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Should You Include An Arbitration Provision in Your Employee Agreement


Arbitration is a valid alternative to litigation and is found in many of our routine agreements. For instance, your agreement with your credit card company, your cable company, and your stock broker all probably contain provisions that require you to arbitrate any disputes arising from those agreements. But do your agreements with your employees contain arbitration provisions? Are such provisions of value to you and your business?

Arbitration is a creature of contract and most arbitration agreements arise as a result of a contract between two or more parties. In times past, most arbitration agreements were in the context of commercial transactions, but their use has greatly expanded. There is a very strong public policy in favor of arbitration (instead of litigation) and such agreements have become much easier to enforce over the last 20 years.

A recent case from the Texas Supreme Court confirms that an employer and its employee may enter into a valid agreement to arbitrate all disputes, even when the employment is "at will." In re 24R, Inc., 2010 Tex. LEXIS 794 (Tex. 2010). In that case, Plaintiff, Frances Cabrera had worked for 24R, Inc., d/b/a "The Boot Jack," as an "at will" employee and had signed a series of three arbitration agreements during the 15 years she worked for The Boot Jack. After being terminated, Cabrera filed an unsuccessful discrimination claim with the Texas Workforce Commission, and after that claim was dismissed, a lawsuit against The Boot Jack. The trial court overruled The Boot Jack's motion to compel arbitration and a petition for writ of mandamus was filed with the Texas Supreme Court, which overruled the trial court's decision.

But How Does This Affect Your Business and Its Bottom Line?

Arbitration is often preferable in employer/employee disputes because the process is confidential, expensive written discovery may be limited, and an arbitrator is less likely to be swayed by emotional arguments than a jury. Therefore, your company's "dirty laundry" is not aired to the world and you are not at the whim of a jury of 12 people to determine the resolution of your dispute.

Furthermore, the decision of an arbitrator (panel of arbitrators) is generally not subject to appeal, and is therefore final. From a business standpoint, arbitrating a dispute with a former employee just may make more sense than filing a lawsuit and taking the case to trial.

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