Wednesday, August 29, 2012

Arbitration provisions in the employment context

Including an arbitration provision in an employment agreement is almost the norm these days - however, including an enforceable arbitration provision is less common.  For a great primer on arbitration in the employment context, click here.

The Courts consider arbitration agreements to weigh in the employer's favor, at the expense of the employee's right to trial.  Because of this, an arbitration agreement should not be an afterthought but a separately signed agreement.  Second, an arbitration agreement must clearly state what it is intended to cover and indicate that the signatories understand that they are giving up their rights to trial.

In Simmons v. Morgan Stanley Smith Barney, LLC. (2012) _________, the United States District Court, Southern District of California ruled that arbitration provisions in promissory notes and bonus agreements did not cover statutory employment discrimination claims.

In that case, the agreements to arbitrate were included in an executive's promissory notes and bonus agreements with his employer.  They did not state that the executive waived his right to a jury trial on his statutory claims for employment discrimination or otherwise show that the executive had knowingly foregone his statutory remedies for such claims.  Because of this, the Court ruled that the agreements to arbitrate did  not apply to the claims for employment discrimination

The Court did find that the arbitration agreement covered the executive's remaining claims for wrongful termination in violation of public policy, fraud, and breach of contract, and his request for a temporary restraining order and preliminary and permanent injunction.

Moral of the story? A well-drafted arbitration provision can save you time and money, and a poorly-drafted provision could cause you big problems.

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