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Two Arguments Against Arbitration Agreements: Tips For Employers

The arbitration process can provide a number of benefits, particularly for employers. The process is generally less expensive and time consuming than traditional litigation and often heard only once. Appeals are generally not allowed. Business leaders that wish to have employees abide by arbitration agreements are wise to have a basic understanding of the arguments made against these contracts. Two of the more common examples are:

  • The agreement lacks consideration
  • The agreement unlawfully deprives the employee of statutory rights

These arguments have been made with varying results.

Lacking in consideration

An argument involving consideration builds off the basic tenants of contract law. In most cases, a contract is only valid if it contains an offer, acceptance and consideration. Employment contracts generally meet the first two requirements, the offer being employment, the acceptance illustrated by whether or not the employee begins work. The third requirement may be disputed.

A valid contract must result in the exchange of something in value for each party, referred to in the legal world as consideration. Employment contracts generally result in the employer receiving the employee’s services in exchange for the employee receiving payment. Depending on when the arbitration agreement is executed, it may come into question. One example involves situations where the arbitration agreement is placed within a manual given to the employee at a date after the employment contract is executed. Since employment already technically began, the employee could argue that there was no consideration given in exchange for his or her agreement to abide by the arbitration provision. A recent case out of Missouri took this question into review, and ultimately the Supreme Court of Missouri found that continued employment on its own was not sufficient to meet the consideration requirement. Although the court did not give a clear answer as to what would suffice, it did state that other typical forms of consideration, like monetary payments, suffice. As a result, a signing bonus may meet this criteria.

Statutory rights of employees

Another contention involves the question of whether or not an employee gives up statutory rights by waiving the right to take a claim to court. This argument is often made when employees believe the agreement was hidden within other documents. This contention can be overcome if it is established that the employee’s waiver was “knowing and voluntary.” The American Bar Association notes that providing a handbook and requiring an employee to sign that he or she received the document generally does not meet this standard. Instead, an agreement must clearly state what the employee is waiving in order to meet this obligation.

Importance of legal counsel

In many cases, the use of arbitration provisions by employers is supported when challenged. Wise use of these agreements can benefit the employer, but it is important to be aware of the challenges that exist. These are just a few of the more common issues that can arise when using arbitration. As a result, it is wise for employers crafting these or similar agreements to seek the counsel of an experienced attorney. This legal professional can help to better ensure the agreement will withstand a challenge while also working to ensure your business interests are protected.