Arbitration Agreements in Employment Contracts May Affect an Employee’s Ability to Win Claims

Does your employment contract contain an arbitration provision? Does your employment contract require you to pursue a claim you might have against your employer in a private and confidential arbitration proceeding rather than before a judge and jury in open court?

Arbitration Agreements Preferred by Employers

Employers often present their employees with employment contracts containing arbitration provisions often called arbitration agreements. Employers favor arbitration to resolve claims asserted by employees because arbitration is a private, fee-based proceeding, and unlike in a court case, there are no public records or hearings. Arbitration is less formal than a court proceeding, and the rules of evidence are applied very loosely, if at all.

The Arbitration Process

Arbitrators are usually selected by the parties from a list that is provided by an arbitration administrator such as the American Arbitration Association or JAMS (formerly known as Judicial Arbitration and Mediation Services, Inc., a US-based for-profit organization of alternative dispute resolution services). Arbitrators are typically attorneys in private practice, retired judges, or specialized providers of mediation and arbitration services. Often, preliminary hearings are held by telephone. The final hearing, in which witnesses testify, is typically held in a hotel conference room or at the arbitrator’s office in a law firm or office building.

Kilgore & Kilgore represents clients in arbitrations, mediations and jury trials. To learn more about our employment law practice, click here Employment Lawyer. To contact us for a free review of the facts of your case with an employment lawyer, click here Contact Kilgore & Kilgore.

Class Actions or Collective Actions are Possible in Arbitrations

Employees might be able to bring a class action or collective action against an employer under several different employment laws. For example, under the Fair Labor Standards Act (FLSA), a large number of employees could potentially opt in to a collective action in order to bring a claim for unpaid overtime wages against an employer.

A class action, or collective action as it is sometimes called, is an efficient way for employees to bring a claim against an employer. An employee’s claim for unpaid wages, individually, is often impractical to assert in a legal proceeding because of the amount of wages at issue and the legal expense. However, when many employees join together in a collective action, their claim for unpaid wages in the aggregate can be quite significant. Such an action may deter an employer from engaging in misconduct in the future.

Some arbitration provisions specifically prohibit employees from participating in a class action or collective action against an employer. Some arbitration provisions may instead require each employee to arbitrate his or her claim individually. In a recent case decided by the U. S. Supreme Court, these arbitration provisions were upheld as lawful.

The U. S. Supreme Court Upholds Clauses in Arbitration Agreements that Require Claims Be Made Individually

In a case known as Epic Systems Corp. v. Lewis, consolidated appeals from the Seventh, Ninth, and Fifth Circuits were heard. The U.S. Supreme Court held that employers, through contractual arbitration provisions, can require their employees to arbitrate their claims on an individual, piecemeal basis.

This opinion, written by Justice Gorsuch, is a big win for employers and a disappointment for employees. In Lewis, the U. S. Supreme Court reversed the Seventh and Ninth Circuits, both of which had previously held that the arbitration provisions at issue were unenforceable. In an earlier blog, we wrote about the Lewis decision by the Seventh Circuit. In that article, we indicated that there was a split among the federal circuit courts, and that the U. S. Supreme Court would probably decide the issue in the future. Click to see previous article Employers Use Arbitration to Resolve Employee Disputes. The U. S. Supreme Court has now spoken.

In Lewis, the U.S. Supreme Court determined that the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., requires an individualized arbitration proceeding if that is what the parties agreed to in their contract. The U. S. Supreme Court rejected the employees’ arguments that the saving clause in section 2 of the FAA and the concerted activities language in section 7 of the National Labor Relations Act (NLRA), 29 U.S.C. § 157, rendered the arbitration provisions at issue unenforceable.

The FAA Requires Enforcement of Arbitration Agreements

The FAA generally requires courts to enforce arbitration agreements. Section 2 of the FAA states that an agreement to arbitrate shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. It is usually quite difficult for an employee to avoid an arbitration agreement in a contract.

The U.S. Supreme Court Decision Further Limits Defenses to Enforce Arbitration Agreements

There are only a few defenses to enforcement of an arbitration agreement. The U.S. Supreme Court found that the saving clause in Section 2 of the FAA applied only to general contract defenses, such as fraud, duress, or unconscionability, not to a defense that specifically targeted individualized arbitration.

The U.S. Supreme Court also rejected the employees’ argument that section 7 of the NLRA made the arbitration agreement at issue unenforceable. Section 7 guarantees employees the right to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.

Employees Sought Their Right to Class Action or Collection Action but Lost

The employees argued that they had a right to class action or collective actions as protected concerted activities under section 7 of the NLRA. The U.S. Supreme Court was not persuaded by this argument. Instead, the U. S. Supreme Court decided that section 7 of the NLRA did not displace or conflict with the FAA. Section 7 of the NLRA, according to the Court, had no effect on the enforceability under the FAA of the individualized arbitration agreements at issue.

Thus, after the U. S. Supreme Court’s decision in Lewis, certain employees will have to assert their claims in individualized arbitration proceedings, rather than in class actions or collective actions, if required by their arbitration agreements.

If you have questions about your rights under an arbitration agreement provision in your employment contract, then you should contact an experienced employment law attorney at Kilgore & Kilgore. To get the conversation started, click here and submit a form Contact Kilgore & Kilgore.

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