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Courts Uphold Arbitration Clauses Even after Intervening Litigation

Tuesday, December, 3, 2013


Despite the popularity of binding arbitration clauses imposed by employers on employees as part of their employment contracts and agreements, many employees seek to redress perceived problems via litigation and court motions, and employers also sometimes overlook arbitration agreements in preference to litigation.  While many employees assume that if an employer foregoes the arbitration agreement in preference to a lawsuit, they have waived their right to require arbitration, a U.S. Court has recently ruled otherwise: Even after litigation on a dispute that has lasted several years, the employer still has the right to invoke the arbitration clause.


The decision concerns the employees of Ernst and Young in California who filed a wage and hour lawsuit against the company.  Ernst and Young responded in court and made no move to invoke the arbitration clauses in the employees’ contracts.  In 2011, after several years of courtroom activity, Ernst and Young asked the trial court to impose arbitration on the issue as per the binding arbitration clauses in the employees’ contracts.  The plaintiffs objected and the court agreed.  Ernst and Young appealed the decision, and the U.S. 9th Circuit Court of Appeals agreed, enforcing the binding arbitration clause for all involved parties.


The key decision rendered by the Appeals Court is that the employees’ damage to their case and incurred court costs – now wasted by being forced to arbitrate – were self-inflicted because they should have been aware of the arbitration requirement.  In other words, it is the material responsibility of the employee to understand their contract and how all clauses thereof can affect their attempts at relief over an employment dispute.  The short version is, if you have an arbitration clause in your contract, seek arbitration in favor of litigation or you could expose yourself to further damages.