Arbitration Agreement: 4 Tips If You Require Them For Your Employees

By Eric B. Meyer

Early in my legal career, a colleague taught me this expression: pigs get fed; hogs get slaughtered. Essentially, be aggressive. But push too hard, and you may lose it all.

Some companies in my state (Pennsylvania) and others require their new hires to sign an agreement requiring them to arbitrate any claims that arise out of the employment relationship. The U.S. Supreme Court has held that agreements requiring employees to arbitrate employment-related claims are ok. However, in Pennsylvania (as in other states), when those agreements are too one-sided, courts deem them unconscionable and, therefore, unenforceable.

So remember, pigs get fed; hogs get slaughtered. And thanks to a decision the Philadelphia-based Third U.S. Circuit Court of Appeals handed down yesterday, employers in Pennsylvania and the Third Circuit now have a better blueprint as to how to avoid unconscionable arbitration agreements.

Four things to remember

The case is Quillon v. Tenet HealthSystem Philadelphia, Inc. I’ll skip the facts and get right to the tips:

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  • Attorney’s fees. Don’t try to limit an employee’s ability to recover attorney’s fees for claims under local, state, or federal laws that would otherwise include an award of reasonable attorney’s fees to a prevailing plaintiff. Arbitration provisions requiring parties to be responsible for their own expenses, including attorney’s fees, are generally unconscionable.
  • Class-action waivers are ok. In light of the Supreme Court’s decision in AT&T Mobility v. Concepcion, it is ok to require employees to waive the right to pursue class-action claims in federal court.
  • Running the clock. It’s ok for the company to require the employee to complete a reasonable internal step process before initiating arbitration. For even if the employer were to drag its heels through the step process, the employee may move to compel arbitration.
  • Shortening the clock. Time limitations in arbitration agreements are unconscionable if they are clearly unreasonable and unduly favorable to the employer. We’re talking egregious stuff, here, like a thirty-day window within which to file and preserve a complaint.

Most importantly, make sure that employees understand what they are signing. So, when you provide the arbitration agreement to your new hire — whether as a standalone or as part of an employee handbook — confirm that the employee acknowledges that to which he/she is agreeing.

This was originally published on Eric B. Meyer’s blog, The Employer Handbook.

You know that scientist in the action movie who has all the right answers if only the government would just pay attention? Eric B. Meyer, Esq. gets companies HR-compliant before the action sequence. Serving clients nationwide, Eric is a Partner at FisherBroyles, LLP, which is the largest full-service, cloud-based law firm in the world, with approximately 210 attorneys in 21 offices nationwide. Eric is also a volunteer EEOC mediator, a paid private mediator, and publisher of The Employer Handbook (www.TheEmployerHandbook.com), which is pretty much the best employment law blog ever. That, and he's been quoted in the British tabloids. #Bucketlist.

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1 Comment on “Arbitration Agreement: 4 Tips If You Require Them For Your Employees

  1. Great advice Eric. Usually employers favor arbitration because it is quicker, cheaper and there’s no risk of a run away jury. But in California, arbitrators are not required to follow the law; and there is no appeal if they get it wrong (only if they are deciding something they didn’t have authority to decide– which is rare). Private arbitrations are often more expensive than court too. So make sure to assess risks and benefits of arbitration. It’s not always a good idea. 

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