Monday, March 31, 2008

Some alternatives to arbitration of employment claims

Last week, the U.S. Supreme Court decided Hall Street v. Mattel, which held that the Federal Arbitration Act is the exclusive grounds for vacating or modifying an arbitration award, and that parties may not contractually agree to expanded grounds of judicial review. Briefly, the parties had entered into an agreement in which they agreed to the de novo review of the arbitration decision of their environmental dispute. The Supreme Court held that such provision was not valid under the FAA. Thus, a court can only overturn an arbitrator's decision are where: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality and/or corruption; (3) the arbitrators were guilty of other misconduct; or (4) the arbitrators exceeded their powers.

While arbitration continues to the favored method used by employers to limit their potential exposure in front of a jury, let me discuss two other possible alternatives.

Contractual Waivers of Jury Trials

First, employers can have employees sign agreements waiving the right to ask for a jury in any subsequent legal disputes. More than 20 years ago, in K.M.C. Co. v. Irving Trust Co., the 6th Circuit stated: "It is clear that the parties to a contract may by prior written agreement waive the right to jury trial.... [T]he constitutional right to jury trial may only be waived if done knowingly, voluntarily and intentionally." The contract should clearly and unambiguously advise the employee that by signing the agreement the employee is giving up any and all rights to have any claims related to his or her employment raised by a jury. The more broadly the waiver is drafted, the more likely it will cover an employment-related claim, provided it is otherwise knowing and voluntary.

In light of Hall Street v. Mattel, jury trial waivers have one key advantage over more traditional arbitration agreements -- you are not giving up any appeal rights, and an appellate court's review of a bench trial will be much wider than a court's review of an arbitration award. Of course, this factor cuts both ways. At the same time, though, a bench trial eliminates the risk of a runaway jury awarding obscenely high damages, so it may be a more simply and preferable option to a traditional arbitration agreement.

Agreements to Shorten the Statute of Limitations

Secondly, employers can attempt to limit the amount of time employees have to assert employment claims. In Thurman v. DaimlerChrysler, Inc., the 6th Circuit held that a clause in an employment application limiting the statutory limitations period for filing a lawsuit against the employer was valid. Thurman's employment application with DaimlerChrysler contained a clause waiving any statute of limitation and agreeing to an abbreviated limitations period in which to file suit against the employer. Specifically, the clause stated:

READ CAREFULLY BEFORE SIGNING I agree that any claim or lawsuit relating to my service with Chrysler Corporation or any of its subsidiaries must be filed no more than six (6) months after the date of the employment action that is the subject of the claim or lawsuit. I waive any statute of limitations to the contrary.

The Court held that the abbreviated limitations period contained in the employment application was reasonable, and that all of Thurman's claims against DaimlerChrysler were time barred by the six-month limitations period. The Court paid particular attention to the "read carefully before signing" language, and noted that it was in bold and placed conspicuously directly above Thurman’s signature acknowledging that she read and understood the document. It also found the specific language used was clear and unambiguous.

The advantage of using these types of clauses is that you can limit the duration of potential liabilities. For example, in Ohio employees have 6 years to file discrimination claims (other than age) under R.C. 4112.99. A clause such as the one in Thurman would shorten that time frame from 6 years to 6 months, a dramatic improvement.

I normally don't put disclaimers directly in my posts. But, these ideas are merely something to think about for your business. Please do not try this at home. For example, although not raised in the Thurman case, statute of limitations waivers should not seek to limit the statutory window for filing charges with administrative agencies because of the potential for a retaliation claim. Talk to a lawyer before implementing either of these options.