Employers are often wondering whether they should consider mandatory arbitration agreements for their non-union employees. Such arbitration agreements provide many advantages to the employer-employee relationship. As the law continues to develop, employers are asking more and more whether arbitration agreements are right for their workplace.
What is an arbitration? Arbitration is a form of dispute resolution where an employment dispute is privately resolved by a neutral third-party arbitrator, or panel of such arbitrators. Non-union arbitration typically occurs under the rules of an arbitration organization such as the American Arbitration Association (“AAA”) or Judicial Arbitration and Mediation Services (“JAMS”). Judicial review of an arbitration decision is very limited, providing courts the power to override an arbitration award in only a very narrow set of circumstances.
What are mandatory arbitration agreements? By mandatory arbitration agreements here, we are referring to arbitration agreements between non-union employees and their employer. A mandatory arbitration agreement is an agreement between the employee and employer that all claims arising out of the employment relationship will be submitted to binding arbitration, rather than court. The Federal Arbitration Act (“FAA”) generally allows employees and employers to voluntarily agree to enter into mandatory arbitration agreements for potential employment disputes.
What procedures may be included? Organizations such as JAMS, have dispute resolution steps such as initial negotiation, mediation, arbitration and arbitration appeal that may be included in a mandatory arbitration agreement. These organizations also have procedural rules that may be included, allowing for procedures such as discovery, motion practice, and the selection of arbitrator. Depending upon applicability of state law, a mandatory arbitration agreement may also provide for confidentiality of the arbitration proceeding. The mandatory arbitration agreement can be drafted to include these types of procedures.
May class action waivers be included in mandatory arbitration agreements under the FAA? Yes. In May 2018, in a case called Epic Systems Corp. v. Lewis, the Supreme Court upheld the use of class action waivers in mandatory arbitration agreements under federal law. The Supreme Court specifically ruled that it is lawful under the FAA for mandatory arbitration agreements to provide that any disputes will be resolved through one-on-one arbitration. Class-action waivers have particular applicability to preventing a single employee from bringing claims collectively on behalf of all similarly situated employees who may not be interested in bringing such claims.
What are some advantages of mandatory arbitration agreements? Arbitration is quicker and less expensive than court proceedings, potentially saving the parties’ attorney fees, costs and expenses associated with court proceedings. Arbitration agreements may provide for a more streamlined or limited discovery process, which can reduce costs and foster amicable resolution. Arbitration agreements provide the parties with greater freedom in the selecting of an arbitrator of their own choosing. Arbitration agreements may include class action waivers, requiring an employee to pursue his or her claim individually rather than attempting to assert claims for other employees. Depending upon state law applicability, confidentiality provisions may also be included, protecting the confidentiality of the employee and the employer.
What are some disadvantages of mandatory arbitration agreements? A final arbitration decision has very limited appeal rights, which effectively prevents judicial review and reversal of the final decision in the arbitration process. This can be a disadvantage to an employer as courts may be more receptive than an arbitrator to certain legal issues and defenses. Likewise, if the employer wants to challenge the law, arbitration decisions are not binding precedent on future litigation.
What are some types of employees who are excluded from the FAA? The Supreme Court has interpreted the FAA to exclude claims by “transportation workers” in interstate commerce. In January 2019, in a case called New Prime, Inc. v. Oliveira, the Supreme Court ruled that interstate independent contractor truck drivers, like interstate employee truck drivers, cannot be compelled to arbitrate employment disputes under the FAA. This potentially excludes employees such as seamen, railroad employees and truck drivers who perform transportation work in interstate commerce from FAA mandatory arbitration.
How does state law affect mandatory arbitration agreements? The FAA has broad preemption over a state law. The FAA will generally control if the mandatory arbitration agreement is drafted correctly and has a nexus to interstate commerce. However, state courts will still typically review whether any provision of the mandatory arbitration agreement is “unconscionable” under state law. Accordingly, when drafting a mandatory arbitration agreement, state law must be analyzed to ensure the terms of the agreement are valid under state law and court precedent.
Has the Washington legislature recently attempted to address mandatory arbitration agreements? Yes. In June 2018, Washington passed several employment-related laws, including a prohibition against nondisclosure agreements that prevent employees from disclosing workplace harassment. The new laws also prohibited employers from requiring employees to resolve discrimination claims through confidential dispute resolution such as arbitration. For employers who are covered by the FAA, however, certain aspects of these new Washington laws may be preempted by the FAA, which allows for mandatory arbitration of discrimination claims.
What are some best practices for an employer to take when deciding to establish a mandatory arbitration agreement? The employer should consider creating a separate mandatory arbitration agreement, rather than merely including it in an employment application or handbook. The employer should consider having separate consideration, such as a signing bonus, in exchange for entry into the arbitration agreement by existing employees. The employer should consider ensuring the arbitration agreement provides procedural fairness and a multi-step dispute resolution process. The employer should consult with an attorney for advice and to ensure state and federal compliance.
Brian Lundgren is a Seattle-based labor and employment law attorney. He represents Employers, Management, Companies, and Small Businesses in all aspects of labor and employment law. He may be reached at (206) 264-2688 and firstname.lastname@example.org