Enforceability of Arbitration Clauses in Employment Agreements

Enforceability of Arbitration Clauses in Employment Agreements

Arbitration is the process of resolving disputes outside of the court system. It is an alternative to litigation, and it can often be less expensive and time-consuming than going through the courts. Many employers include arbitration clauses in their employment agreements as a way to avoid costly and time-consuming lawsuits. However, the enforceability of these arbitration clauses in employment agreements has been a topic of much debate in recent years.

Arbitration clauses in employment agreements are designed to require employees to waive their right to sue their employer in court and instead agree to resolve disputes through arbitration. These clauses are generally enforceable under the Federal Arbitration Act (FAA), but there are some circumstances where they may not be enforceable.

One of the most controversial issues surrounding the enforceability of arbitration clauses in employment agreements is whether they violate employees` rights under the National Labor Relations Act (NLRA). The NLRA gives employees the right to engage in “concerted activities” for their mutual aid and protection, and some courts have held that arbitration clauses that prohibit employees from bringing class or collective actions violate this right.

In 2018, the Supreme Court issued a landmark decision in Epic Systems Corp. v. Lewis, holding that arbitration clauses that prohibit class or collective actions are enforceable under the FAA and do not violate the NLRA. This decision has been criticized by labor advocates who argue that it effectively strips employees of their right to join together in legal action against their employer.

Another issue that can affect the enforceability of arbitration clauses in employment agreements is the presence of unconscionable provisions. Unconscionability refers to contract terms that are so one-sided or oppressive that they shock the conscience. Courts can refuse to enforce arbitration clauses that contain unconscionable provisions, such as requiring an employee to pay all fees associated with the arbitration or limiting the employee`s ability to discover evidence.

Employers should also be aware that some states have laws that restrict the enforceability of arbitration clauses in employment agreements. For example, California has a law that prohibits employers from requiring employees to waive their right to bring certain claims in court, such as claims for violations of the state`s Labor Code. Other states, such as New York, have laws that require employers to provide certain disclosures to employees regarding the arbitration process.

In conclusion, arbitration clauses in employment agreements can be a valuable tool for employers looking to avoid costly and time-consuming litigation. However, the enforceability of these clauses can be affected by a variety of factors, including federal law, state law, and the presence of unconscionable provisions. Employers should work with experienced employment counsel to ensure that their arbitration clauses are both effective and enforceable.