What Should Be Included In Mandatory Arbitration Agreements?

April 10, 2016

Topics: Employment Agreements

For mandatory arbitration agreements to be enforceable under federal law, employers need to ensure that a number of issues are properly addressed.  While it is best to review these types of agreements with your employment lawyer, here are some general pointers that should be kept in mind.

Because these agreements require employees to arbitrate any job-related claims and give up any right to sue and to have their case heard by a judge, courts want to ensure that (1) the employee understands the important rights that are being given up by forgoing a court hearing, but also that (2) certain inherent rights in the court system are not avoided by requiring arbitration.  For these reasons, the following need to be kept in mind when drafting arbitration agreements:

  • The arbitration agreement must be clear and in writing and signed by the employee.
  • It should expressly state that the employee is waiving the right to a jury trial,
  • It should list the types of disputes that must be arbitrated.
  • The employer must give the employee something in exchange for the agreement. This might be employment, or continued employment, at the company, and state law might govern what is sufficient consideration (exchange).
  • The arbitration agreement cannot require the employee to give up legal rights that he or she has under federal law. For example, an arbitration agreement cannot prevent employees from recovering the types of damages allowed by law.
  • The arbitration agreement cannot be one-sided or unfair to the employee. For example, it cannot require arbitration only for claims that the employee is likely to bring; and
  • The arbitration agreement cannot prohibit employees from filing charges with government agencies such as the Equal Employment Opportunity Commission (EEOC). The arbitration agreement should expressly state that employees are not waiving this right.

Employers should also be aware of any applicable state laws, which may impose additional restrictions on arbitration agreements.  Additional restrictions also apply to companies that do business with the federal government.