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How does the Federal Arbitration Act affect Employment Contracts?

On Behalf of | Mar 12, 2018 | Contract Disputes

As they grow, most businesses have two primary goals: continuous, manageable growth and minimizing losses wherever possible. Part of the minimizing losses goal involves staying out of court, whether it is by avoiding labor disputes, consumer disputes or business-to-business lawsuits.

Over the past decade, more businesses have vowed to stay out of court by implementing mandatory arbitration clauses in consumer and employment contracts. These clauses essentially bar potential plaintiffs from seeking legal remedies in a court of law. While this may seem beneficial to all parties because of cost and time efficiencies of arbitration compared to the legal system, it may deprive consumers and employees of important rights.

In the U.S. Supreme Court’s current term, it is analyzing the question of how far companies can go in forcing potential plaintiffs to choose arbitration in employment contracts. The question comes on the heels of past Supreme Court cases where the court held that companies can forbid class actions in consumer contracts. However, the potential variables with employment contracts are different given how federal law controls.

Specifically, the court is concerned with the extent the Federal Arbitration Act may affect employment contracts and how it may conflict with provisions of the National Labor Relations Act, which protects employees seeking redress through class action lawsuits.

However the court rules, the ruling has the potential affect more than 20 million employment contracts across the United States. For businesses contemplating adjustments to their employment policies, having a conversation with an experienced attorney would be prudent.