Employers can be tripped up when requiring arbitration

A growing number of employers are requiring employees to sign arbitration agreements, saying that any future employment disputes must be resolved by arbitration rather than going to court.

Arbitration has a lot of advantages for businesses – it can be quicker and cheaper to resolve than a lawsuit, and the details of any disagreements don’t become a matter of public record.

However, if companies require employees to sign these agreements without thinking them through carefully, they can backfire.

For instance, a communications company in North Carolina included an arbitration agreement in its employee handbook. The company also required employees to sign a form acknowledging that they had received the handbook.

However, the company included a statement on the form saying that the handbook contained “guidelines” only, and didn’t create any binding or enforceable obligations. (It was concerned to make sure the employees remained “at will” and couldn’t claim any legal rights to a job based on the handbook procedures.)

But that meant – you guessed it – the arbitration agreement wasn’t enforceable either. When a worker brought a wage-and-hour lawsuit and the company tried to force it into arbitration, a federal appeals court said the case could go to court instead.

In another case, a software company called TIBCO required its employees to sign both an arbitration agreement and a non-compete agreement.

When an employee left to work for a competitor, TIBCO filed a lawsuit and asked for an emergency injunction so it could immediately stop the employee from competing against it.

But the court said – again, you guessed it – it couldn’t issue an injunction because, under the terms of the company’s own agreement, the dispute had to go to arbitration.

The bottom line is that employers who want an arbitration agreement should make it separate from their employee handbook, and should include an exception for any non-compete provisions.