Arbitration Agreements: What are they? Why have they hit the Department of Labor’s radar? What does this mean for employers? So many questions… And The People Perspective is here to share our thoughts.
Most arbitration agreements that are used for employment purposes require the employee to agree to resolve disputes through binding arbitration. They are typically used by employers because arbitration has been considered an efficient process to resolve disputes and has historically been more cost-effective than litigation.
Recently, arbitration agreements made the news when the DOL filed a class-action lawsuit. A company had allegedly been making employees sign arbitration agreements with the requirement that the employee work for at least three years or pay back their wages. The DOL stepped in because this practice reduced employee wages to be below the minimum wage, which is a violation of the Fair Labor Standards Act, and sure to catch the attention of the DOL. Another key point in this case was that employees were allegedly told by the company that they would have to pay the arbitration fees and company’s attorney fees.
Arbitration agreements also made the news in 2022 when President Joe Biden signed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. Employers can no longer require arbitration for sexual harassment or sexual assault claims.
Another case from 2022 addressed arbitration agreements as part of a handbook. Former employees sued a company in federal district court. The company attempted to compel arbitration based on the agreement in the employee handbook; however, there was a paragraph that included a modification clause. The argument was whether the modification clause applied to the entire handbook or everything except the arbitration agreement. Ultimately, the employer’s request to compel arbitration was denied based on the clause.
What are some key takeaways from these recent events? Arbitration agreements can be beneficial for employers and when written appropriately, they are enforceable. Employers should ensure that they are not requiring arbitration on sexual assault or sexual harassment claims. If the arbitration agreement is housed within the handbook, employers should move it to be a separate document and acknowledgment form. And finally, the company should pay the arbitration fees since they require the arbitration process.
It’s important to note that some states have specific laws that address arbitration agreements. Based on recent cases and the new Act, it’s a great idea to connect with legal counsel if your arbitration agreement hasn’t been reviewed in recent years.
Are more changes coming? It’s possible that carving out sexual assault and sexual harassment claims was the beginning of a movement to limit arbitration agreements. There is speculation that discrimination claims could be carved out in the future but for now, we wait and see what the future holds.
Written by: Lacy Bolling, SHRM-CP, PHR