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Seek your attorney’s help when drafting arbitration agreements

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in Employment Law,Human Resources

If you want to use arbitration to manage employment-related claims, make sure you have expert legal assistance in drafting the arbitration agreement. One wrong provision can force you into court to litigate the validity of the agreement before you ever get to arbitration.

Recent case: Kamanchi went to work for a finance company whose business was purchasing auto loans and then packaging them as investments. The company required all new employees to sign an agreement to arbitrate all claims against it. Kamanchi signed.

However, he later tried to sue his employer. The company said Kamanchi was bound by the arbitration agreement.

Kamanchi claimed the agreement was unconscionable and not a valid contract. He argued that it included language specifying that it did not create an employment agreement and that his at-will employment status remained intact.

The court said that just because there was no employment agreement didn’t mean there was no arbitration agreement. Those are distinct concepts. The court did strike one sentence in the agreement that gave the employer sole power to pursue breach of trade secrets in court rather than arbitration. But all other aspects of the agreement remained intact thanks to carefully drafted language. (Enyoung v. Westlake Services, Court of Appeal of California, 2017)

Final note: Discuss the pros and cons of arbitration agreements with your lawyer. Properly drafted, they can be valuable instruments for limiting legal expense. Poorly drafted, they can cost more than they are worth.

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