One of the biggest misnomers in a creating dispute resolution clause for an employment contract is that the language needs to be a “one-size-fits-all” boilerplate so it can be transferred from contract to contract regardless of type or need.

On the contrary, dispute resolution clauses can be completely customized based on the type of contract, the strategy of the organization and the needs of the employee, consumer or vendor.

Customization of any contract, or any provision of a contract, requires additional time and bandwidth. Fortunately, there are logical places for talent acquisition and HR professionals to start when reviewing the dispute resolution clause.

Include a “Choice of Law” Clause

The choice of law dictates which state or federal law will be applied by the decision-maker. In many instances, the choice of law may not make a difference in the ultimate outcome of the case, but that is not uniformly true. Accordingly, when drafting a contract, your company or client should consider what impact the laws of a particular state, or the applicable federal law, may have on a dispute arising out of the agreement.

For example, many organizations are incorporated in Delaware because the state has laws that are perceived as favorable to corporations, which makes it very easy to research Delaware law on corporate disputes and determine what the result of a particular dispute might be. Because of this, many organizations choose Delaware law in their corporate and commercial agreements so they have this level of certainty.

Court Versus ADR?

Does your company or client want to use the courts or an alternative dispute resolution (ADR) provider as the forum for any litigation? In some states, court dockets may be light, or the company may have a particularly strong relationship with the municipality that makes the court option an advantageous forum for litigation.

Those issues must be balanced, however, against such considerations as class action litigation. Plus, court litigation records are public. Some companies may never want to have the status and results of litigation made available to the public. Other organizations, however, may have no issue with the specter of class actions and may even want their litigation in the public sphere because of its deterrent value.

Still, others may be extraordinarily concerned about class action liability. As talent acquisition and HR professionals, you have the opportunity to bring attention to these critical issues and their importance when choosing between court and an ADR provider.

Do You Have To Pick Just One?

Companies can actually categorize different types of disputes and allocate them to different forums. In other words, you don’t have to choose court or an ADR provider for all types of litigation. You can draft the clause to allocate litigation to different forums based on the best fit.

For example, you may want all product liability disputes to be arbitrated, but any allegations of fraud or misrepresentation to be litigated in court. In the employment context, maybe you feel harassment charges are better litigated in arbitration, but wrongful termination cases are a better fit for the courts.

Of course, these decisions are all predicated on internal strategy, so there is no right or wrong answer. Taking the time and effort to customize the clause based on the situation may make the most sense in the long run.

Class Action Waiver or Not?

There’s no simple answer. Class actions can result in exponential liability to your employer or client, and they’re also a bear to defend. Mass arbitrations can also result in outsized monetary exposure.

It’s extremely important to encourage and help your company’s or client’s teams to think carefully about how to deal with litigation that involves more than one plaintiff. Consult with your attorney around your company’s strategy and goals.

Finally, be thoughtful and always consider the equity and fairness of your counterparty. Quick and efficient resolutions are always better for everyone involved.

Do You Need a Backup Forum?

There are scenarios where the dockets of a court or even an ADR provider may be so clogged that you can’t get the litigation to actually move through the process. This is of particular concern in light of the COVID pandemic, which has significantly backlogged courts. Of course, there could also be other concerns about a particular forum.

It is absolutely acceptable and sensible to designate a backup forum in case there are issues in your primary forum that limit the possibility of quick and efficient litigation.

What About Appellate Rights?

In court, there are always appellate rights or ways to argue against the decision.  One of the knocks on ADR forums is that there often are no options for appeals. By customizing your dispute resolution provision, you can allow for an appeal process, providing greater comfort to any party who may demand a potential second bite at the apple.

In Conclusion

There may be other issues or considerations not described in this article that need to be addressed in a dispute resolution provision. They may be unique to your company or client, or they may be more generalized issues that are not accounted for in boilerplate provisions.

In short, this is your dispute resolution provision, and as talent acquisition and HR professionals, you have a unique opportunity to work hand-in-hand with your legal counsel to make sure these clauses are carefully examined, considered and drafted in a manner that accounts for your particular business issues and concerns.

You, of course, want to help ensure these important clauses provide the best results for your client or company and its constituents. Don’t take old boilerplate provisions and assume they will work well for all of your contracts.

An ounce of prevention and customization may make you a hero.

The post Why Recruiters and HR Managers Should Pay Attention to Employment Contracts: Part Two appeared first on RecruitingDaily.

