Cost ReductionStaff

Should You Require Employees to Sign an Arbitration Agreement?

Arbitration agreements are becoming more and more popular. Between the unionization of Burgerville and the Supreme Court ruling that companies can use arbitration clauses to prevent collective action, it is becoming more and more likely that companies, especially restaurants, will use arbitration agreements to reduce the risk of being sued.

There is essentially no downside to adding enforced arbitration to your employment contract, except a small chance of negative PR (arbitration agreements are generally seen as good for employers and bad for workers). Arbitration can, however, settle disputes much faster than going to court. However, you should seek the advice of an attorney.

Some states, for example, have restrictions on arbitration agreements. You may be required to provide some kind of compensation, either financial or in the form of perks. Massachusetts is currently (June 2018) considering a law designed to prevent arbitration from being used for some issues, including sexual harassment. Familiarity with the law in your state is essential if you are going to draw up an arbitration agreement that will be properly binding.

Also, consider how you can best “sell” this to workers, especially to your veterans. Threatening to terminate a good employee because they refuse to sign, especially if you have had them for a while, can cause a PR storm. Talk to them about the speed of the process, the fact that it is generally cheaper, and the fact that arbitration is not guaranteed to go in your favor. (Which is worth remembering. Arbitration can go against you and arbitrators often try to please everyone). Have a lawyer craft the arbitration agreement so it balances protecting your interests with attracting and retaining talent. Also, be honest with your employees. An arbitration agreement hidden deep within the employee handbook may end up not being enforceable.

In general, though, mandatory arbitration clauses are a good way to prevent costly class actions against you and to protect yourself from frivolous lawsuits. They will not, though, protect you from EEOC complaints, as the arbitration agreement does not apply to federal or state agencies. You should consider how, exactly, to set up the arbitration agreement so that it falls within any state restrictions and does not open the door to bad public relations or worse.



Cost ReductionStaff
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