Drafting an enforceable arbitration agreement

No matter how careful employers are, it is all but certain that at some point disputes will arise between employer and employee. When such situations occur, it is usually in the best interest of the employer to have these disputes resolved in arbitration, rather than in open court.

Arbitration brings numerous advantages to employers. First, arbitration awards are generally confidential. Also, arbitration can resolve disputes quicker than litigation. Arbitration decisions also tend to have more finality than a judge or jury’s decision, as appeals following an arbitrator’s decision rarely occur. Given these benefits, employers often want to require employees to submit employment disputes to arbitration. To do this, employers need an arbitration agreement. Yet to be enforceable, an arbitration agreement must satisfy numerous requirements.

First, an arbitration agreement must provide a mechanism for the selection of a neutral arbitrator. Some arbitration agreements include language that permits the parties to attempt to agree on a neutral arbitrator. Instead of such provisions, the arbitration agreement may provide for an established arbitration service to select the arbitrator, with each party entitled to a veto on disclosure of the arbitrator's past decisions.

Second, the agreement must allow the employee to conduct adequate discovery. At the very least, employees are entitled access to “essential documents and witnesses, as determined by the arbitrator.”

Third, the agreement must allow the employee to recover as much as would be available in a civil trial, such as punitive damages and attorney fees.

Fourth, the agreement must call for a written decision by the arbitrator, which permits a limited form of judicial review.

Fifth, the agreement must limit the share of arbitration costs borne by the employee. If arbitration is offered as a condition of employment, the employer must be prepared to pay all costs "unique" to arbitration, including the arbitrators' fees, meeting room charges, and any other costs that would not have been involved if the case were in court.

Finally, an arbitration agreement must provide “mutuality” between the parties. An arbitration agreement must not be one-sided. For example, an agreement is unfairly one-sided where an employer requires an employee to submit any claims to arbitration, yet the employer is not required to arbitrate when it seeks to prosecute a claim against the employee.

As the previous paragraphs illustrate, arbitration agreements cannot be drafted without some attention to detail. If the above-described requirements are not followed, an employee can have the arbitration agreement invalidated – and the resulting benefits of arbitration are lost. As such, to ensure that employers reap the benefits of their arbitration agreements, it is in their best interest to review them and make sure they comply with the requirements above.