A Word to the Wise

Arbitration has become an increasingly powerful force in the resolution of disputes in the employment setting. Your client has asked you to draft or revise an arbitration provision in an employment agreement. What do you do?

Well, most of us would typically pull from our form files our 'standard' arbitration clause. For example, the American Arbitration Association offers the following 'model' language: 'Any controversy or claim arising out of or relating to this contract, or the breach thereof shall be settled by arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.' Is this still a model arbitration clause in our new environment? With this question in mind, a review of the key terms of an agreement to arbitrate an employment dispute seems a worthy endeavor.

Perhaps the key to any well-drafted arbitration clause is a proper definition of the scope of arbitration. The model language above limits arbitration to claims 'arising out of or relating to this contract'. Would a discrimination claim be 'related' to the contract? Perhaps. But then, perhaps not. Compare this language with the language in the agreement at issue in Calamia v. Riversoft, Inc., 2002 WL 31779991 (E.D.N.Y. 12/13/02)(Block, D.J.), where the agreement provided that 'any controversy or dispute arising out of the employment relationship' with the employer would be subject to AAA rules. The court opined that arbitration clauses 'fall into two groups: 'narrow' clauses, which limit arbitration to specific types of disputes, and 'broad' clauses that cover any and all dispute[s]' between the parties. The court concluded that where broad language is used, arbitration of any dispute between the parties is to be presumed in the absence of unambiguous language providing to the contrary. The lesson here is to decide the breadth of the duty to arbitrate before there is a dispute. The 'model' language works well as an example of a reasonably narrow arbitration clause, whereas the language in Calamia serves as a good example of a broad arbitration clause.

Having cleared the first hurdle on the way to a well-drafted arbitration clause, some additional hurdles stand ready to be cleared.

Administration: Do you want the arbitration administered by the AAA or other agency, or do you prefer to proceed on an ad hoc basis?

Rules: What rules will govern? The AAA's? The Federal Rules of Civil Procedure? This is particularly important if you plan to proceed on an ad hoc basis.

Discovery: Do you want special provisions for discovery or are you willing to defer to the arbitrator?

Evidence: Normally, the rules of evidence do not apply in the arbitration setting. Does this meet your client's needs?
Number of Arbitrators: Are you willing to entrust your dispute to one arbitrator or do you prefer a panel of three? How is the arbitrator or panel to be selected?

Costs: Are the administrative and arbitrator costs to be shared? Borne by one side? Keep in mind that the arbitration agreement may be subject to challenge if the cost of arbitration impairs the employee's due process rights or access to justice.
Attorneys' fees: Do you want to confer on the arbitrator the authority to award fees to the prevailing party? If so, recognize that this provision will likely only apply to tort or contract claims and will likely not serve to pre-empt existing fee-shifting statutes.

This list is not intended to be exhaustive, but indicative of the types of concerns that should be factored in when drafting arbitration clauses. Recognize in doing so that one of the strengths of arbitration is its flexibility and adaptability as a means of resolving disputes. Your client's needs will be well-served by investing the time 'pre-dispute'to seek to anticipate that dispute resolution model that would best serve your client's needs ' post-dispute.

Arbitration has become an increasingly powerful force in the resolution of disputes in the employment setting. Your client has asked you to draft or revise an arbitration provision in an employment agreement. What do you do?

Well, most of us would typically pull from our form files our 'standard' arbitration clause. For example, the American Arbitration Association offers the following 'model' language: 'Any controversy or claim arising out of or relating to this contract, or the breach thereof shall be settled by arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.' Is this still a model arbitration clause in our new environment? With this question in mind, a review of the key terms of an agreement to arbitrate an employment dispute seems a worthy endeavor.

Perhaps the key to any well-drafted arbitration clause is a proper definition of the scope of arbitration. The model language above limits arbitration to claims 'arising out of or relating to this contract'. Would a discrimination claim be 'related' to the contract? Perhaps. But then, perhaps not. Compare this language with the language in the agreement at issue in Calamia v. Riversoft, Inc., 2002 WL 31779991 (E.D.N.Y. 12/13/02)(Block, D.J.), where the agreement provided that 'any controversy or dispute arising out of the employment relationship' with the employer would be subject to AAA rules. The court opined that arbitration clauses 'fall into two groups: 'narrow' clauses, which limit arbitration to specific types of disputes, and 'broad' clauses that cover any and all dispute[s]' between the parties. The court concluded that where broad language is used, arbitration of any dispute between the parties is to be presumed in the absence of unambiguous language providing to the contrary. The lesson here is to decide the breadth of the duty to arbitrate before there is a dispute. The 'model' language works well as an example of a reasonably narrow arbitration clause, whereas the language in Calamia serves as a good example of a broad arbitration clause.

Having cleared the first hurdle on the way to a well-drafted arbitration clause, some additional hurdles stand ready to be cleared.

Administration: Do you want the arbitration administered by the AAA or other agency, or do you prefer to proceed on an ad hoc basis?

Rules: What rules will govern? The AAA's? The Federal Rules of Civil Procedure? This is particularly important if you plan to proceed on an ad hoc basis.

Discovery: Do you want special provisions for discovery or are you willing to defer to the arbitrator?

Evidence: Normally, the rules of evidence do not apply in the arbitration setting. Does this meet your client's needs?
Number of Arbitrators: Are you willing to entrust your dispute to one arbitrator or do you prefer a panel of three? How is the arbitrator or panel to be selected?

Costs: Are the administrative and arbitrator costs to be shared? Borne by one side? Keep in mind that the arbitration agreement may be subject to challenge if the cost of arbitration impairs the employee's due process rights or access to justice.
Attorneys' fees: Do you want to confer on the arbitrator the authority to award fees to the prevailing party? If so, recognize that this provision will likely only apply to tort or contract claims and will likely not serve to pre-empt existing fee-shifting statutes.

This list is not intended to be exhaustive, but indicative of the types of concerns that should be factored in when drafting arbitration clauses. Recognize in doing so that one of the strengths of arbitration is its flexibility and adaptability as a means of resolving disputes. Your client's needs will be well-served by investing the time 'pre-dispute'to seek to anticipate that dispute resolution model that would best serve your client's needs ' post-dispute.