Arbitration agreements and class waivers: Recent developments and strategies for employers (Part 2).
As discussed in Part 1 of this two-part series, the legal landscape has changed regarding the enforceability of arbitration agreements and class waivers following three recent U.S. Supreme Court decisions. Given the trend that several courts will enforce employment arbitration agreements and class litigation waivers, employers should carefully consider developing and implementing such agreements and class waivers as a mechanism to avoid costly litigation.
Obviously, the first step in drafting an enforceable arbitration agreement requires the basic contract formation under the applicable state law: demonstration of an offer, acceptance and supporting consideration. Depending on the state, the existence of supporting consideration will be an area in which employers could face challenges. In those states in which continued employment has been held to not constitute sufficient consideration, employers may have difficulty in enforcing arbitration agreements executed after employment has commenced.
As a result, employers will need to consider providing additional consideration to current employees at the time of execution of the arbitration agreements. This additional consideration could include a one-time bonus or a promotion. However, employers should still proceed with caution and examine what the applicable state courts consider to be sufficient, additional consideration to support a mandatory arbitration agreement for current employees. For example, in August of this year, the Missouri Supreme Court, in a 4-3 decision in Baker v. Bristol Care, Inc., opined an arbitration agreement lacked sufficient consideration despite a promotion and increased benefits because the individual continued to work as an at-will employee.
Another mechanism to resolve the consideration issue is to bind both the employer and the employee in arbitrating employment-related disputes. In other words, the requirement to arbitrate issues is not imposed solely upon the employee. As a result, both parties must agree to forego litigation in lieu of arbitration as the mechanism for resolution of the dispute. Such mutuality language is required in California for such employment arbitration agreements.
Another potential formation issue that employers should avoid is including language that makes the arbitration agreement to be illusory in nature. Provisions permitting the employer to unilaterally modify, amend or terminate the arbitration agreement with or without notice have been attacked on such grounds. Indeed, the 6th Circuit Court of Appeals in Floss v. Ryan's Family Steak Houses, Inc. explicitly rejected such an arbitration agreement wherein the employer solely retained the right to revoke the arbitration provision. Thus, employers should consider adopting an arbitration policy that provides for a notice period and process that restrains any modification of an arbitration agreement to avoid the appearance of any unilateral action.
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Next, effective employment arbitration agreements should be clear as to what claims are subject to arbitration, the time allowed for asserting such claims, and the process in which a claim is resolved. As in the Concepcion decision discussed in Part 1, courts examine if the arbitration agreement process is fair. To make the arbitration process "fair," employers should consider including the following provisions in the employment arbitration agreements:
Selecting a neutral arbitrator
Allowing both parties to conduct meaningful, yet limited, discovery
Allowing for the recovery of the same type of relief that would otherwise be available in court
Requiring the employer to pay substantially all of the forum costs, including a significant portion of the arbitrator's fees
Requiring the arbitrator to issue a written award to allow for adequate judicial review
Providing a copy of the applicable arbitration rules with the agreement as an exhibit or addendum
As stated above, the mutuality requirement to arbitrate also should be included to make the arbitration process "fair" in the eyes of the courts. Additionally, the arbitration agreement should avoid language such as confidentiality as several courts, and the National Labor Relations Board, view such language as restricting the employee from speaking to witnesses and, thereby, infringing upon the employee's ability to build his or her case.
Finally, any employment arbitration agreement that includes the waiver of class and/or collective actions must have clear and conspicuous language. As demonstrated in Oxford Health Plans, LLC v. Sutter, failure to include such language can be damaging to employers seeking to avoid such class litigation. Therefore, the arbitration agreement should have clear language on two fronts: waiving the litigation of such class and/or collective action claims; and making it clear that class and/or collective action employment claims cannot be submitted to the arbitrator. The arbitration agreements also should contain a severability provision in the event the class or collective action waiver is found to be unlawful or unenforceable, then the sole forum for such claims would be in court and not arbitration.
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