Mandatory arbitration agreements have become very popular with organizations since early 2018. Arbitration is a process for settling disputes outside of court, without a judge or jury. There is a mutually agreed upon arbitrator who makes a determination based on the arguments from both sides. Rules regarding evidence are laxer and the process and ruling are typically kept behind closed doors. The arbitrator’s decision is binding and can be upheld within the court.

The Makings of a Trend

In May 2018, the U.S. Supreme Court upheld that companies can force employees to sign a mandatory arbitration agreement. The agreements state employees must go through arbitration for any disputes or claims brought against the company. Additionally, it supports class-action waivers within those agreements. Class-action waivers stop employees from joining together to bring a class-action lawsuit against the company. Each employee must file an individual claim, which will then go through arbitration.

Even though this current trend began in 2018, arbitration agreements aren’t new and have been in play for almost a century. The Federal Arbitration Act (FAA) was enacted in 1925. It states arbitration clauses in contracts are legal and binding. Over time, states have enacted additional regulations regarding arbitration and it has been left up to individual cases to determine whether the mandatory arbitration is fair. Since the nineties, arbitration clauses have become increasingly popular in employment contracts.

The most recent ruling, which came from Epic Systems Corp v. Lewis, applied to violations of the Fair Labor Standards Act (FLSA). In this case, clear precedent is established for resolving wage and hour claims. But, there are concerns that this ruling will set precedence for other disputes regarding harassment or discrimination. It raises the question of whether mandatory arbitration violates employees’ rights.

Not Waiting for Change

Google has decided that it’s not going to wait for another court ruling. As of March 21, Google will end mandatory arbitration for all disputes regarding employment. Last November, in response to massive protests, the company ended the arbitration practice for sexual harassment claims. Facebook did not take long to follow suit and joined companies, like Uber and Microsoft, ending mandatory arbitration for sexual harassment claims.

While some companies are taking action into their own hands, lawmakers are working for change as well. Supreme Court Justice, Ruth Bader Ginsberg has publicly voiced her dissent of the May court ruling. Democratic politicians have introduced the Forced Arbitration Injustice Repeal (FAIR) Act. It aims to give employees the option to choose arbitration at will and not be bound to agreements that were signed as a contingency of their job.

But are Mandatory Arbitration Agreements What’s Best for your Company?

While arbitration agreements provide protection for the company, it’s worth considering if they do more harm than good. Will it create any ill-will between your company and its employees? You might find a mandatory arbitration agreement will affect your employer brand. What if a new hire does not want to waive their rights to a trial and refuses to sign the agreement? In a time where talent shortages are a real concern, is a mandatory arbitration agreement worth potentially losing top talent?

If your organization chooses to move forward with an arbitration policy, it’s important to outline what employee disputes are applicable. It might be best to have it not apply to sensitive cases like sexual harassment or discrimination. HR should ensure a strong voice during the policy creation process and partner with legal. It’s our job to find a balance between the best interests of the company and what’s right for the employees.

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