Supreme Court Ruling Reinforces Advantage of Employer Arbitration Agreements

In a narrow ruling supporting arbitration provisions in employment relationships, the U.S. Supreme Court in May ruled 5 to 4 that companies can use arbitration clauses in employment contracts to prohibit employees from taking legal action as a group over workplace issues.

The court's majority opinion stated that its conclusion was in support of standing federal arbitration law and the court's own precedents.

"[T]he virtues Congress originally saw in arbitration, its speed and simplicity and inexpensiveness, would be shorn away and arbitration would wind up looking like the litigation it was meant to displace" if employees were allowed to file arbitration claims together, Justice Neil Gorsuch wrote.

The case involved charges that the employer had underpaid workers, whose employment contracts required that they resolve such disputes in arbitration rather than through the court system and that they file their claims individually.

The argument for consolidating arbitration cases is to create less of a burden by sharing the costs among the parties bringing a dispute, and that it otherwise makes it more difficult for individuals to pursue relatively minor claims.

Arbitration programs have become a popular alternative for employers in the last 20 years, but ... when the rules give either party an unfair or biased advantage, they likely will not hold up in court.

All employee handbooks from Handbook Hero include an Arbitration clause that requires any claim by an employee arising from the terms or conditions of employment to be settled in private arbitration, where disputes are resolved more quickly and inexpensively than through the court system.

Arbitration programs have become a popular alternative for employers in the last 20 years, but there are several things to look out for. Specifically, when the rules give either party an unfair or biased advantage, they likely will not hold up in court.

Arbitration agreements should never include the following elements:

Filing deadlines and limitations on damages that are tougher than statutory requirements.
Requiring employees to pay more for arbitration services than the employer, or to reimburse the employer's costs if the employee loses.
Financial remedies limited to "out-of-pocket" damages.
Prohibited awards of punitive or liquidated damages.

When a court examines the enforceability of an arbitration agreement, the foremost element is determining whether the language of the agreement is simple enough that an ordinary individual can read and understand it.

Beyond that, solid agreements should allow for the employee to bring in outside representation such as an attorney and avoid any unreasonable costs to be borne by the employee.

Case: Epic Systems Corp. v. Lewis

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