Arbitration Clauses in Employment Contracts–Are They Ever Enforceable?

By: Sam G. Sherman, Esq.

Many employers include arbitration agreements in offer letters, employment agreements, or as part of a packet of pre-employment documents given to employees for signature. Many of those same employers are left frustrated when courts refuse to enforce the very arbitration agreement they have paid lawyers thousands of dollars to draft (or agreements that the employer pulled off the internet in an effort to save lawyers’ fees).

A California Appellate Court in Sacramento recently issued a decision summarizing the steps an employer must take to ensure the enforceability of its arbitration agreement. First, make sure to explain to the employee that submitting to arbitration is not a condition of employment and that it is completely negotiable. Second, provide the employee with the arbitration rules. Third, take the time to explain the arbitration provision–and its ramifications–to the employee. Finally, the agreement must be mutual in obligating the employee to arbitrate his or her disputes with the employer as well as requiring the employer to arbitrate its disputes with the employee.

For employers, the first step is to review your arbitration provision (preferably with a lawyer) to ensure it complies with the law. Next, review your internal procedures to ensure those comply with the law. There is no point in having a good arbitration provision if you aren’t implementing it properly. Finally, if you discover that your previous arbitration clause or your procedures for communicating that clause failed to comply with the law, then consider re-drafting and obtaining new signatures from employees. It is cheaper to get it right then to litigate a bad arbitration provision.

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