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Arbitration Clauses in Employment Contracts – When is this a good idea??

Apr 10th, 2019   Heather Nanstiel
Employment Law

employment contract arbitration agreements

In our practice, we often see mandatory arbitration clauses in employment contracts.  Whether you are an employee or an employer will often dictate if these arbitration clauses are favorable for you.

What is Arbitration?

Arbitration dictates that a case is heard out of a courthouse, in front of an arbitrator who decides the case. The arbitrator is usually not a judge — but may be a retired judge, a lawyer, or even a non-legal professional.

Of course, because an arbitrator is making decisions, parties lose the right to a jury of their peers. Many businesses like this because it eliminates the emotional aspect of jury decision making and may avoid excessive verdicts.

Arbitration limits how much information can be uncovered by each party in the case — often making arbitration a faster process than going to court. On the other hand, consumers and employees may find it harder to obtain needed information from the other side. Employers may see some protection in this limitation.

Limiting Class Actions

Arbitration agreements allow employers to limit the ability of employees or consumers to sue for class actions. The Supreme Court recently ruled these clauses as being enforceable.

Critics of the decision fear it will undermine many important federal causes of action in employment law. These causes depend on class actions to make such lawsuits viable and economically worthwhile. Class actions tend to discourage employers from breaking the law.

For businesses, using an arbitration clause can limit potential class action liability. Businesses should be careful not to include arbitration provisions that are too onerous. Putting the cost of arbitration onto the employee or consumer or limiting damages that can be recovered would fall into that category.

Additionally, including any written document that could be construed as an employment agreement could give an employee the right to sue for wrongful termination.

Employee Concerns

Employees faced with signing an arbitration agreement should seriously consider whether or not it is wise to sign them. Certainly, the need for new employment may override the need to avoid an arbitration clause. However, signing such a clause may create a limitation on enforcing your legal rights should something go wrong.

We assist employers and employees in protecting themselves and asserting their rights. The Colorado employment and business law attorneys at Ball & Barry law are here to answer any questions you may have.