Common Clauses

Are Dispute Resolution clauses enforceable?

Aug 8, 2023

At worst it's an entirely separate Arbitration Agreement, at best there’s a lengthy paragraph near the end of your employment agreement that covers Dispute Resolution. Sometimes you’re giving up a right to a jury, other times it’s got a run-on sentence about JAMS, and why does it seem like you have to take cases to a court in another state? Dispute Resolution clauses can seem difficult to understand, so let’s try to change that!

What is a Dispute Resolution Clause?

As the name suggest, the clause covers the legal process of resolving disputes regarding you and your employer's contractual obligations. The three most common avenues are:

  1. Mediation: Non-binding resolutions through the help of a neutral third party.

  2. Arbitration: Binding, non-appealable resolutions through the judgment of a confidential third party, waiving the right to a trial by jury and participation in class-action lawsuits.

  3. Litigation: Binding resolutions through the process of going to trial in front of a judge and/or jury.

While companies can use some combination of these avenues, such as requiring Mediation before resorting to Arbitration or Litigation, there is a clear winner. Companies prefer Arbitration, with 68% of larger companies (5,000+ employees) mandating Arbitration. For employers, arbitration is cheaper than Litigation, confidential, and statistically favor them over employees given the lack of an empathetic jury. JAMS, founded by a retired CA Superior Court Judge in 1979, is the world’s largest provider of private arbitration.

For both Arbitration and Litigation, the clause will set the location of resolution (Choice of Venue), which is typically a Arbitration Center or Court in the county convenient for the employer. The state of this location will provide the Governing Law that will be used to judge the case. The implication for individuals is that disputes typically takes place in the ‘home base’ for the employer, not necessarily the employee.

Are Mandatory Arbitration Clauses enforceable?

At the national level, the US Supreme Court has largely enforced arbitration agreements under the Federal Arbitration Act of 1925. While the National Labor Relations Board has pushed to protect individual rights to file charges with them, they have not stricken down the enforceability of waivers to class action lawsuits included in mandatory arbitration clauses.

Are there exceptions to Mandatory Arbitration?

One critical exception is President Biden’s Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act, passed March 2022. This legislation barres the enforcement of arbitration in cases of sexual assault and harassment, in both individual and class action contexts. Prior to this national law, a number of States such as New York, California, and Illinois, passed similar laws.

Another exception, the case of unilateral mandatory arbitration, is more state-specific. These clauses stipulate that only one party (typically the employee), is required to go through arbitration, while the other party has free choice. California courts have ruled against unilateral mandatory arbitration due to unequal bargaining power. Similar cases have been brought to other states such as Florida, but there is no national-level consensus against their enforceability.

Outside of that specific context, the US Department of Labor puts it best: “Mandatory Arbitration Won’t Stop Us from Enforcing the Law”. Employees always have the right to report unlawful workplace conduct such as discrimination, wage violations, and retaliation to the Department of Labor. In turn, the Secretory of Labor can seek to prosecute these companies for illegal conduct.

It’s clear now that the majority of Dispute Resolution clauses are enforceable, and are often written to an employer’s benefit. While there hasn’t been broader legislation protecting an individual’s right to take employers to court for disputes, recent legislation gives us hope that the tide may turn over time. In the mean time, make sure you understand the clause ahead of time, so that in the unfortunate event when a dispute arises, you’re aware of your options.

For advocacy and beyond,
The Ask Ginkgo Team

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