Arbitration Terms in an Employment Agreement

We recommend that employers include in their standard employment agreement an arbitration provision. There was an attempt to makes such arbitration terms in California employment agreements to be unenforceable, including a requirement that an employee must sign an arbitration agreement as a condition of employment. A federal court decision overruled this attempt, and arbitration agreements, if they are fair and equitable, are enforceable in employment agreements in California.

By including arbitration provisions in employment agreements, such provisions may result in employers avoiding class action matters and PAGA claims, based upon the fact that the arbitration provisions if written properly, will discourage plaintiff wage and hour attorneys from using an employee, who is making a claim, for moving forward with anything other than their individual claim. In addition, arbitration moves much quicker and is usually less costly. We recommend that all employers, whose employees are not unionized, have a standard employment agreement, in fact they should have two employment agreements, one for exempt employees and one for nonexempt employees.

In order for arbitration terms to be enforceable, as stated they must be fair and equitable, and the basic terms and conditions should be as follows:

1. Terms and conditions for the selection of a neutral arbitrator.

2. Providing the right to conduct adequate discovery.

3. A requirement that the arbitrator issue a written opinion as to the reasoned basis for the arbitrator’s decision.

4. That both the employer and employee must use the arbitration procedure to resolve employment disputes.

5. Setting forth the scope of the type of decision that an arbitrator can make, similar to any decision that could be made by a court of competent jurisdiction.

6. That the provision does not limit the existing statute of limitation as provided in law.

7. That the cost of filing for arbitration does not exceed the cost of filing such action in superior court, with any additional arbitration fees being paid by the employer.

Consider having an attorney review any such employment agreements and employee handbooks to make sure they comply with existing California law.