Many employers hire employees on an at-will basis, without any formal employment contract. Written employment contracts for management employees, however, are not uncommon. In written employment contracts, employers should consider the inclusion of an arbitration provision for the resolution of disputes.
One of the reasons an employer may wish to include an arbitration provision in a written employment contract is that an arbitration proceeding is not a public forum and decreases the likelihood of adverse publicity. Additionally, having the matter decided by an experienced employment law attorney who serves as an arbitrator may reduce the likelihood of an emotionally-charged decision sometimes associated with a jury. Another reason for considering the inclusion of an arbitration provision may be a desire to reach finality sooner since arbitration decisions typically do not include an appeals process. Furthermore, in some situations, arbitration may be a less expensive process without full-blown discovery.
On the other hand, an employer may decide against having an arbitration provision based on the fact that there are significant up-front costs in most arbitration forums, as the parties must compensate the arbitrator for the costs associated with the process. Further, some employers may not wish to relinquish the decision of an employment dispute to an employment law attorney and prefer having a judge or jury determine the outcome. If there is an unfavorable ruling that the employer does not think is justified, it is virtually impossible to change, as there are no appeals for decisions as in conventional litigation.
If an employer wishes to use arbitration to resolve employment disputes, it is advisable to hire legal counsel to draft or review the provision as the language used will often govern the outcome. In the event that an employer requests that a court compel arbitration to resolve a dispute, the court will examine the arbitration provision to determine if it is valid and if it encompasses the dispute at issue. Some arbitration provisions must be initiated to be considered effective. Moreover, the language contained in the provision will define the scope of arbitration. Since employment disputes are often raised after the employment relationship has been terminated, the language of the provision must evidence its intention to survive the termination of the contract to withstand challenge. Additionally, the provision may govern the forum, the selection of arbitrator, and the rules by which the arbitration shall be conducted, all of which should be considered when drafting the provision.
Even with carefully drafted and enforceable arbitration provisions, the employer can lose the right to arbitrate if it takes actions contrary to arbitration. For example, if an employee files a lawsuit and the employer answers the complaint and proceeds with discovery instead of asserting and insisting on a right to proceed with arbitration, the court may find that the employer waived the right to arbitration. In such cases, the employer would be required to proceed with the litigation process. Thus, it is important to inform counsel about the existence of any written arbitration provision at the inception of litigation in order to consider the employer’s preferred course of action.
When an employer drafts a written employment contract, the employer should consider whether arbitration would be desirable in the event of future disputes. If so, the employer would be wise to engage counsel to draft or review the arbitration provision to determine if it is enforceable and whether its scope is sufficient to cover anticipated disputes.