Posted on November 28th, 2016
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Lets just be real.
When it comes to Labor Laws in California there are not many things that favor us Employers.
Almost every California state law or policy was created to be heavily in favor of the employee side at the expense of you the business owner.
That is why when there is any tactic or tool that we as employers can use to protect ourselves we have to jump all over it!
Today we are going to talk about one of my favorite legal devices that can actually be used to help protect employers:
Alternative Dispute Resolution.
Alternative Dispute Resolution (ADP) describes the use of methods like mediation or arbitration to handle disputes between parties instead of litigation.
The most important thing you need to know as an employer is it may help to keep your butt out of court!
From Alternative Dispute Resolution today we are going to talk specifically about Arbitration Agreements.
This article will tell you:
What an Arbitration Agreement is.
The reasons why its so important to have one.
Why the agreement has to be written correctly to work.
How to get employees to sign your arbitration agreement.
Why an arbitration agreement is actually good for the employee as well.
What is Arbitration Agreement?
An Arbitration agreement is a document you have your employees sign, in which they agree not to sue in court over any employer vs employee issue like, wrongful termination or discrimination claims etc…
Instead it stipulates that in the event of a dispute down the road between you and them, an independent Arbitrator will listen to all the facts of the case instead of a jury.
This arbitrator is typically a former judge or someone who worked in legal field and is very familiar with labor laws.
Having an arbitration procedure settle the conflict between you and your employee could save you thousands and thousands of dollars and is typically way less stressful than what you would go through with a court trial, that is way more expensive and way less predictable.
Why It Is So Important to Have An Arbitration Agreement
So I have told you that its important to have an arbitration agreement with your employees but lets go into a deeper dive into the details of why.
1) Can take away the fees from employee side attorneys (they do not get paid)
On the employee side of things their attorney usually works on contingency.
This means they only get paid if they win.
So why would they risk taking a case they might not get paid for?
Because if they win even ONE DOLLAR on ONE cause of action you as the employer are responsible for the plaintiff side attorney fees!
Yes you heard that right. If you lose just a little bit of money to your employee you could potentially still be paying BIG money to their attorneys for the work they did on the case.
Employee side attorneys bank on this and that is why they are willing to take these contingency cases from employees who may have little to no money.
They want to stick you the Employer with their huge fees!
Let me show you this as an example:
A former employee is suing you for $25,000.
After a long trial its eventually decided that you only owe the employee $8,000.
So you are out $8,000 right? Heck no, not even close!
You have to pay the employee the $8,000 of course. But then you also have to pay their attorneys fees! This could vary wildly from $20,000 to over a $100,000. AND you still have to pay your own defense lawyers fees.
Instead of being out $8,000 you could be out well over a $100,000 to $200,000 when its all said and done.
So whats the point?
The point is if you have a solid arbitration agreement in place with your employees these opportunist attorneys will avoid them like the plague.
Employee side attorneys usually wont take the case because they know they are bound by that arbitration agreement and wont have that big pot of gold (from out of your pocket) waiting at the end.
Generally once an employee side attorney knows there is a correctly written and solid arbitration agreement between employer and employee they will move on quickly to another case.
2) Keeps case away from juries who go with employee even in weak cases.
An arbitration agreement will keep you away from the mercy of a jury trial. Trust me you do not want to leave your fate in the hands of a jury.
We have seen over and over again that juries are not only likely to side with the employees in these cases but also award them outlandish damages.
Don’t believe me? Just take a look at the AutoZone discrimination suit where the former employee was awarded $185,000 MILLION in punitive damages!
So an employee who was making just above minimum wage is now one of the richest people in the world because of labor lawsuit? Yes, its true. Crazy but true.
Even in cases where its proved the Employer did nothing wrong juries are known to award them something. But here is the problem. They feel sorry for them give them a small amount like lets say $5,000. But as I mentioned earlier, because they were awarded something, you have to pay their attorneys fees! This will be in the tens of thousands.
And that is why you want to avoid juries at all costs. They almost never side with the employer.
After all most juries are employees themselves. Who did you think they would sympathize with?
3) Arbitrators are usually more fair minded.
We have already talked about why you want to avoid a jury at all costs and how an arbitration agreement helps do that.
Well another positive is that your case will be heard by a professional arbitrator.
Arbitrators are typically people who have worked in the labor field and are more likely to give a fair damage decision if there is any.
