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Make your arbitration agreements stick: Consult lawyer, communicate with employees

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in HR Management,People Management

For employers that would just as soon keep employment disputes out of federal court, it may make sense to insist on using arbitration as an alternative.

If you’re considering so-called alternative dispute resolution, be sure to have an experienced attorney draw up the arbitration agreement (or review your existing one). It should clearly state that all employment disputes will be handled by arbitration.

Your role in HR is to take all necessary steps to ensure employees understand that agreeing to arbitration is a condition of employment. Then, regularly remind employees they have to take any complaints through the arbitration process.

Consider doing what the employer in the following case did.

Recent case: José Vilches and several other former insurance appraisers for the Travelers insurance company signed an arbitration agreement before they were hired. The contract made arbitration “the required, and exclusive, forum for the resolution of all employment disputes that may arise” under state, federal and local laws, including all discrimination and terms of employment disputes.

The agreement also informed employees that Travelers reserved the right to amend the arbitration policy at its discretion by notifying employees of any changes.

Later, Travelers did revise the arbitration agreement with a provision that prohibited class-action arbitrations. In other words, the company made it a condition of employment to arbitrate all employment disputes, but said each dispute had to be handled separately and employees could not band together as a group.

Vilches filed a lawsuit alleging that he and other similarly situated insurance appraisers had not been paid overtime under the Fair Labor Standards Act (FLSA) or under state overtime laws.

The company sought to have the case sent to arbitration—as an individual claim, not the class action that Vilches wanted.

The 3rd Circuit Court of Appeals agreed that the case belonged in arbitration. It looked at how the arbitration agreement was first introduced and then at the efforts the company made to keep employees informed about the policy.

It noted that Travelers had sent an e-mail to all employees titled “Internal dispute resolution/arbitration program,” which announced important changes. The e-mail contained a link to the revised policy and explained that agreeing to the policy was a condition of employment.

Plus, the company required annual training that included an online quiz that covered the agreement and required employees to click on a link embedded in the materials to signify they had read the agreement.

The court said all this was clear proof the employees knew about the policy and agreed to abide by it.

Finally, the court ruled that the arbitrators should interpret the agreement to decide the issue of whether employees could pursue a class action. (Vilches, et al., v. Travelers, et al., No. 10-2888, 3rd Cir., 2011)

Final note: If Travelers succeeds in having the arbitrator approve separate arbitrations, it stands to shield itself from the danger of a large award. Collective or class actions allow one or two employees to magnify the value of their case by representing all similarly situated employees. That can take a case worth a few thousand dollars and turn it into a million-dollar case.

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