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Part II, Arbitration

Nine Scary Words: “…may elect to resolve any claim by individual arbitration.”
These words have been showing up more and more on consumer contracts. Their intent and effect is to prevent customers from filing class action suits.  This is an issue that was brought to my attention by one of my clients as a rising concern for employers. My client asked, “Can we and should we institute an HR policy that requires private, individual arbitration in the event of an employee lawsuit?”  The research I’ve done gives the following information:
1. Arbitration is defined as a method of resolving disputes without going through the courts. An arbitrator looks at the evidence, listens to the parties, and makes a decision. This process is less formal and less expensive than a formal court or trial process.
2. Most arbitrations are a result of clauses in a contract. These clauses can be very simple or very complex, dealing with a large number of matters. The clauses can be mandatory or voluntary, and the arbitrator’s decision can be binding or nonbinding. If mandatory and binding, the parties give up their right to sue in court, participate in a class action lawsuit, or appeal the arbitration decision. An arbitrator’s decision can’t be overturned unless fraud or misuse of power can be proved.
3. In many arbitration agreements, disputes must be arbitrated through one of the big arbitration groups or associations. Sometimes, the parties can agree on an arbitrator. The charges can be in a set amount or a percentage of the amount in dispute.
4. In the employment-at-will states of New Hampshire and Florida, an employee can be terminated or may voluntarily leave for any reason or for no reason. By adding an arbitration clause to an employment application or an employment agreement, employees gain an option that isn’t currently available.
I can’t recommend adding an arbitration clause of any kind to an employment contract or application. Employees have plenty of access to legal protection in the form of representatives from OSHA, Department of Labor, Department of Employment Security, Human Rights Commission, and various additional state and federal agencies. I cannot see where adding an arbitration clause would be of benefit to any employer and don’t see it as a best practice.

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