Rosa, he signed an employment application that contained a provision requiring him to arbitrate all employment disputes, including those under state and federal anti-discrimination laws. Two years later, Adams sued the electronics chain under California’s Fair Employment and Housing Act, claiming he was harassed because of his sexual orientation and retaliated against when he complained. Circuit City tried to block the lawsuit and send the dispute to arbitration.

The Ninth Circuit Court of Appeals, however, ruled that Adams wasn’t required to arbitrate his discrimination claims. That’s because, the court said, the Federal Arbitration Act, which favors arbitration, didn’t apply to employment contracts.

Supreme Court Approves Arbitration

But the U.S. Supreme Court has now sided with Circuit City, overruling the Ninth Circuit decision. According to the high court, the FAA does cover employment contracts. Only transportation workers are excluded from FAA provisions that require courts to enforce arbitration agreements.

400+ pages of state-specific, easy-read reference materials at your fingertips—fully updated! Check out the Guide to Employment Law for California Employers and get up to speed on everything you need to know.

Review Your Arbitration Agreements

This ruling confirms that mandatory pre-dispute agreements to arbitrate employment disputes—including state and federal discrimination claims—are enforceable. However, you still need to make sure that your contracts contain certain protections for employees. As recently spelled out by the California Supreme Court, your arbitration agreements should comply with these guidelines:

 

1. Make arbitration requirements mutual. One-sided arbitration provisions are open to challenge, so make it clear that both employers and employees are required to arbitrate disputes. Be sure to reserve the right for either party to go to court to get an injunction, which could be necessary on your part if, for example, an employee is disclosing trade secrets.

    

2. Don’t limit remedies. Don’t bar employees from asking for remedies they could get in court, such as punitive damages or attorneys’ fees authorized by statute to the prevailing party.

    

3. Specify that the employer will pay costs. You can’t require employees to pay any type of expense they wouldn’t incur if they went to court. So to avoid having the agreement thrown out, don’t require employees to shoulder arbitration costs.

    

4. Designate a neutral arbitrator. The arbitrator should be impartial and independent.

    

5. Permit adequate discovery. Allow employees access to witnesses and essential employer records necessary to present their case before the arbitrator.

    

6. Require a written decision. Specify that the arbitrator will issue a written decision outlining the basis for their findings so a court can review them if necessary.

Practical Tips

In addition to the elements laid out by the California Supreme Court, it’s important to spell out the types of claims the arbitration agreement covers. State that all disputes arising from employment must be arbitrated, including, but not limited to, claims under state and federal laws for harassment, wrongful termination, and discrimination due to age, race, sex, disability or any other basis.

Plus, it’s a good idea to avoid the common practice of putting the arbitration clause in an employee handbook: most handbooks state that they are not intended to create a binding contract, so your arbitration agreement could wind up being unenforceable. Consider instead putting the clause in a stand-alone document.