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An Arbitration Agreement: Not A "Get Out Of Litigation Free" Card

The U.S. Circuit Court of Appeals for the Third Circuit unanimously ruled that an arbitration agreement signed by an exotic dancer did not apply to her proposed class action misclassification lawsuit.

Her proposed lawsuit alleges that her employer misclassified her and other dancers as independent contractors, rather than as employees. The court ruled that the arbitration agreement only required arbitration for claims pertaining to her employment contract, and not statutory claims, including wage and hour claims. Daniel Wiessner "3rd Circuit says exotic dancer not required to arbitrate wage claims," reuters.com (Aug. 17, 2017).


Commentary

An arbitration agreement requires an employee to give up his or her right to sue over work-related issues, including wrongful termination and discrimination. The employee agrees to resolve disputes through arbitration and outside of the usual litigation procedures in the courthouse.

However, there are limits to arbitration agreements. Limitations typically arise from the wording of the agreement in question.

To improve their arbitration agreements, employers should draft the agreements to “stand-alone” (versus existing as part of a handbook); the agreements should be signed; and they should be supported by separate consideration (versus being a condition of accepting a job position).

Another obstacle to be aware of is that the U.S. Circuit Court of Appeals for the Seventh Circuit ruled that mandatory arbitration clauses as a condition of employment violate the National Labor Relations Act by impeding an employee’s right to engage in concerted activities.

Bottom line: work with your local legal counsel to create arbitration agreements that cover all areas of concern and that will be enforceable, if challenged.

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