Overview: An arbitration program is only as strong as the arbitration agreement from which it derives. In other words, if the arbitration agreement which spawns an arbitration program is considered unenforceable, the arbitration program is typically a waste of effort. Both the Federal Arbitration Act (FAA) and state law include provisions pertaining to the enforceability of arbitration programs. Thus, HR professionals who have a hand in creating arbitration agreements or otherwise advising in-house or external counsel regarding arbitration agreements, must be keenly aware of limitations on the enforceability of arbitration agreements deriving from both state and federal law.
Specifically, arbitration agreements may be declared unenforceable if they impose unreasonable procedural or substantive rules on employees, if they remove rights from employees while conferring an unfair advantage to employers, if they violate state or federal public policy considerations, or if employees are deprived of equal bargaining power. Essentially, the parties must be presented with a "meaningful choice" as to whether to participate in arbitration programs and if so, the parties must not be defrauded or otherwise deprived of their fair chance to prevail.
Trends: The popularity of arbitration programs is growing among employers with both unionized and non-unionized employees, particularly following the Supreme Court's 2011 decision, AT&T Mobility v. Concepcion. In wake of that decision, employers can also craft arbitration agreements that do not allow employees to bind together as a class to prosecute their claims. This, of course, confers a considerable advantage to employers in terms of resources to defend claims.
On the other hand, there has been a push to enact legislation called the Arbitration Fairness Act, which would render all pre-dispute arbitration agreements pertaining to employment claims invalid. Given the makeup of Congress, that legislation is not likely to be enacted, but employers should nevertheless be aware of the push and pull, so to speak, between employers and attorneys representing employees as it pertains to the prevalence of arbitration programs and the enforceability of arbitration agreements.
Author: Michael Jacobson, JD, Legal Editor
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A new Kentucky Supreme Court ruling bans employers from requiring job applicants or employees to sign a mandatory arbitration agreement as a condition of their employment.
Updated to reflect information on a Supreme Court ruling concerning collective action waivers in arbitration agreements.
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Employment glossary definition of Ad Hoc Arbitration.
Employment glossary definition of Arbitration.
Employment glossary definition of Advisory Arbitration.
HR guidance on the importance of crafting arbitration agreements designed to be enforceable, and guidelines for building arbitration programs from fair and balanced arbitration agreements.