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Separation agreements: Use arbitration agreements instead of claims releases?

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Q. We have seen that some companies are requiring their employees to agree to arbitration rather than a release of claims in their separation agreements. Is this an alternative worth exploring?

A. A mandatory arbitration provision may be an alternative to a release of claims if an employer wants to avoid some of the requirements or scrutiny associated with release agreements. However, you should carefully weigh the costs and benefits of this approach.

Recently, IBM opted for this alternative, although only with respect to employees’ age discrimination claims. The company included a release for all claims except age discrimination and required employees to agree to arbitrate any age discrimination claims.

This approach allowed the company, in the context of a group termination, to avoid the Older Workers Benefit Protection Act’s (OWBPA) requirements to provide a lengthy review period for a release of claims, a rescission period and to provide certain job-title and age-data disclosures to workers age 40 or older.

Before deciding if you want to follow the IBM approach, it is important to note that it has not been tested in court or before the EEOC.

Also, arbitration comes with pros and cons. Arbitration is usually more private than litigating in court and can sometimes be less costly. Also, many believe that arbitrators are better at deciding complex legal issues than juries.

However, cost savings are not guaranteed with arbitration, because arbitration agencies charge a variety of fees and arbitration lacks some of the clear discovery rules and early dismissal opportunities of litigation.

Addi­­tion­­ally, the right to appeal arbitration awards is much more limited than in court actions. As such, an employer can have a harder time getting relief from a poor decision. Finally, employers cannot draft arbitration clauses to prohibit em­­ployees from bringing charges or participating in investigations with the EEOC or another government agency.

In the end, most employers are probably better off using release agreements, despite some of the added legal requirements, to avoid the costs of litigation and arbitration.

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Megan L. Anderson is an attorney with Gray Plant Mooty’s Employment Law Practice Group in Minneapolis. Concentrating her practice in employment law counseling and litigation, she ­regularly advises employers and provides training on a variety of employment law issues. Contact her at megan.anderson@gpmlaw.com or (612) 632-3004.

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