Litigation is one of the most frightening possibilities for any employer and one that most businesses will have to deal with at some point. Having to deal with a complaint in court can take a heavy toll on an organization’s finances and reputation. Implementing an arbitration agreement at the time of employment is one way you can protect your interests.
Why Arbitration Agreements Are Good for Business
Arbitration has the ability to help shield an enterprise from frivolous lawsuits and jury bias. Most potential jurors in a given area are likely to have a lot more experience as employees than as employers or business owners. This shared experience as workers can make it much harder for juries to understand and sympathize with the employer’s point of view, regardless of how committed jurors may be to impartiality during the proceedings. Most jury candidates are likewise inexperienced with the law and may be ill-equipped to recognize a frivolous claim or the ways in which rules and regulations favor the business over the employee. Arbitration clauses can also prevent class-action suits that could prove devastating to an organization.
Another benefit of arbitration agreements is privacy. Because court proceedings are entered into the public record, they create a permanent pool of potentially embarrassing and damaging information that could harm a company’s reputation. Even if you prevail and are shown to have committed no wrongdoing, details produced in open court could disparage your brand. Arbitration occurs behind closed doors, and the proceedings do not become part of public record. They allow a business to protect vital trade secrets and avoid potentially disparaging public disclosures.
The decisions reached in arbitration also have the benefit of being final in most cases. Ordinary litigation allows for appeals that can increase legal costs and increase the odds of cash settlements. By contrast, if an employee disagrees with the outcome of arbitration, there is typically no further recourse.
Ensuring the Legality of Your Arbitration Clause
The inclusion of binding arbitration agreements in employment contracts is permitted under the Federal Arbitration Act. Such clauses typically require parties to forego their rights to bring lawsuits and provide that arbitration will constitute the sole avenue to address grievances.
Your arbitration agreement could be considered invalid if either of these conditions apply:
- It can be proven you designated a biased party to arbitrate disagreements. Most clauses avoid this by designating organizations widely accepted to be neutral, such as the American Arbitration Association.
- It allows you to bring suit in a court of law, but does not afford your employee the same right. However, this isn’t the case in federal court.
Arbitration in Action
The process of binding arbitration is initiated when a party files a demand with the arbitration organization designated in the agreement. The respondent (called the defendant in an ordinary court case) receives notification of the filing and has a specific amount of time to answer the demand or file a counterclaim. The arbitration organization works with both sides to select a neutral arbitrator on whom both can agree.
Proceedings begin after an arbitrator has been chosen, and start with a preliminary hearing that allows both sides to discuss the substantive issues with the arbitrator. The rules for information exchange and witness disclosure are discussed and parties agree to the arguments and evidence that will be presented. Arbitration then moves to a series of hearings in which each side can present testimony. Finally, the arbitrator renders a decision that is binding upon all parties and usually prevents any further action.
Drafting an arbitration agreement can be one of the most important things you do to protect your business. You may wish to consult with an employment law attorney with experience with arbitration clauses and other aspects of employment contracts to help you get them right.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.