Should you require employees to sign an arbitration agreement?

Restaurant operators should make mandatory arbitration agreements with collective-action waivers a standard part of their hiring practices, according to attorneys specializing in employment cases. 

A recent decision by the U.S. Supreme Court clarified this issue, which had been up in the air for the past several years. The National Labor Relations Board in 2012 ruled that collective- and class-action lawsuits were “protected concerted activities” and therefore not covered by mandatory arbitration agreements. However, some federal courts had ruled that was not the case, leaving employers in limbo.

The Supreme Court ruling supports the ability of companies to require their workers to consent to arbitration rather than filing a lawsuit, including having workers agree not to join collective-action lawsuits against their employers

Daniel Ramirez

Photo: Monty & Ramirez LLP

"This Supreme Court decision definitely provides clarity on the issue that arbitration agreements that prevent collective actions are clearly enforceable, they are legal, and employers do have the right to implement them," said Daniel Ramirez, a partner at Houston-based law firm Monty & Ramirez LLP.

Not only do employers have the right to implement arbitration agreements that bar class-action lawsuits, but they probably should, Ramirez and other attorneys said.

“I don’t really see any downside for employers to implement it,” said Ramirez. “It’s just an update of policy that could limit liability, and restaurants can do that freely, but they should still consult with their attorney to ensure they are correctly implementing it.”

Provided the arbitration agreements are well-written and adhere to local regulations, restaurant employers should be able to use them to avoid the kinds of class-action lawsuits that have hit the industry in recent years, such as the $5.25 million lawsuit settled in 2012 by celebrity chef Mario Batali and his business partners.

Many observers viewed the Supreme Court ruling as a blow to workers’ rights, citing the unlikelihood that employees will bring arbitration cases against their employers individually.

“It is a significant loss for workers,” wrote Erwin Chemerinsky, dean of the University of California at Berkeley School of Law, in a column for the American Bar Association Journal. “Employers … will be ever more emboldened to rip off their employees.”

Some attorneys said arbitration does provide some advantages for workers, however, including the fact that arbitration can be much faster than a jury trial. 

Ron Chapman

Photo: Ogletree, Deakins,

Nash, Smoak & Stewart, P.C.

“Arbitration allows parties to decide a suit much faster than going to court, so there is some upside to the individual employee to signing an agreement,” said Ron Chapman, an employment and litigation attorney at Ogletree, Deakins, Nash, Smoak & Stewart, P.C., which offers turnkey arbitration-agreement software for employers.

Following are some considerations restaurateurs should take into account when rolling out such agreements, according to attorneys: 

Comply with state restrictions on arbitration agreements. Some states, including California, require companies to offer employees compensation in exchange for asking them to sign an arbitration agreement, such as added vacation or a monetary reward, explained Andria Lure Ryan, a partner at Fisher Phillips LLP in Atlanta. Many states, however, maintain that simply offering continued employment in exchange for signing such agreements is enough.

Andria Lure Ryan

Photo: Fisher Phillips LLP

Consider how to approach new hires versus veteran workers. While it should be relatively straightforward to include an arbitration agreement as a part of the hiring process, companies need to think about how to handle veteran workers who have not previously been party to such agreements, Ryan said.

“For current employees, it’s much harder, because what are you going to do, terminate them?” she said. “What if it’s a good employee? What if it’s a long-term employee? You have to decide, if they don’t want to sign that agreement, are you still going to keep them? Or are you going to try to coax them into signing it?” 

Remember that arbitration can still go against the employer, and arbitration carries the risk of compromised awards, said Chapman.

“Arbitrators will frequently try to ‘split the baby’ and please all sides,” he said. “The upside is that all claims have to be arbitrated individually, so you avoid the big class actions and the exposure that comes with them, but the downside is that you run the risk of compromised rewards from the arbitrator.”