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Arbitration agreements: Draft legal pact to stay out of court

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in Employment Law,Human Resources,Leaders & Managers,People Management

THE LAW. Alternative dispute resolution (ADR) is a less costly way of resolving employment conflicts than going to court Also, good ADR programs often end up being a more peaceful forum for airing and resolving problems, which can ease tensions and boost productivity.

ADR can take several forms, such as using a neutral ombudsmen, relying on a peer-review committee, engaging in mediation between parties or arbitration. The ultimate goal: resolve the dispute without costly litigation. Because arbitration tends to be the most attractive method for employers, this article focuses on its structure, risks and benefits.

Arbitration agreements generally work like this: Disputes are submitted to an impartial arbitrator for final and binding resolution. When employees sign mandatory arbitration agreements, they agree to arbitrate employment-related disputes as a condition of employment. By signing such pacts, employees forfeit their right to sue the employer in federal or state court.

Most arbitrations are designed in accordance with the American Arbitration Association's National Rules for the Resolution of Employment Disputes and its Due Process Protocol. The Federal Arbitration Act governs agreements.

WHAT'S NEW. More than ever, you must make sure your arbitration agreements are legally precise. Why? Courts are scrutinizing arbitration pacts, shooting down agreements that are overreaching, negotiated in bad faith or unfair to employees.

Plus, the EEOC is increasingly flexing its muscle. The federal agency is protecting its right to investigate charges of job discrimination, even if the employee agreed to arbitration beforehand. Several courts have agreed that employees still have the right to file complaints with the EEOC or state anti-bias agencies, even if they've signed arbitration agreements.

Translation: While your arbitration agreements can require employees to arbitrate disputes (rather than file a lawsuit), they can't block employees from lodging a complaint with the EEOC or a state agency.

HOW TO COMPLY. When structuring an arbitration agreement, make sure it's in line with other agreements that have been either upheld in court or are commonly used in your jurisdiction.

And remember that arbitration is an ADR process, not an excuse to rig dispute resolutions in your favor. Ideally, employees should have the same chance to win an arbitration hearing as they would in court.

Many lower courts continue to flash an aversion toward arbitration agreements. Courts are especially down on arbitration pacts when all these facts converge:


  • A pre-dispute agreement exists, rather than a post-dispute agreement.



  • The agreement is between an employer and an individual employee.



  • The employer has required the employee to sign the agreement as a condition of employment.



  • The dispute involves a federal civil rights statute.




Finally, when evaluating an arbitration pact, honestly ask yourself whether you would sign it if you were looking for a job. Then, always run it by your attorney to make sure it is fair under the law.

Online resources:

Arbitrating disputes


  • Sample arbitration policy. Our free report, Arbitrating Employee Disputes, provides a description of mediation and arbitration, plus includes a sample Employee Mediation/Arbitration Policy. Find it at www.hrspecialist.net/handbooks.
  • National Arbitration Center, www.lawmemo.com/arb, for recent information on arbitrators, court rulings and resources.

  • American Arbitration Association, www.adr.org, for national rules on resolving employment disputes and other arbitration guidance.

  • EEOC guidance on mandatory arbitration policies, www.eeoc.gov /policy/docs/mandarb.html. For details on mediation offered by the EEOC, go to www.eeoc.gov/mediate.

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