Employment Arbitration Agreements Can Reduce Litigation Costs

Savvy business owners know that anytime you can reduce unnecessary costs, it’s beneficial to the company’s bottom line.
While personnel and payroll are by far typically the highest out-of-pocket expense, legal disagreements with workers and former workers can be an unplanned expense. Even companies that pride themselves on solid personal relationships with employees need to prepare for this possibility. One of the best ways to clarify the terms of both employment and departure is by having workers sign an arbitration agreement.

These Boston employment contracts ensure that whatever the dispute, it will be handled not before a judge, but rather a mediator, whose goal it will be to reach a mutual understanding, based on the terms of the contract. This often serves to significantly reduce the firm’s legal costs, and outcomes tend to favor the company.

The content and specific language of the contract is of key importance, and both employer and employee should have a firm grasp prior to setting the terms and signing off on them. From an employee perspective, caution is advised when entering into such agreements as doing so may be tantamount to forfeiting some of your rights.

A recent court case heard by the Maryland Supreme Court illustrates the complexities of such agreements.

In Am. Bank Holdings, Inc. v. Kavanaugh, former employees of a mortgage firm filed suit against their previous employer, following a dispute over the terms of their employment agreement. In response to this, the company filed a petition to compel arbitration, arguing that because the employees’ claims stemmed from their employment agreements, the circuit court lacked jurisdiction and had to send the cases back to arbitration.

The circuit court, the appellate court and the state supreme court denied this request. To understand why, let’s look a bit closer at the facts of the case.

The two former employees terminated their employment agreement with the company, but the dispute arose because the firm reportedly failed to pay them funds due upon their departure, per the terms of that employment agreement. The workers believed they were owed roughly $250,000 upon their exit from the firm, but their numerous requests for statements and supporting documentation regarding the expenses/losses/gains of the accounts from which they were to be paid reportedly went unanswered by the company. So they sought relief by filing a complaint for accounting in the circuit court.

The company denied the employees’ claims to the money, but further argued that the bigger issue was that the court lacked jurisdiction because the matter should be handled through arbitration – not the courts.

The former employees countered that the request for accounting was a matter reserved for equity jurisdiction, meaning it wasn’t subject to an arbitration agreement, per the terms of the arbitration clause of the employment contract.

Ultimately, the court denied the company’s motion, finding that an order that denied a request to compel arbitration in an existing action does not constitute a final judgment because that denial doesn’t put the parties out of court, doesn’t end the proceedings and doesn’t deny the party requesting arbitration any means of prosecuting or defending their rights and interests.

Generally, courts will uphold arbitration agreements when they are well-written and not deemed inherently unfair or unconscionable – and so long as the appeal is timely.

Another example out of New Jersey this year (Cole v. Jersey City Medical Center, Aug. 14, 2013, New Jersey Supreme Court) resulted in the denial of an employer’s request to move a case to arbitration – despite a mandatory arbitration clause in the employment agreement – because the employer had delayed too long in bringing the issue to the court’s attention and further participated actively in the litigation.

These are the kinds of pitfalls that an experienced Boston business attorney can help your firm to avoid.

The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.

Additional Resources:
Am. Bank Holdings, Inc. v. Kavanaugh, filed Dec. 30, 2013, Maryland Supreme Court
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