Parties to contracts in recent years overwhelmingly favor the use of arbitration rather than court litigation to resolve disputes. The general thinking is that arbitration is quicker, cheaper, more private, and avoids the potential of "runaway" juries. The court system seems to like arbitration as well, as it lessens their case load and supports other public policies. The trend began expanding to employment law some 20 years ago, and the Economic Policy Institute reports that 56% of non-union private-sector employees are subject to mandatory individual arbitration procedures, covering some 60 million American workers. In light of a U.S. Supreme Court ruling in 2018 in Epic Systems Corp. v. Lewis, employers using arbitration are likely to include class and collective action waivers in their arbitration agreements. The Epic Systems case removed an issue raised by an NLRB ruling during the Obama Administration, prohibiting class and collective action waivers as interference with employee concerted activity recognized in Section 7 of the National Labor Relations Act. The Epic Systems case resolved this problem by ruling that the Labor Act did not guarantee employees the right to pursue group legal action against their employer, and further found that such agreements did not displace the importance given to arbitration under the Federal Arbitration Act.
If arbitration is so wonderful, and "everybody is doing it," should my company adopt individual arbitration agreements/policies? Well, the answer is not so simple. First, consider the "MeToo" movement which has implemented publicity campaigns against arbitration of sexual harassment claims and the confidentiality of the process. At Google and certain other companies, employers have made arbitration optional for individual sexual harassment claims, in response to these protests. At certain law schools around the U.S., law students have mounted publicity campaigns against law firms that use mandatory arbitration agreements, with protests so strong that some law firms have terminated or modified their mandatory arbitration policies. Uber has responded to protests by allowing employees to opt-out of arbitration agreements if they do not want to use arbitration. Some companies use a hybrid approach of allowing employees a short window of time to opt-out of arbitration, such as 30 days, before being considered to have agreed to the provision.
Another problem developed at Uber concerning its arbitration policies that require individual arbitration without class or collective actions. Uber drivers responded to such approaches by filing some 12,500 demands for individual arbitration, particularly since Uber had agreed in its arbitration agreement to pay the arbitration filing fees.
Despite these well-publicized situations, the vast majority of all employers have been able to implement and use individual arbitration agreements without protest from workers. Indeed, there are a lot of advantages to the worker to have arbitration, including a quicker and cheaper process. Some worry the process can become so quick and cheap that more workers will in essence "sue" their employer in arbitration. There is little evidence to support this result, however, and the use of arbitration continues to expand.
Indeed, the ability to limit class or collective actions and to limit adverse public exposure, has a lot of appeal, even absent the quicker and cheaper process. Arbitration with waiver of class or collective actions is something to be seriously considered by employers who face a great deal of litigation, and/or concerns about class or collective actions in the future.
Another possible and more controversial question is whether employers can enter into agreements with their employees to waive class and collective actions without arbitration being a part of the process. In Convergys Corp. v. NLRB, 866 F.3d 635 (5th Cir. 2017), the court ruled that class action waivers were enforceable in employment cases, even if not part of an arbitration agreement. This result seems to be supported by the recent Supreme Court ruling in Epic Systems, where the Court ruled that the Labor Act's protection of "other concerted activities" did not extend to a substantive right to pursue group legal action.
Nevertheless, requiring employees to sign documents waiving class or collection actions without arbitration is legally controversial, as the Sixth Circuit Court of Appeals recently noted in distinguishing that situation from such waivers in connection with arbitration agreements. The Sixth Circuit has suggested that they may not allow class and collective action waivers in the case of wage-hour cases absent a provision for arbitration. Compare Gaffers v. Kelly Services, Inc., 900 F.3d 293 (C.A. 6, 2018) (considerations change when an arbitration clause is involved) with Killion v. KeHE Distributors, LLC, 761 F.3d 574 (C.A. 6, 2014) (because no arbitration agreement is present, there is no countervailing federal policy that outweighs the policy articulated in the FLSA allowing collective actions).
In addition to strategic and practical considerations, there are numerous somewhat complicated and technical legal issues in drafting and implementing an individual arbitration agreement. One problem is that state contract law requirements must be met as to when an agreement or contract has been made. States generally cannot set forth separate standards for arbitration agreements, as general rules of state contract laws are applicable. Thus, in some states an approach is as simple as including the provision in an employee handbook, together with a sign-off page indicating that the arbitration provisions are contractual, and the other provisions of the handbook are not, may be enough. Having arbitration or waiver provision on employment applications seems to be a good way of implementing the process, at least as to new hires. It is possible that a short summary of the provisions could be contained in the written documents, giving the employee the right to review the entire arbitration agreement upon request, or having it posted somewhere.
Issues can also arise as to what to do with employees who refuse to sign the agreement, if a signature process is used. The issues are similar to those requiring an employee to sign a non-compete or confidentiality agreement. Do you terminate someone who refuses to sign, deny them a pay increase until they sign, or what? In this regard, the state consideration laws must be met in terms of reaching an agreement, and continued employment is not consideration to support a contract in all states.
In addition to the need to meet the requirements of a "contract," many other numerous technical and legal issues are presented. For example, an appropriate arbitrator or arbitration service has to be considered. The arbitration services have different rules to be considered, and some of their filing fees are significant. Similarly, many employers design their arbitration agreements with limited discovery provisions and allow for summary judgment proceedings without a hearing. It does seem that an arbitration agreement may not waive substantive rights under the various laws that are addressed in arbitration, such as the right to receive in some cases punitive or compensatory damages, recover attorney fees in successful cases, and probably the right not to have to pay filing fees or costs in excess of those that would be assessed in court litigation.
In short, there are many, many issues to address, and use of arbitration is not a "one size fits all" document. While standard or common agreements furnish a good starting point, each company may have its own particularly situation, which may vary somewhat by state, in setting up appropriate arbitration procedures and provisions.
For those employers wishing to use employee agreements to avoid legal problems, who don't want to go so far as to use individual arbitration or class or collective action waivers, other possibilities include agreements to waive jury trials, or to set forth shorter statutes of limitations than allowed under various statutes. These type provisions are widely enforced in court, and should be considered.