How a Binding Arbitration Agreement Can Keep You Out of Court

In this day and age where employee lawsuits are commonplace, it behooves the employer to have their employees sign an arbitration agreement. Using arbitration agreements are on the rise, and since the 1980’s the Supreme Court has been supporting their use. In an unanimous decision, the California Supreme Court has held that an employer does have the right to require employees to sign a mandatory employment arbitration agreement as a condition to employment (Armendariz v. Foundation Health Psychcare Services, Inc., 00 C.D.O.S. 7127 (8/24/00).

In Armendariz, the court concluded that employment arbitration agreements were enforceable as long as certain criteria were met: 1) the agreement must provide for neutral arbitrators; 2) it must provide for more than minimal discovery; 3) it must require a written award; 4) it must provide for all the types of relief that would otherwise be available in court; and, 5) it must not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of using the arbitration process. If these conditions are satisfied, the court concluded that an arbitration provision will not be found unconscionable and will be enforced.

Should an employee workplace issue arise, having a signed arbitration agreement will be invaluable to you as the business owner. Nearly any employment dispute that could arise would require the employee to use to use arbitration rather than sue the business owner in court. In California, the laws that govern these arbitration agreements are the California Arbitration Act and the Federal Arbitration Act.

Now the legal path has been cleared by the courts, a properly drafted employment arbitration agreement is a great document to keep the business owner out of court. Generally speaking the arbitration process is far quicker than a normal court trial.  An arbitration proceeding could take a month, while a formal court trial could take years.  This shorter time frame saves a tremendous amount of money in attorney fees for the company.

In an arbitration proceeding, there is no right to a jury trial.  This is advantageous for employers because jurors tend to favor employees over employers in their decisions.

Arbitration discovery rules are much more restrictive than in the court system.  Without this right to discovery, employees may not have the ability to produce the documentation required to win their dispute.

Arbitration proceedings are usually done through an arbitration service and employers often pay for this service. The decision made by the arbitrator is almost always final.  This is helpful because there is no rights of appeal accept in very narrow circumstances. Courts are able to review an arbitrator’s decision, but it is far narrower in scope than an appeal.

The use of arbitration agreements has increased substantially over the past decade. It is just one of many business protection documents available to business owners to help reduce the chances of lawsuits.