Arbitration agreements can be an effective tool to avoid costly litigation, and, in particular, to prevent class and collective actions. But, will your arbitration agreement withstand scrutiny? Here are some tips on what to do—and not do—when drafting arbitration agreements for new hires.
First, consider whether and for what kinds of employment disputes you might want arbitration. Arbitration has some advantages. It is typically quicker and more cost-effective than litigation. It allows a trained legal professional (often a retired judge) to dictate the results of the case, rather than risking an adverse outcome with a jury. Because arbitrations are private, the proceedings, claims, and ultimate outcomes are ordinarily confidential. Most interesting to employers is that arbitrators tend to award lower damages than juries.
Of course, arbitration has some disadvantages, too. Sometimes it is neither quicker nor less expensive than litigation, and arbitrators are sometimes inclined to “split the baby,” even if the law is clearly on your side. Unfortunately, there is essentially no meaningful appeal if the arbitrator gets is wrong. But arbitrations remain an important tool for avoiding class and collective actions that could otherwise put a company out of business, especially in the wage and hour arena. Continue Reading