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Caution! Sometimes arbitration costs employers more, not less

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in Employment Law,Human Resources

Arbitration is frequently billed as an inexpensive and quick way to handle employment law claims without incurring the high cost of litigation. Employers read scary headlines highlighting the latest damage awards and wonder whether there isn’t a way to reduce the risk of being blindsided by a runaway jury.

That’s why many employers are so eager to have employees sign agreements that require arbitration of workplace claims.

But sometimes that strategy backfires. Consider, for example, the following case in which an arbitrator decided that the employees who sought to arbitrate their wage-and-hour claims could represent all similarly situated employees. Had the case gone directly to court, only those who specifically said they wanted in on a class-action suit would have been included.

Recent case: Erin Cole and two other former Long John Silver’s restaurant managers claimed the restaurant chain violated the Fair Labor Standards Act (FLSA) by failing to pay them and other managers appropriate overtime. Because the restaurant had required them to sign an arbitration agreement, they had to take their claim in front of an arbitrator.

The arbitrator considered their class-action request and ordered that every manager similarly situated would be included in the lawsuit except those who specifically asked to be excluded. The FLSA takes the opposite approach, requiring employees to specifically ask to be included in a lawsuit.

The restaurant appealed, but to no avail. The 4th Circuit Court of Appeals said the arbitration agreement seemed to indicate that parties could waive some statutory rights, such as the FLSA’s opt-in provision. It therefore was up to the arbitrator to decide which class-action approach he wanted to take. (Long John Silver’s Restaurants v. Cole, et al., No. 06-1259, 4th Cir., 2008)

Final note: Know what you are signing. Have an attorney review all arbitration agreements.

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