If you are a business owner, disputes with customers, business partners or workers are inevitable at some point. And if you allow it, that dispute could turn into a lawsuit that is all-encompassing in terms of your attention, finances, and time - for many months or even years.

Arbitration is a process where a neutral third-party decides the outcome of your dispute. This third-party may be an attorney, a retired judge, or another legal professional, but it is someone that the disputing parties jointly select.

The arbitration process is similar to litigation, because each party submits its evidence, witnesses may be called, and there is a final decision, declaring which party prevails. The procedural rules may be more relaxed than with a court case, and often the arbitrator has discretion to determine how the process will go without being strictly tied to the formal rules of court.

Arbitration

Two contracting parties can agree, in advance, that if a dispute arises, the aggrieved party will NOT file a lawsuit, but instead, will initiate arbitration proceedings. Arbitration, for business owners, is preferable to litigation for numerous reasons:

• Lawsuits can take years to resolve. Arbitration is likely faster.
• The losing party in a lawsuit in Arizona has the statutory right to appeal the decision to a higher court. Arbitration decisions are final and binding.
• Costs tend to be lower and can be controlled by the terms included in an arbitration agreement.
• Court records are public. Arbitration is private. 

Arbitration Agreements

But this understanding between parties may be ineffective unless there’s a written and signed document, binding the parties in advance of any dispute. This arbitration provision can be a stand-alone document or can be included in an overall services or partnership agreement.

In addition to the promise that neither party will initiate a lawsuit, other clauses may include the process for selecting the arbitrator, rules or process for the proceeding, and what damages and legal fees the arbitrator is permitted to award. Importantly, the agreement needs to make clear that there is no option to submit disputes to the courts – arbitration is the agreed-upon and exclusive dispute resolution forum.

Employment Arbitration Agreements

For those companies with employees, arbitration agreements are equally beneficial and your policy should be clearly outlined in your Employment Handbook and in any employment contracts.   

Employees may bring allegations against the company for any number of reasons:

• Unpaid wages
• Adverse employment actions, such as termination or demotion
• Alleged discrimination or harassment related to an employee’s age, gender, religion, race, national origin, disability, or other protected class
• Breach of the terms of an employment contract or other promise made to the worker
• Disputes over entitlement to and receipt of benefits

Under the law, an employer may require an at-will employee to agree to mandatory arbitration as a condition of new or continued employment.  Additionally, the employer can prohibit class-action arbitrations in which multiple employees demand joint arbitration over a common work-place grievance. Be sure to include these provisions in your Handbook and in the agreement.

New Federal Law

Just 3 weeks ago, on March 3, 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. This law is limited in scope and applies only to arbitration agreements between employers and employees. Effective immediately, the employer can no longer require arbitration for claims of work-place sexual assault and sexual harassment even if an employee has already signed a mandatory arbitration provision. Employers may continue to require arbitration for other grievances, if there is a signed arbitration agreement, however an employee is now legally entitled to file a lawsuit for sexual harassment and assault claims if he or she chooses to do so.

What Should Business Owners Do?

Business owners should consider whether or not they want to require that arbitration will be the exclusive resolution method for disputes with customers and business partners.  If so, drafting an agreement, or including a new clause in an existing contract, is critical. 

Employers that want to institute a mandatory arbitration policy should consult with their human resources expert or employment attorney to ensure the policy complies with the new federal law related to employee claims of sexual assault or harassment. In order to enforce the arbitration policy when a dispute later arises (over a different matter), an employer will need to have the employee’s signature, as his or her voluntary and knowing waiver of their legal right to bring a lawsuit, prior to the occurrence of the dispute.   



Additionally, for those companies that already use arbitration agreements in their employment-related documents – such as non-disclosure, non-solicit, non-competition, employment agreements and any other agreements utilized by the company – an immediate review and update is recommended. If the arbitration clause attempts to mandate arbitration for sexual assault or harassment claims, a court could invalidate the entire clause.

Make sure that your company’s policies regarding dispute resolution are legally enforceable and that you have the documentation to support them. Don’t hesitate to call if you have questions or if you need your policies and documents reviewed or created.

NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC
480-825-4509
Contact Me Today