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HR Consulting–Are Binding Arbitration Provisions Valid for Employees?–Part 1

 In Mechanic’s Lien Law Updates and News

Whenever possible, employers wish to have their HR disputes handled through binding arbitration. There are a number of salutary reasons: speed, low cost, experienced arbitrators, no time-consuming discovery, no protracted attorney’s fees, elimination of most pretrial motions, representing yourself before the tribunal, and most importantly, putting a halt to expensive compensatory damages which usually come from runaway jury verdicts. But are these binding arbitration provisions in employment contracts binding? They are, if they are drafted in the right way.
First question is there must be adequate legal consideration. For new employees, there is clearly consideration in signing the employment agreement as a condition to being retained. Both parties are receiving legal benefit (the employee’s right to work and receive compensation and the employer’s right to receive the services) as well as legal burden (the employee giving up his or her right to litigation and the employer having the responsibility to pay for wages and benefits).

But it is a different matter in having existing employees, already working for the company, required to sign this provision by the HR department. For a contract to be binding, there must be what is called “consideration”, examples of which are stated above. The corollary rule is that if the parties are already performing and bound by an existing agreement, there must be new or fresh consideration. So, forcing an existing employee to sign the agreement would be without consideration and may not be binding. There might be a difference, which would be impractical, in having them sign the agreement in consideration for higher wages or benefits, but you probably do not want to offer that.

The point is, this could go either way by the courts. A HR department can still ask that existing employees sign, but if they refuse, it would not be prudent to terminate.

On the other hand, if the employee signs the agreement at the beginning of employment, you can easily have them sign yearly re-affirmations of the policy. And, you could probably make minor changes to the policy and be okay. But if there are substantial changes to the language, it would be more problematical because of the lack of new legal consideration.

–National Lien Law can act as your virtual HR Consultant–either replace your existing HR Department or augment it with our ongoing HR consultation. And, we are equipped to prepare any documents required (for example, termination notices, warnings, employment agreements/confidentiality/noncompete, employee handbooks, write-ups, responses to claims, wage and hour disputes, legal memos to management, response to attorney demands, legal investigations, help with arbitrations or language used in your emails and communications with employees). Services can be on a retainer basis, hourly or flat fee. Our HR consultants have law degrees and 20+ years’ experience in HR consulting. Or, simply give us a call for a free initial consultation. (800) 995-9434.