Few matters are as frequently the subject of legal disputes as the employer-employee relationship. Employers often seek to limit the perceived uncertainty and expense of litigation by mandating that employment disputes be resolved through binding arbitration. Generally, arbitration is viewed as a more efficient and less costly means of handling such disputes. In crafting arbitration agreements, lawyers representing employers should be careful to follow a few simple rules to ensure that the document will withstand a challenge.
1) Put the agreement in writing. While this may seem obvious, several cases serve as a warning that arbitration agreements that are not in writing may not hold water. For example, in Campbell v. General Dynamics Government Systems Corp., 407 F.3d 546 (1st Cir. 2005), an arbitration agreement that was sent to employees as an attachment to an e-mail message was found by the court to be unenforceable. Similarly, courts have sometimes invalidated agreements that are contained in employment manuals rather than set forth in a signed document. The best method is to use a stand-alone agreement that is signed by both the employee and a representative of the employer. The agreement should also explicitly state that the parties are waiving their rights to bring suit in a court or other tribunal.
2) Make the language of the agreement clear and simple to understand. When drafting an arbitration agreement, it is important to provide an unambiguous statement as to which disputes are subject to arbitration. Vaguely drafted agreements are likely to increase the risk of litigation. If an employee can make a strong claim that a given matter falls outside the scope of the agreement to arbitrate, the employer may well end up in court.
3) Be thorough. At a minimum, the agreement should address the following issues: How many arbitrators will there be? What minimum qualifications must the arbitrators have? How will the arbitrators be selected? What law will govern? Will evidentiary rules apply? Where will the arbitration be held? Will the parties have an opportunity to submit written briefs? Will the arbitration be binding or will the parties have the right to appeal the decision to a court or other tribunal? Will discovery be allowed? While taxing, considering these matters before a dispute surfaces will help reduce the tension that parties face after controversy has arisen.
4) Don’t give unilateral control over the agreement to the employer. If you do, a court could invalidate the agreement. In Cheek v. United Healthcare of the Mid-Atlantic, Inc., 378 Md. 139 (2003), the Maryland Court of Appeals invalidated an arbitration agreement that allowed the employer unilaterally to alter, amend, modify, or revoke the arbitration agreement at any time and without notice. The court’s rationale was that the agreement lacked consideration and that the employer’s promise was illusory. This ruling has been distinguished in other cases. The Court of Special Appeals, for example, upheld enforceability of an arbitration agreement, even though the agreement granted the employer the right to amend the agreement on 30-days’ notice to the employee. See Holloman v. Circuit City Stores, Inc., 162 Md. App. 332 (2005). On the other hand, courts have invalidated arbitration agreements that grant an employer control over the pool of arbitrators, shorten limitation periods, or limit the damages otherwise available under applicable employment laws. As this area of law is clearly evolving, employers should try to strike a balance that will give them adequate control over the arbitration process and treat employees with fairness.
5) Consider alternatives to arbitration. Employers and their attorneys should not automatically assume that arbitration is the best solution. In fact, arbitration may not be the most efficient means of settling all employment disputes. Mediation and other forms of alternative dispute resolution should be considered. It is also possible that a lawsuit filed in state district court will produce a cheaper and quicker result.
In some organizations the employment arbitration agreement is something rarely noticed or discussed until trouble arises. The day a lawsuit arrives is obviously not the best time to dust off that remarkably important document. Even if taken for granted, a company’s arbitration policy could have long lasting consequences and should be attended to with commensurate care.