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Drafting Effective Agreements to Arbitrate Employment-Related Disputes in West Virginia
Last Friday, the Supreme Court of Appeals of West Virginia released its opinion in Hampden Coal, LLC v. Varney, No. 17-0088 (W.Va. Supreme Ct. Feb. 16, 2018), holding that an employee must arbitrate his claims for “deliberate intent” and disability discrimination, pursuant to an arbitration agreement he signed with his employer. The case continues a line of recent decisions enforcing arbitration agreements in West Virginia, and the Court’s opinion is significant to employers because it makes clear that courts cannot treat arbitration differently in the context of employment and that arbitration agreements (without more) do not alter the employment relationship of “at-will” employees.
The Court’s opinion also applies a variety of general arbitrability principles to the specific context of an employment-related dispute, providing helpful guidance to West Virginia employers who wish to craft enforceable arbitration agreements. Employers seeking to utilize arbitration to resolve disputes with their employees should keep in mind the following when drafting an arbitration agreement:
Make sure the Federal Arbitration Act (“FAA”) applies.
The FAA embodies a strong federal policy favoring arbitration, and preempts state laws that attempt to undercut the enforceability of arbitration agreements subject to the act. Application of the FAA depends in part upon whether the contract providing for arbitration affects interstate commerce. An arbitration agreement should state that the parties intend for the FAA to apply, and that the parties agree that the contract and the employment relationship involve interstate commerce.
The agreement to arbitrate should be mutual.
An arbitration agreement, like any other contract, must be supported by consideration – a mutual exchange of value. In Hampden Coal, the Court affirmed that a mutual promise to arbitrate is, standing alone, sufficient consideration to support an arbitration agreement.
The scope of the agreement should be broad.
The FAA will only apply to a claim that falls within the scope of an arbitration agreement. However, under the FAA, ambiguities as to the scope of an arbitration clause must be resolved in favor of arbitration. A well-drafted, broadly-worded arbitration clause is therefore critical to ensuring that the arbitration agreement will be enforced if challenged in court. At a minimum, an arbitration agreement should state that the parties agree to arbitrate all past, present, and future disputes of any kind or character, including but not limited to all claims relating to or arising from hiring, employment, or termination from employment.
However, the agreement should not preclude statutory benefits or remedies.
An arbitration agreement may be invalidated on public policy grounds if it operates as a prospective waiver of a party’s right to pursue statutory remedies. An arbitration agreement should therefore make clear that an employee has a right to pursue employment-related benefits, such as workers’ compensation or unemployment compensation benefits, and does not prohibit an employee from lodging a complaint with a government entity responsible for enforcing workplace laws.
Include a delegation clause.
A delegation clause provides that the “arbitrability” of a claim (i.e., whether a party is required to arbitrate) shall be decided by the arbitrator and not by a court. Delegation clauses limit litigation over the enforceability and scope of the arbitration agreement, and have been repeatedly upheld by the United States Supreme Court.
Specify the rules that will apply.
An arbitration agreement should specify the rules for how the arbitration will be conducted. The agreement may choose to apply standard court rules (such as the rules of civil procedure), an arbitration organization’s rules (such as the American Arbitration Association), or some modification thereof. The parties may also use rules that are unique to their agreement. Among other considerations, the agreement should set forth the number of arbitrators, how the arbitrator(s) will be selected, whether the decision must be unanimous (if more than one arbitrator is used), where the arbitration will occur, and how the cost of arbitration will be apportioned between the parties. However, if the rules are excessively one-sided or oppressive, a court could decide that the agreement is unenforceable.
Consider specifying how long the parties have to initiate an arbitration claim.
The arbitration agreement in Hampden Coal required the parties to bring a claim within the period they would normally have to file a lawsuit in court or within one year, whichever period was shorter. The effect of this language was to shorten the period of time that the plaintiff had to bring some of his claims. The Court held that this provision of the agreement was enforceable because the one year period was reasonable, even though it was shorter than the ordinary statute of limitations period.
Include a severability clause.
A severability clause states that, if a portion of the agreement is ruled illegal or unenforceable, the agreement as a whole will not be invalidated. Rather, the offending provision will be “severed” as if it were not included in the original agreement. This provision attempts to save an arbitration agreement from being declared unenforceable due to a problem with only a portion of the agreement.
Use plain language to fully explain the meaning and consequences of the agreement.
Employees are likely to have varying levels of education, and varying levels of sophistication and experience in business matters. The enforceability of an arbitration agreement depends in part on whether the terms of arbitration are fair and whether the parties understand the agreement they are signing. At a minimum, the agreement should explain that the parties are giving up their right to pursue claims in court and that the arbitrator’s decision will be final and binding on the parties.
When a court examines the enforceability of an arbitration agreement, one factor that is considered is the manner and setting in which the agreement was signed. If the process used to obtain the arbitration agreement was unfair, a court could decide that the agreement is unenforceable. Before signing an arbitration agreement, the parties should be given an opportunity to review the agreement, ask questions about its terms, and hire an attorney to explain it.
For “at-will employees,” clarify that the arbitration agreement is not an employment contract.
Most employees are employed on an “at-will” basis, meaning that either the employer or the employee may end the employment relationship at any time and for any reason. There is no written contract that sets forth the terms of the employment relationship. It is important to make clear to at-will employees that documents about workplace policies and employee benefits are not intended to alter the at-will employment relationship. This was an issue in Hampden Coal: the trial court (erroneously) ruled that the parties’ arbitration agreement created an employment contract. Although that ruling was reversed on appeal, it highlights the importance of confirming the at-will status of such employees in writing. An arbitration agreement with an at-will employee should therefore make clear that the agreement is not a contract of employment and is not intended to alter the at-will employment relationship.
One open question is whether an arbitration agreement applicable to employment-related claims may require an employee to arbitrate claims on an individual basis. Although class arbitration waivers are generally enforceable in other contexts, the National Labor Relations Board (“NLRB”) has taken the position that waivers of an employee’s ability to pursue class or collective arbitration claims are illegal under the National Labor Relations Act, and therefore unenforceable under the FAA. On October 2, 2017, the United States Supreme Court heard consolidated argument in three cases challenging the enforceability of class waivers in employee arbitration agreements. The Court’s opinion will be released sometime this spring, and will have a major impact on how arbitration agreements may be structured in the employment context. In the interim, employers should refrain from including a class or collective arbitration waiver in an arbitration agreement.
 Murphy Oil USA, Inc. v. National Labor Relations Board, 808 F.3d 1013 (5th Cir. 2015), cert. granted, No. 16-307, 137 S.Ct. 809 (U.S. Jan. 13, 2017) (consolidated with Nos. 16-285 & 16-300); Lewis v. Epic Systems Corp., 823 F.3d 1147 (7th Cir. 2016), cert. granted, No. 16-285, 137 S.Ct. 809 (U.S. Jan. 13, 2017) (consolidated with Nos. 16-300 & 16-307); and Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), cert. granted, No. 16-300, 137 S.Ct. 809 (U.S. Jan. 13, 2017) (consolidated with Nos. 16-285 & 16-307).