Oregon Court of Appeals Upholds Enforceability of Employer Arbitration Agreement

In the recent case Hatkoff v. Portland Adventist Medical Center, the Oregon Court of Appeals affirmed enforcement of a company arbitration provision in an employee handbook requiring that a former employee bring his employment discrimination claims in binding arbitration. The Court’s opinion offers a straight-forward application of the law regarding the enforceability of arbitration agreements, and the outcome is probably not surprising.  Nevertheless, it contains a helpful and well-reasoned survey of the current state of Oregon law in this area, and provides another helpful case for Oregon employers interested in resolving employment disputes using arbitration or similar alternative dispute resolution (“ADR”) procedures. 

Arbitration Agreements Are Upheld Where They Are Not “Unconscionable”

Arbitration is a form of private ADR in which the parties agree to waive the right to go to court and instead adjudicate disputes privately before an arbitrator. In the employment context, arbitration can be a cost-effective and quicker alternative to litigation.  While the details of arbitration agreements can vary greatly, they may frequently be confidential (lawsuits are public proceedings), provide more limited procedures (especially with respect to discovery), require trial before a neutral arbitrator (not a jury), and provide a limited right to appeal. In general, Oregon courts, like most courts, uphold such employment arbitration agreements as long as they are not “unconscionable,” either procedurally (with respect to how the agreement was formed) or substantively (with respect to its terms).

The Oregon Court of Appeals applied this analysis to find Portland Adventist’s “Grievance and Arbitration Procedure” in an employee handbook was not unconscionable. It found the agreement was not substantively unconscionable, because while it did waive the right to a jury trial (like all arbitration agreements), it did not unreasonably limit the employee's rights or remedies that would be available in court. Interestingly, the Court specifically held that the fact the agreement required that employees file a complaint within 90 days of the complained-of employment action was not substantively unconscionable, even though the applicable statute of limitations was one year. The Court also went on to find the agreement was not procedurally unconscionable: the employee, a sales and marketing professional, signed multiple acknowledgments that he received the employee handbook containing the arbitration agreement and was aware of what he had signed.

Law On Arbitration Continues To Develop

Despite the fact that many cases come out similarly to Hatkoff and the law on arbitration agreements is generally favorable for employers, the enforceability of such agreements is routinely litigated in employment cases. For that reason, and also because the unconscionability analysis is very fact-specific and the outcome can be very different in each case, arbitration continues to be a “hot” and fluid area of employment law both in Oregon and around the country. 

Sometimes that fluidity leads to conflicts in the law, such as between courts and legislatures.  For example, since 2008 Oregon has had a statute, ORS 36.620(5), that prohibits employee arbitration agreements under certain circumstances where the agreement does not contain “magic words” provided in the statute, and where the employee does not have at least 72 hours advance written notice before starting work (the legislature lowered the advance notice requirement to 72 hours in 2011; it originally required 14 days). However, that Oregon statute itself may be unenforceable, because it may be preempted by a federal statute, the Federal Arbitration Act (“FAA”), that strongly endorses the use of arbitration and contains no such limitation.  Several federal district courts in Oregon have found that ORS 36.620(5) is preempted by the FAA, and have enforced arbitration agreements that did not provide the advance notice required by that statute, although no Oregon state appellate court has yet considered the issue (the agreement in Hatkoff preceded the Oregon statute, so it was not a factor in the analysis in that case).

Other potential conflicts exist not between state and federal law, but between different parts of federal law.  As we have blogged about previously , just such a conflict has been brewing between the U.S. Supreme Court and the National Labor Relations Board (“NLRB”) over whether arbitration agreements can include waivers of class action claims—the Supreme Court says they can; the NLRB says they violate federal labor laws allowing employees to engage in “concerted activity” relating to working conditions. We are waiting to see how the federal appellate courts resolve that conflict.

