The Ticking Time Bomb in Your Employment Agreements

Imagine there were a clause in your employment contracts that had the potential to bankrupt your company, yet it was usually given little thought. This may sound outlandish, but it’s actually true.

While Amazon is hardly in danger of being put out of business, the e-commerce behemoth recently faced 75,000 individual arbitration lawsuits that could result in more than $375 million in filing fees alone. Likewise, a federal judge recently ordered DoorDash to pay $9.5 million in filing fees for 5,000 employment arbitrations. Another federal judge mandated that Postmates pay over $10 million in filing fees for similar cases. All of these exorbitant fees originated from a simple clause that’s present in almost every employment agreement: the dispute resolution clause.

As an HR manager, staffing professional or contingent workforce manager, you may not think it’s necessary to review the fine print of every employment agreement – but, in reality, you may be the last line of defense between a ministerial employee dispute and a time-consuming, costly legal battle. The fact is that your legal team is likely a step removed from being intimately involved in the negotiation and acceptance of employment agreements. So, it’s very important that you understand the nuance and specifics of these agreements, particularly if they are individualized based on the employee.

Dispute Resolution Clauses: What They Are and Why They Exist

First, it’s imperative to understand why dispute resolution clauses exist. While parties rarely enter into agreements with the intent that they fail, provision needs to be made for the worst-case scenario in any agreement. In the employment context, it would be naïve to believe that every employment relationship is going to work out.

As an HR manager, staffing professional or CW program manager, the last thing on your mind when placing a new hire is the potential for a future legal battle. But what happens if there is a dispute between employee and employer? The outcome often depends on the specific language within the employment contract’s “dispute resolution clause” which dictates where and how disputes will be decided.

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Available Forums Choices for Dispute Resolution

Typically, the clause provides for state/federal courts in a particular state or one of the large alternative dispute resolution (ADR) providers like the American Arbitration Association (AAA) or the Judicial Arbitration and Mediation Services (JAMS). There may also be smaller regional ADR players that are named. Unfortunately, there is almost always a common thread across all these agreements: They are almost always boilerplate provisions inserted into agreement after agreement with little justification.

Court vs. Arbitration: Why Forum Choice Is Critical for Resolving Employee Disputes

There are very specific and important reasons why you would choose a particular forum. Before selecting a forum, internal stakeholders should consider the following:

  • Are you concerned about class actions? Arbitration clauses can include class action waivers requiring that any lawsuit that is brought be brought solely on an individual basis.
  • Do you care about the potential publicity surrounding the litigation? Litigation in court is a matter of public record. Anyone can access the pleadings and general information in the court file.
  • Would you prefer to handle litigation remotely? Some courts have become fairly adept at managing litigation on Zoom, while some ADR organizations remain slow to adopt technology.

One of the biggest misconceptions about dispute resolution clauses is that they need to be simple and repeatable. In reality, dispute resolution clauses can be based on whatever particular outcome you are seeking if there is litigation, while keeping in mind that the forum and procedures must be fair and efficient for employees.

Diffuse Dispute Resolution Time Bombs with Careful Planning and Preparation

The focus of any dispute resolution provision should be fundamental fairness and expediency. But they also must be crafted and tailored to the needs of the business. Failing to thoughtfully draft your dispute resolution provision can land you in the same world as Amazon, Doordash and Postmates. As an HR manager, you can evaluate and help draft these employment agreements, in particular the dispute resolution provisions, to ensure that the interests of your employees and your organization are front, center and aligned.

Collin Williams

Collin Williams
Collin Williams is founder and chairman of New Era ADR.

Collin Williams

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