When conflict arises between you and your employee, legal protection can be a valuable asset in case they decide to file a suit against your business. A civil lawsuit and the related court costs can be time-consuming and expensive, which has led to the growing popularity of arbitration agreements for business owners.
Here is what you need to know about how an employer navigates their responsibilities and obligations in the context of arbitration.
What Is an Arbitration Agreement?
An arbitration agreement is a method that allows a conflict to be resolved outside of court. While many types of disagreements can be taken to court where each party shares their side of events and a judge or jury decides the outcome, arbitration allows for the involved parties to collaborate toward a conclusion.
In the agreement, each party surrenders the right to litigate or go to court. When parties are bound by an arbitration agreement, they consent to keep their disagreement out of litigation and resolve it strictly through arbitration. The arbitration process usually removes some advantages of litigation, such as the ability to appeal a decision. It also provides some benefits, including greater affordability and confidentiality.
Arbitration is a private event; an arbitrator replaces the judge, and the arbitrator may be chosen by one of the involved parties depending on the verbiage of the agreement. There is no jury; the arbitrator will make the sole decision in the disagreement. Both sides still present evidence as they would in a courtroom, but the rules are more relaxed.
It is worthwhile to remember that although arbitration is private that does not mean relevant incidents cannot be reported to authorities. Arbitration agreements do not remove an employee’s rights. If the conflict arose out of discriminatory or improper treatment, the employee may still contact OSHA, the Equal Opportunity Commission, or other organizations to report violations.
Can You Make an Employee Sign an Arbitration Agreement?
In the United States, most employees are employed in at-will states. This means they may be fired or a job can be rescinded for any reason, including an employee’s unwillingness to sign all of the proper contracts and consent forms required to do the job.
An employer cannot force an employee to sign an arbitration agreement for the same reason that the employee cannot compel their employer to do so: it must be signed willingly. However, in at-will states, this means that the employer may terminate the worker’s employment (or potential employment) for failing to sign the agreement.
There are exceptions to this rule. If the employee had previously signed a contract stipulating reasons for which they may be fired, and the employer later introduced an arbitration agreement the employee may only be fired if failure to sign the agreement is contained within the language of the initially signed contract. However, some states do not allow employer-employee arbitration agreements, and some employer-employee relationships do not allow for arbitration.
An employee may attempt to negotiate the terms of the agreement if their issue with signing is relevant to the specific details and not the concept of the arbitration itself. It is always advisable to speak with an attorney before creating an arbitration agreement for your employees.
There are also some circumstances in which an arbitration agreement is considered non-enforceable. This is the primary reason why any employer should work closely with a legal professional to create an arbitration agreement rather than writing one on their own. In many states, if an arbitration contract is considered to be “procedurally unconscionable” or “substantively unconscionable,” it may not be eligible for enforcement, even if the employee did agree to sign the agreement.
Something being “unconscionable” in an arbitration agreement usually has the appearance of forcing the employee to experience undue hardship or an unfair outcome. For example, an arbitration agreement might stipulate that the arbitrator will be a specific company (Arbitrator A).
However, upon further inspection, Arbitrator A works for and is paid by the company with whom the employee has the disagreement. If the employee discovers that the arbitrator negotiating the case is paid by the employer, this may constitute bias and may not provide a fair opportunity for both sides to be heard. This may qualify as “procedural” unconscionability.
Similarly, the consequences of the arbitration cannot be unduly harsh. If an employer is arbitrating against an employee and is seeking the life savings and house of the employee as recompense, the employer may be considered to be behaving with “substantively unconscionable” actions.
An employer is required to take certain steps when asking employees to sign an arbitration agreement, to ensure that it is fair. These include guaranteeing that the potential compensation is similar to what the parties would be able to achieve in court and that discovery lasts a reasonable amount of time allowing all parties the chance to adequately prepare their case.
The Risks of Arbitration Agreements
Resolving conflicts outside of the courtroom has benefits including lower costs, but some agreements are not always advantageous.
Since arbitration is a private matter (whereas lawsuits are public), an employee cannot benefit from the precedent of another employee’s arbitration. When presenting a case in court, the court will look at how previous cases were resolved for guidance on rulings; however, an arbitrator works independently of any previous conflicts. If previous employees succeeded in their arbitration efforts against an employer, that will have no impact on the current case.
It is also important to understand that in arbitration, the decision is final. Neither party can challenge the amount of compensation or type of recompense that they are awarded. There are very few opportunities for appeals as would be available in a lawsuit.
Appeals usually only arise due to an arbitrator’s gross negligence or fraud which can be difficult to prove. If either party wants a specific outcome or dollar amount, they can make this known during their arguments, but it is the arbitrator’s decision to determine what is both fair and reasonable.
Arbitrators may be deemed negligent (and thus liable for legal action) if they fail to disclose information that would indicate their partiality, if they intentionally prolong the resolution of a case or if they refuse to review substantial evidence. Failure to do so may mean that the case will transfer to a new arbitrator, after which the original, negligent arbitrator may be legally pursued in a separate case.
An arbitrator must equally evaluate all of the information in a case and provide a fair and unbiased decision for the two parties. It is generally the employer who is responsible for the costs associated with the arbitration (such as the arbitrator’s fees) making this method of conflict resolution available to all employees regardless of financial status.
The Potential Benefits of Arbitration
While arbitration does have some negatives, it can offer advantages over the courtroom in the right circumstances. Arbitration is not inherently negative or a less than ideal outcome.
Resolutions tend to come more quickly through arbitration than through litigation.
There is no requirement to wait for a court date, which by itself can take months or years to schedule. The period for discovery is also shorter in arbitration. The discovery phase alone is one of the leading factors that contribute to the excessive duration of a court case. A thorough discovery process can take months. In arbitration, discovery concludes much sooner, and because arbitration cannot be appealed, a process that can last years, you can rest assured that the case will have a final resolution far more quickly.
Discovery is a process, for court and arbitration, during which all relevant evidence is collected and presented to the judge or arbitrator. A larger employer has more opportunity to collect information and create a case than a single employee does because the employer has more time, money, and reach to gather information.
A single employee may spend a significant amount of their free time gathering documents, printing them, and getting in touch with people who have access to the information they need.
Those people may need to get permission to share the information or acquire the materials needed. Compare this to an employer, who may have direct access to the information they need and can pay for official copies or even related professional services (like private investigation) if necessary.
Trust the Professionals to Help You Navigate Arbitration Agreements in the Workplace
Whether you need assistance with an existing workplace conflict or need a professional to review the language of your arbitration agreement, trust the experts. The attorneys at KPPB LAW will gladly help you understand the process of arbitration. Contact our experienced team to learn more or schedule a consultation.
