Best Practices for Employers When Rolling Out Arbitration Programs

By Kevin Hylton {INSERT LINK TO PG BIO}

The question of whether employers can require employees and job candidates to sign mandatory arbitration agreements continues to attract litigation and controversy. The latest lightning rod in this heated dispute emerged in February, when the Ninth U.S. Circuit Court of Appeals ruled that the Federal Arbitration Act (FAA) takes precedence over a 2019 California law that prohibits employers from requiring workers to sign arbitration agreements.

“We agree with our sister circuits that the FAA pre-empts a state rule that discriminates against arbitration by discouraging or prohibiting the formulation of an arbitration agreement,” the court said in its opinion.

Employment law observers have heralded the decision as great news for employers that provides important clarification on the legal permissibility of mandatory arbitration, although HR Daily reports that the California Attorney General may petition the Ninth Circuit or even appeal to the decision to the U.S. Supreme Court.

“The status of employment arbitration claims in the U.S. is very much evolving,” said Anthony J. Oncidi, partner in the Los Angeles office of Proskauer, who represents employers and management in all aspects of labor relations and employment law. “In recent years it has become not only a legal issue but also a political issue to some extent. The arbitration agreements used in the employment context have been undergoing more scrutiny than the arbitration agreements we see used in other commercial settings.”

Oncidi, co-chair of Proskauer’s Labor and Employment Law Department and heads the firm’s West Coast Labor & Employment group, observed that there are a number of pros and cons associated with the use of arbitration agreements by employers. But in states where there is a challenging litigation environment for businesses, arbitration is often a preferable option for dispute resolution.

“Arbitration still holds important advantages for employers in certain jurisdictions, such as California, where jurors have become more hostile in recent years toward employers and more sympathetic toward employees who claim to have been wrongfully treated, discriminated against or retaliated against by their companies,” Oncidi said. “Since the pandemic, there has been a significant uptick in large jury verdicts against employers. We’re now recording here in California jury verdicts that are often in excess of $10 million — and some even more eye-popping verdicts of more than $100 million — for single-plaintiff employment cases.”

Oncidi advises that employers who are inclined to roll out an arbitration program for employees first consider whether arbitration is the right choice for their organization. If they decide to proceed with arbitration agreements, there are different approaches to consider with the rollout — ranging from a mandatory posture to a “carrot-style” incentive posture.

Employment law experts note there are some best practices for employers to follow if they choose to craft mandatory arbitration agreements for current and prospective employees. A Mandatory Arbitration Agreement Drafting Checklist published by Lexis Practical Guidance lays out three key steps:

1. Ensure the agreement is enforceable

Draft the agreement in a way that a court will enforce by taking specific measures to ensure it will stand up to legal scrutiny when challenged by plaintiffs.

2. Clearly define the terms and scope of the agreement

Carefully write the agreement to ensure that it is sufficiently narrow or broad to cover the disputes the employer envisions, constrains any and all essential terms, and will survive any enforcement challenges.

3. Consider international arbitration for multinational employers

For multinational employers, the absence of an arbitration agreement creates doubt over the venue and applicable law in the event of a dispute. An international arbitration agreement should explicitly address venue, choice of law, and how the award will be enforced.

The Lexis Practical Guidance team has created an Arbitration of Employment and Labor Disputes Resource Kit, which includes a variety of content to assist employment lawyers with navigating employment arbitration agreements and related litigation.

Specific Practical Guidance resources in this important area of employment law include the following:

• Survey: Arbitration State Law Survey
• Practice Note: AAA Arbitration for Employment Lawyers
• Template: Mutual Agreement to Arbitrate Employment-Related Disputes (CA)

Oncidi is a contributor to Lexis Practical Guidance, including the publication of several articles related to employment litigation and two recent practice videos containing insightful tips on preparing for depositions in employment cases.

I had the privilege of interviewing Oncidi on the latest episode of our “Practical Guidance: Labor and Employment Series” podcast, where we invite experts to provide insights on timely employment law issues facing legal practitioners. Listen now or download this new episode regarding the pros and cons of arbitration from an employer’s perspective and best practices for employers when rolling out arbitration programs.