Changes Coming for Enforcing Arbitration Agreements in Employment

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It has become increasingly common for employers to insist that new employees sign mandatory arbitration agreements when they start work. Typically, these agreements require that the employer and the employee will resolve any disputes they might have that relate to their employment relationship (discrimination claims, allegations of unpaid wages, and the like) through binding arbitration rather than in court. Employers like these agreements because, in their view, arbitration offers a faster, less expensive and more efficient forum for resolving employment disputes than the judicial system.

Although the law generally recognizes the validity of mandatory arbitration agreements, there are some important steps for Oregon employers to follow if they wish to use them with their employees. Oregon law requires that an employer provide new employees with written notice that they will be required to enter into an arbitration agreement. For several years, the law required that new employees receive the written notice at least two weeks before their first day of work. However, pursuant to a recent change in the law that will go into effect on Jan. 1, 2012, the two-week period has been reduced to 72 hours.

While the shortening of the notice period is certainly advantageous to employers, which typically want new employees to begin work sooner rather than later, the legislature balanced that change with a new provision designed to alert new employees to the presence of a mandatory arbitration provision. Effective on Jan. 1 of next year, new employees have to be provided not only with advance written notice that arbitration is required, but also an actual copy of the arbitration agreement that will apply. Furthermore, the arbitration agreement must include the following language in boldfaced type:

I acknowledge that I have received and read or have had the opportunity to read this arbitration agreement. I understand that this arbitration agreement requires that disputes that involve the matters subject to the agreement be submitted to mediation or arbitration pursuant to the arbitration agreement rather than to a judge and jury in court.

The employee must sign the acknowledgment. Thus, Oregon employers who want to enforce arbitration agreements with their employees must make sure to get the applicants’ signature on the agreement AND the acknowledgement. Further, although these new provisions must be in place for arbitration agreements entered into on or after the effective date, Jan. 1, 2012, in practical terms, that means the agreement (and the required boldfaced language) should be included in job offers made in late December 2011. The new law is not retroactive, so arbitration agreements that were lawful under the old law continue to be enforceable.

The situation is different for current employees who are not presently subject to mandatory arbitration agreements. The new law retains the requirement that an arbitration agreement can only be imposed on an existing employee upon a “bona fide advancement.”  In other words, an employer can’t simply declare that an existing employee is subject to a mandatory arbitration provision. Instead, the employer must offer the employee a promotion or increase in responsibility and compensation if it wants an arbitration agreement going forward. Further, although the law does not require 72-hours notice like it does for new employees, employers are well advised to offer existing employees with notice that an arbitration agreement will be required upon their promotion or advancement, including a copy of the actual arbitration agreement which includes the requisite acknowledgment language.

A final note of caution regarding employee arbitration agreements is in order. Although a simple internet search will produce numerous sample agreements (many of which can be downloaded free of charge), there is no guarantee that these agreements are actually enforceable under Oregon law or comply with the recent changes. Generally speaking, the arbitration process must offer employees the same rights and remedies that they would have in court, including the right to conduct full discovery.

In addition, an arbitration agreement generally cannot require the employee to bear additional costs (like the arbitration fee, in some instances) that he or she would not be responsible if the dispute were resolved in court. If the sample agreement you find on the internet stumbles into any of these pitfalls, there is a strong possibility that a court will declare the agreement unenforceable and you will find yourself in court rather than in arbitration where you wanted to be.

John B. Dudrey, an attorney with Barran Liebman LLP, represents management in employment litigation and provides advice in employment matters. You can reach him at 503-276-2192 or at jdudrey@barran.com).

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