Is your arbitration agreement worth the paper it’s printed on?

Courts have blessed written agreements between employer and employee to submit federal discrimination claims to arbitration. Here is an example. 

But, there’s legal and then there’s doing right. After the jump, how one employer got it wrong. Very wrong. Plus, what you can do to make sure that your business does not make the same mistake…

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In Domin v. River Oaks Imports, Inc. the plaintiff worked for the defendant-employer for just under a year. Shortly after he began his employment, the plaintiff received an Employee Handbook and signed an acknowledgment, which contained the following arbitration clause:

I understand and voluntarily agree that any disputes regarding the terms of this pay plan or my employment or termination from employment (including claims of discrimination and/or harassment) will be resolved exclusively in accordance with binding arbitration governed by the Federal Arbitration Act. . . . I further understand and voluntarily agree that this alternative dispute resolution program shall also cover claims of discrimination or harassment under Title VII of the Civil Rights Act of 1964, as amended. Although I understand that signing this arbitration agreement is not required as a condition of my employment, I desire to take advantage of the benefits of arbitration and understand that I give up the right to trial by jury and instead will have my claims resolved by a retired court Judge.

After the plaintiff left his job, he asserted federal-discrimination claims against the defendant in federal court, and the defendant moved to stay the case pending arbitration.

Is the arbitration agreement enforceable? I’ll give you a hint, no.

As with any contract, for an arbitration agreement to be binding on both parties, there must be an offer, acceptance, and consideration (that’s legal-speak for a give and take). Therefore, for an arbitration agreement to be binding, the employee must receive some benefit or the employer must have suffered some detriment. 

Generally, employment can be consideration for an employee’s agreement to arbitrate. However, in this particular case, the arbitration that the plaintiff signed stated that “this arbitration agreement is not required as a condition of my employment.”

Oops.

Plus, the subject agreement did not bind the employer in the same way it did the employee. Notice all of the “I understand” and “I give up the right” and “my claims”. The court could not read that language to bind both the employee and the employee.

Double oops.

Based on the lack of consideration and the do, re, me, me, me, me, me, the court held that the agreement to arbitrate was unenforceable and allowed the plaintiff to pursue his federal discrimination claims in court.

Don’t make the same mistake.

1. Know what state law will apply. Whether a contract is enforceable is a matter of state law. And that law may vary slightly from state to state. 
2. Don’t Google, get a lawyer. Otherwise, you may end up with an unenforceable agreement that has you defending discrimination claims in court, rather than in arbitration.
3. Consider jury waivers as an alternative to binding arbitration. You eliminate the risk of a high jury award, while retaining appeal rights — much broader than you would have were you to appeal an unfavorable arbitration award. A judge is also much more experienced hearing discrimination cases than an arbitrator.