The National Football League (NFL) is in the spotlight this season, not because of any certain game on the field, but for a legal battle off it. Last week, the Second U.S. Circuit Court of Appeals agreed that a NFL coach could bring his race discrimination claims against the NFL and several NFL teams in court although he had signed an arbitration agreement.
The arbitration agreement between the NFL coach and several teams he had previously been employed by throughout his career stated NFL Commissioner Roger Goodell would serve as the arbitrator in the event any legal dispute arose between the parties. The Second Circuit held that this provision “provides for arbitration in name only” and lacks the protections provided for and considered under the Federal Arbitration Act (FAA).
Under the FAA, employers and employees can agree to resolve disputes through arbitration, often offering a faster and more cost-effective alternative to litigation. But as the Second Circuit made clear, arbitration agreements may not always deliver a win to avoid litigating in court. If the agreement lacks neutrality or tilts too heavily in favor of one side, courts can and will strike them down as unenforceable, as they did here.
Takeaways for Employers
Arbitration is often seen as a favored approach to resolve employment claims. However, poorly drafted agreements can turn this gameplay into a costly loss. Here’s some ways employers can avoid having their arbitration agreements penalized:
1. Selecting a Neutral and Competent Arbitrator
Arbitration agreements that give the employer unilateral control to select the arbitrator may not withstand judicial scrutiny—especially if the person selected to serve as the “arbitrator” is a person within the employer’s organization.
At a minimum, the selected arbitrator should be impartial towards both parties (e.g., not being paid by one of the parties) and competent to decide legal questions. For this reason, many arbitration agreements specify that arbitrators will be selected per the rules of the administering arbitration organization, such as JAMS or the American Arbitration Association, to avoid any perception of a biased arbitrator. Nonetheless, employers can still establish minimum qualifications for the arbitrator within the agreement, which both parties would be required to follow during the selection process.
2. Fairness in the Agreement
Arbitration agreements that favor one party over the other will be harder to enforce. As the drafting party of the agreement, employers should ensure their agreements provide procedural fairness and equity to both sides so that arbitration isn’t “in name only.”
3. Clear and Transparent Terms
Courts closely examine the language used in any contract to determine its enforceability. Arbitration agreements are no different and should contain clear and concise terms about the parties’ mutual agreement to arbitrate employment claims and describe the arbitration process, including, but not limited to, how the arbitrator will be selected, the claims covered by the agreement, the scope of the arbitrator’s authority, etc.
4. Include a Severability Clause
All arbitration agreements should include a severability clause, allowing courts to sever any unenforceable provision while preserving the parties’ agreement to arbitrate.
Final Thoughts
Arbitration agreements remain a valuable tool for managing employment risks and reducing litigation costs. Even so, employers should be mindful of the scope of their arbitration agreements so that the question of enforceability isn’t flagged and comes under review by the courts.