Ultimately, Hatkoff will likely stand, not as a departure from existing law, but instead as the latest in a series of federal and state cases over the past few years that are broadly supportive of employer efforts to utilize arbitration and ADR to resolve employment disputes.  But, as we've said, this continues to be an evolving area of employment law, so employers will need to stay tuned to new developments.

In the meantime, here are a few things employers should keep in mind when crafting arbitration agreements to maximize the chance they will be enforceable:

  • Make sure your arbitration agreement, whether a stand-alone agreement or part of a handbook, is clear, understandable, and well publicized.  Include the "magic words" in ORS 36.620 to make it expressly clear to employees that arbitration involves waiving some legal rights, especially the right to a jury trial.  Employees should sign acknowledgments that they have received and understand the agreement.  
  • If you have employees who don't speak English as a first language, have a translated version of the agreement to ensure it is understood.
  • Give new employees the 72 hour advance written notice required by ORS 36.620 wherever possible.  While some courts have found that statute is preempted and unenforceable, there's no guarantee every court will.
  • Under ORS 36.620, current employees can only sign arbitration agreements at the time of "bona fide" promotion or advancement.  Again, courts may find this requirement is also preempted and unenforceable, but if you can comply with it, all the better.  
  • Arbitrators are paid by the parties, unlike judges.  While in theory the parties can split the cost, the agreement should not impose costs on employees unreasonably in excess of what they would pay to file a lawsuit in court.  Many employers agree to pay a large portion, or even all, of the arbitration fees.
  • Specify the rules and procedures that will apply.  The American Arbitration Association's ("AAA") specific rules for employment arbitration are one option; other state or local arbitration forums are other (and sometimes cheaper) options.

Above all, work with your employment counsel in the crafting and implementation of the agreement.  Many enforceability pitfalls can be easily avoided with careful planning, but the devil can be in the details.  That is especially true for any state-specific rules or "gotchas," as arbitration agreements may be perfectly enforceable in some states but not in others.

How Employers Can Reduce Litigation Costs

Employment litigation dominates court dockets around the country. And the swing to the left in the political arena is not likely to put a damper on the number of filings. Everyone knows that litigation is expensive. So . . . what can the employer do to reduce its expenses if it finds itself on the receiving end of an administrative charge or a lawsuit? 

1. Early Case Assessment

 

            Ask your attorney to provide you with an early comprehensive analysis of the case after he or she has interviewed key witnesses, reviewed key documents and researched legal issues. Doing so will give you important information about whether an early settlement is likely to save you money in the long run and give you a good idea of what you are in for if you don’t settle.

 

2. Manage your documents

 

            Use your in-house IT staff to image hard drives to save the cost of outsourcing. Do a thorough job of collecting documents from all relevant players so that your attorneys and their paralegals don’t have to charge you to do this work.

 

3. Decipher your documents

 

            Provide your attorney up front with a descriptive list of key players, identify key documents and provide a written narrative of the events in question. Anything you can do to compile information at the outset will save your attorney time.  Saving attorney time saves you money.

 

4. Consider early resolution

 

            Leave your pride and your principles at the door and consider an early, cheaper resolution. Yes, employers often say, “I’d rather pay my attorneys than the plaintiff,” but that sense of outrage wears off as litigation wears on.

 

5. Be open to technology

 

            Good attorneys use document management systems and other tools to help manage cases internally. Ask if you can be included in such systems to reduce the attorney’s need to communicate with you. For example, can you receive docketing notices automatically so that your attorney doesn’t have to send them to you?

 

6. Check your insurance

 

            Some employers carry employment practices liability coverage. It won’t cover all types of claims you might face (for example, a wage claim wouldn’t be covered and intentional conduct is typically excluded), and you may lose your right to select your own attorney, but, if you have it, you should notify your broker or carrier immediately by providing a copy of the charge or complaint. Other coverage (D&O, GCL) might also be in play.

 

7. Ask how you can save attorney time!

 

            Don’t hesitate to ask your attorney if there are tasks you can perform in-house to reduce attorney time.