publications full of ideas
The U.S Supreme Court’s Ruling on Arbitration Clauses
What This Means for Businesses

5.23.2018

On May 21, 2018, the U.S. Supreme Court ruled that arbitration agreements between employees and their employers requiring individual arbitration must be enforced, giving employers the green light to require employees to enter into contracts waiving their class and collective action rights in addition to their right to bring employment claims in court. Prior to the court’s ruling, employers have included similar provisions in employment contracts, but faced uncertainty in enforcement. The Supreme Court’s decision represents a win for employers, who have been increasingly subjected to expensive drawn-out class and collective claims in recent years.

When deciding whether to enter into or amend employment agreements based on this decision, employers have a lot to consider. As detailed in our prior article, there are several benefits to requiring arbitration and class waivers. Class and collective actions are extremely costly for employers; agreements to arbitrate outside of the class and collective action framework, and outside of the court system, allow the parties to settle disputes in a cost-effective manner. Arbitration is also typically confidential, which means that any resolution will not be publicly reported and will not create any binding precedent that could be used against an employer in a subsequent dispute. Without the risk of costly class litigation, an employer’s employment practice liability insurance premiums could be reduced.

However, some employers may decide not to enter into arbitration agreements with class waivers, preferring instead to resolve claims on a class or collective basis because it provides finality, and the employer does not have to worry about similar claims arising from similarly situated class member employees in the future. Employers should also note that an arbitration policy generally will not preclude the filing of administrative charges, and may not prevent the Department of Labor, the Equal Employment Opportunity Commission or similar agencies from bringing lawsuits, including class and collective actions on behalf of employees.

If an employer decides to require employees to enter into arbitration agreements, it is important to consider state law contract requirements to determine whether new agreements with existing employees can be based on continued employment only or require new consideration such as raises or bonuses. Employers must also decide whether to use standalone agreements or revise written employment agreements to include arbitration clauses. Employers have flexibility to tailor the agreement and should talk through the options with an attorney. For example, employers should think about whether there are any types of employment disputes they want to carve out of agreements to arbitrate. 

Physical Address: 301 Fayetteville Street, Suite 1900, Raleigh, NC 27601 | © Poyner Spruill LLP. All rights reserved.

related information

[ Error ]

follow us on twitter