Start-up owners: Should you consider arbitration clauses?

In Business Organizations by Coolidge Wall

Starting a new business is an incredible responsibility. Not only must you be focused on your business goals, you also need to manage the needs of your employees. 

To do this, you will likely want to have a handbook and employee agreements in place to establish some ground rules. You will also want to protect yourself and your bottom line, so it can be wise to consider including employment dispute resolution clauses in those agreements. Increasingly, start-up businesses are following in the footsteps of larger corporations and asking employees (and potential employees) to sign arbitration clauses.

Arbitration clauses state that disputes that arise between employers and employees (or between any parties bound by a contract) are to be resolved through arbitration, as opposed to litigation.

For those unfamiliar with arbitration, it is essentially a method of resolving disputes that uses an arbitrator instead of a judge. And while it is less formal than litigation, it still requires that both sides present evidence, calls witnesses and make arguments in defense of a particular position. The arbitrator then makes a decision, which is often binding.

There are some distinct benefits for employers when it comes to arbitration. As discussed in this article by The New York Times, arbitration can be more cost effective and faster than litigation. Further, it can prohibit employees from joining a class action. In many cases, arbitration and the results must also be kept private, which can provide protection for companies.

However, arbitration is not right for every employer in every situation. There are some drawbacks to consider, including the fact that some employees may not want to sign an arbitration clause. This could cost employers a highly desirable job candidate.

While it is crucial to assess your options and examine the various methods of dispute resolution, it is essential that you do so with an attorney who can provide the legal perspective for such a decision. With this guidance, you can make decisions that are in your company’s best interests and protect the people working with and for you.