Forced Individual Arbitration: An EPIC Outcome for Employers
In a recent far-reaching decision by the U.S. Supreme Court in Epic Systems Corp. v. Lewis,1 the highest Court held that class or collective action waiver provisions in arbitration agreements between employers and employees are valid and enforceable.2
Arbitration is a process of dispute resolution that takes place outside of court, in which a neutral third party (arbitrator) renders a decision after a hearing at which both parties have an opportunity to be heard. The Supreme Court’s decision effectively enforces arbitration agreements between employers and employees pertaining to wage and hour disputes, as well as harassment, discrimination and other claims. The decision results in matters being resolved one person at a time, rather than joining in one large group action consisting of other employees posing similar allegations.
Important Terms for Consideration. Once a prospective employee is presented with an employment contract containing a binding arbitration provision, the hiring employer should carefully explain the implications of the provision so that the prospective employee understands how their potential dispute will proceed. Other key terms to be included, but are not limited to, are the impartial administrative body that provides the arbitration, the choice of law governing the matter, the location of arbitration, and notice of confidentiality. A statement describing the scope of the agreement, such as “[a]ll claims and disputes arising under or relating to this Agreement…” should also be included to encompass any disputes that may not be readily foreseeable. It is highly recommended that all contracts be reviewed and/or drafted by an attorney within the relevant jurisdiction.
Enforceability for New Hires. For new hires, they can simply either agree to arbitrate or not be hired. The offer of employment and mutual agreement to arbitrate claims amounts to sufficient consideration and thus renders an enforceable contract. Employers should allow employees a reasonable time to read all contract provisions, as well as clarify any misunderstandings or questions regarding the employment agreement to avoid any future conflicts.
Implementing Arbitration Agreements with Current Employees. While employers can implement arbitration agreements post-hiring, arbitration agreements may not always be enforceable by simply acquiring a current employee’s signature. Many jurisdictions have held that when an arbitration agreement contains a class action waiver provision, and is presented to a current employee, the employer must provide adequate consideration (compensation) in return for the agreement to be enforceable. This mutual exchange of consideration makes the post-hire arbitration agreement a valid bargained-for-exchange and legally binding to both parties. Depending on the jurisdiction and the employee’s existing contract, the employer may terminate the employee for opting not to arbitrate. However, it is advised to contact an attorney before making any decisions to terminate due to an employee’s refusal to agree to arbitrate.
1 Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018).