They actually have experience in labor law and are probably not going to rule on just emotion like juries often do.
Because of this most decisions and awards are decided on their merits. In other words if you did nothing wrong you are more likely to get a fair shake.
But even if you did do something wrong, the penalty will also likely be more reasonable.
How To Get Your Employees to Sign An Arbitration Agreement
So a question I get a lot from employers is:
How do I get my employees to sign an arbitration agreement?
The simple answer is you make it a condition of employment. In other words if they do not sign the agreement they do not need to work there.
Arbitration agreements are perfectly legal and as long as they are not to one sided on the employer side to the point of being unfair, they have stood up to challenges in court many times.
You should have all your new employees enter into an arbitration agreement. Make it part of your new hiring package and let them know you will not hire someone without their signature.
Remember even if you are doing absolutely nothing wrong these agreements could potentially save you thousands and thousands of dollars.
You know why? Because if you go to court you will at the very least pay thousands to your own lawyer to prove you did nothing wrong.
OK so now you have a policy in place that all new employees must sign the arbitration agreement to be hired by you.
But here is a much tougher one:
How do you get your current employees who were hired before the arbitration agreement was in place to now sign it?
Well this can be tough to answer because every situation is different. You may have employees who do not really care much and will sign it. And you might have a few tough nuts who refuse.
The Hardcore Method: Sign it or you do not work here anymore.
California is an “at will” employment state meaning you can fire your employee at any time as long as its not for one of the protected reasons.
So you could simply present them with it and demand they sign.
Even though this is within your rights I do not recommend it and its probably not good way to go. Its bad for business to have open conflict with your employees so try to avoid it if possible.
The Smoother Method: Use some misdirection to take the focus off.
As best you can you want to keep the focus off this being a negative thing for your employees. After all no one wants to feel like they are having something taken from them even if its more of just a perception.
Now please do not misunderstand me here. It is your responsibility to explain to your employee what they are signing and they should understand what it is and how it effects them before doing so.
But if the sole focus is trying to get them to sign this document you are probably going to get more resistance.
One way to take the focus off the mandatory signing of the arbitration agreement is to combine it with something else. For example it could be part of an update of all of your policies and procedures. They would need to resign these updated procedures along with the new arbitration agreements.
Or maybe you could wait until annual reviews come around. Assuming the employee is getting a raise you could break that good news along with the need for signing the new arbitration agreement.
More Details On Arbitration Agreements
Arbitration Agreements are one of the few tools available to California employers to help us with the one sided labor laws against us.
But I want to be clear here. You cannot just download an arbitration agreement off the Internet and you are all covered.
Employee side attorneys are not happy about these agreements because it removes the chance for them to take money out of your pocket. So they have spent the last couple of years figuring out how to poke holes in them and have them thrown out.
A good California Arbitration Agreement has to be written in a very specific way. Of course since its the state of California it has to have certain terms and language in it.
Since its assumed that the employer has all the power in the relationship this agreement between employer and employee has to be exact or it could be thrown out.
Since all we do all day long is protect California employers we know every dotted ‘i” and every crossed “t” that needs to be in there for it to be enforceable. If its not crafted exactly correct than its not worth the paper its printed on.
Arbitration Can Be Good for Employees
One last thing I want to talk about. We have written this article for you the employers in California because that is who we represent and are dedicated to.
But I just want to point out that Arbitration agreements can be a win-win.
If you set aside the possibility of completely unfair and one sided jury awards to the employee these agreements actually have many benefits to the employee as well.
Lets take a look at some reasons why.
Lawyer Fees:
Even though its possible that the employee could win these huge money cases, a huge percentage of it is just going to go to their lawyers. With an arbitration they will have no need to pay lawyers.
Time:
Even if they win a trial can take years. With an Arbitration you could potentially resolve the issue in a few months. Meaning if the employee is awarded damages they will get them relativity quick.
Informality:
Arbitration agreements take place in conference rooms not court rooms. An arbitrator is usually much more accommodating to the participants both employer and employee than a court is. Typically arbitration is more conciliatory than a court room hearings which tend to more adversarial. The Arbitration process tends to be less stressful overall for everyone than the court proceedings.
OK I hope after reading this article you have more understanding and appreciation for the power of good arbitration agreements for California employers.
If you want a custom, enforceable arbitration agreement created for you by a guy who does this all day, every day and thinks about nothing else than the best ways to help Employers (yes its me), contact me today for a free consultation.
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