The U.S. Supreme Court recently issued a decision that dealt with arbitration requirements in employment contracts, which resolves a conflict among the lower federal appellate courts. In a 5-4 decision, in the case of Epic Systems Corp. v. Lewis, the Court held that employment contracts that mandate employees to resolve employment disputes individually through arbitration are legally valid and enforceable. The practical result of this decision is that an employer can avoid the possibility of an employee-based class action lawsuit by including a mandatory arbitration clause in employment contracts.

The Court acknowledged the fact that federal law strongly favors the use of arbitration as a means of alternative dispute resolution, also pointing out that the Federal Arbitration Act characterizes arbitration provisions in contracts as valid, irrevocable, and enforceable. The very few exceptions to the general enforceability of arbitration provisions include contracts obtained through fraud, duress, and unconscionability.

Moving further through its analysis, the Court held it to be permissible for arbitration provisions to explicitly foreclose the possibility of class action lawsuits. The Court also rejected the argument that these provisions violate the rights to engage in collective activity found in the National Labor Relations Act.

Given this precedent, employers should consider including arbitration agreements in employment contracts, primarily due to the cost-savings advantages. Arbitrations are more cost-effective and efficient than class action lawsuits. Arbitrations can also be more cost effective than litigating a typical, non-class action in a court of law. But arbitration is not without its own unique costs and risks, which should be evaluated before deciding whether to include it in an employment contract.

Arbitration provision or not, however, in any type of employment or business-related legal dispute, you need to get legal advice and prepare for the possibility of litigation from the very outset. Early, pro-active attention will save you time and money, and improve your chances for victory.

When you are involved in any type of business dispute, a skilled and experienced trial attorney is essential, even if the case does not go to trial.  Williams Commercial Law Group, L.L.P., provides strong legal representation for employers involved in business disputes. We are known for using our skills, experience, and cutting-edge technology to get great results, whether after trial or through a favorable settlement. Call us today at (602) 256-9400 and schedule an appointment to meet with us about your case.