When the head of talent acquisition at a well-known e-commerce company hired a mid-level software engineer four years ago, she mechanically sent the employment agreement through Docusign. Little did she know that one singular provision in that employment contract would lead to years of litigation and millions of dollars in legal fees.

In almost every contract of any kind there is a provision, most commonly known as a “dispute resolution clause,” which dictates what happens if there is a dispute. In the first of this two-part series, we are going to explore what a dispute resolution clause is and why talent acquisition and HR teams should pay attention to them.

Quite simply, the dispute resolution provision can be the most catastrophic clause in a contract. Yet little attention is paid to it, and typically it is lightly negotiated if it is negotiated at all. Most of these clauses have become completely boilerplate, simply recycling language used in the past. This is a disturbing proposition for any organization.

Why Are These So Potentially Dangerous?

Imagine if your employer — or your client, for whom you are recruiting — ended up in a dispute with 100 employees for a claim of an unsafe work environment. Hypothetically, if the chosen forum in this clause is a traditional arbitration forum, the costs to simply start the litigation ($5,000 – $8,000 in filing fees per case) could cause severe financial harm to the company.

If these provisions are so dangerous, how did they become standard language in employee contracts? In an innocent way, actually. When first introduced into contracts, dispute resolution clauses were meant to ensure a perceived home-court advantage for the employer when there was a dispute.

For example, if you were an Illinois company with an employee dispute, you would typically insert the “state or federal courts of Illinois” as the chosen forum for any litigation. The theory was that courts in your own state would value the tax revenue and jobs created by the company, thereby giving it an advantage in the litigation.

Over time, however, companies became less concerned with the home-court advantage and more concerned about the cost of defending increasingly common class action litigations. So, many companies began using arbitration provisions with class action waivers instead of court.

Using Arbitration to Avoid Class Actions

Arbitration is an alternative to traditional court litigation, where instead of a judge there is an arbitrator, and instead of a courtroom there is a conference room. While you can’t waive the right to a class action in court, an arbitration provision allows the parties to agree that litigation can only be pursued on an individualized basis and not on behalf of a class of plaintiffs. This became a strategy for companies to avoid class actions, and it worked … for a while.

The landscape surrounding these provisions is drastically changing. For example, there is a new type of litigation called mass arbitration. In a typical class action, one plaintiff sues a company in one lawsuit on behalf of hundreds or thousands of unidentified plaintiffs. In a mass arbitration, the plaintiffs are pre-identified and then file bulk individual lawsuits against the company, resulting in astronomical fees.

As a result, the value of having a standard arbitration clause with a boilerplate class action waiver is now not only negligible but potentially dangerous.

Tips for Talent Acquisition and HR Teams

Given the impact that these provisions can have on any organization, it is imperative that talent acquisition, HR and legal teams start thinking more critically about new hire agreements that include dispute resolution clauses.

Here are some areas to think about.

Is Federal or State Court Included?

Is potential class action litigation an acceptable risk? Remember, the right to a class action can NOT be negotiated in court. If your company or client does not want to risk class action litigation, you cannot maintain state or federal court as the dispute resolution forum of choice in your agreements.

Why Was the Arbitration Forum Chosen?

A common response is: “I have no idea.  We’ve always just used the same provision.” This is not an acceptable answer. Just as courts are not created equal, alternative dispute resolution forums are even more disparate. The fees alone may make litigation costs prohibitive, creating leverage for a settlement.

Can the Arbitration Forum Handle the Litigation and Do It Remotely?

Many arbitration forums have limited technological capabilities, dictating that everything must be done in person and significantly increasing costs. You simply need to understand who your forum is, what they stand for, how they run an arbitration process and how much it will cost.

Can I Customize This Provision?

Yes. The dispute resolution language should be customized to meet the needs of your company or client. Your company’s HR professionals, talent acquisition representatives and legal teams need to think carefully and critically about the goals of any arbitration process while also ensuring that the other side also has a fair and equitable avenue to air their grievances.

Litigation Happens

It’s a reality of business, particularly in talent acquisition and HR. However, with some careful consideration and planning around a simple, seemingly insignificant clause in your employment agreements can and will be the difference between your organization spending an inordinate amount of time, money and headache dealing with litigation or a cost-effective, efficient process that allows you to focus on your job in talent acquisition and management.

In part two of this article, we will include tips and suggestions about what should be included or considered in drafting these dispute resolution clauses.

The post Why Recruiters and HR Managers Should Pay Attention to Employment Contracts: Part One appeared first on RecruitingDaily.