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Never let it be said that mandatory arbitration agreements prohibiting people from suing companies on a class basis are trivial and rote agreements that should just be cobbled together.  Court decisions, from the Supreme Court on down have taught us that the enforceability of such agreements can be a critical part of an overall strategy to mitigate the risk of legal costs and judgments.

A few weeks ago Uber put the price tag on their purported mandatory arbitration agreement with drivers at $100 million when it settled claims in two class actions from California and Massachusetts claiming that the drivers were employees.  Among other things, the drivers in those cases alleged that they were employees, not independent contractors as designated by Uber.  Uber tried to enforce its mandatory arbitration agreement which prohibited drivers from partaking in class actions against the company and would have required each driver to bring her own claims against the company.  The court initially declined the request, finding that the arbitration agreements were unenforceable in light of public policy prohibiting such agreements, but a federal court of appeals recently held that Uber could appeal the lower court’s decision nixing the enforceability of the arbitration agreement thereby making it unclear whether the arbitration agreement would ultimately be enforceable or not.  Uber settled before finding out.

The lawsuits over Uber’s independent contractor designation are not over.  Uber’s experience offers a good lesson for all other companies.  First, consider the potential for mandatory arbitration agreements as a tool for breaking up class action lawsuits.  Arbitrations are not a panacea for every employer, but for certain employers and situations they can be very effective.  Second, know what you are doing with mandatory arbitration agreements (and all other contracts and agreements with employees and independent contractors).  Cobbling something from some other company or the internet or a source that lacks legal expertise and knowledge is garbage in and garbage out.  If you are going to bother to put a contract or agreement together and distribute it to employees, vendors, contractors or others related to your business do it right, otherwise the result will likely be frustration should it become time to enforce the agreement(s).

Thompson Coe and myHRgenius Tip of the Week is not intended as a solicitation, does not constitute legal advice, and does not establish an attorney-client relationship.


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Kevin M. Mosher

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