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The Supreme Court rules in favor of arbitration clauses

On May 21, 2018, the Supreme Court announced a ruling in favor of arbitration clauses in employment contracts.

The five to four decision prevents employees from banding together to develop class action suits.

An earlier decision

The Supreme Court has previously ruled that, in their contracts with consumers, businesses can prohibit class action by requiring arbitration. In fact, it is common nowadays for arbitration clauses containing class waivers to appear in contracts for credit cards, rental cars, mobile phones and even nursing home care. The question under review was whether employers could use these established arbitration principles in their employment contracts.

The case before the court

The recent decision addressed three cases that were consolidated due to similar charges that the three companies involved were underpaying their employees. The employment contracts the workers signed required arbitration instead of litigation to settle disputes, and further required that employees file claims one by one rather than as a class action.

A common clause

According to Justice Ginsburg, only 2 percent of nonunionized companies put arbitration agreements into practice 25 years ago. Today, 54 percent of nonunionized businesses do so. The Federal Arbitration Act played a part in 2011 during a case brought before the Supreme Court: AT&T Mobility v. Concepcion. The Act allows businesses to avoid class action by requiring individual arbitration in the contracts they make with consumers. This is the federal law that Justice Gorsuch referred to in the recent decision, citing precedents set by the court.

Dispute resolution

Although litigation is sometimes necessary, companies need not settle employment disputes in court but resolve them through the application of sound legal and businesses decisions. Contract issues, such as those that recently caught the attention of the Supreme Court, are many and varied. They can affect the reputation of a company and the relationship it has with its employees. How a company handles issues such as contract disputes will have much to do with its future success.

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