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Employment Contracts Legal

 

EMPLOYMENT CONTRACTS

Whether it is during the interview or after an employer meets with the job applicant, there are elements of the relationship that need to be determined.  For example, employers might discuss opportunities for extra wage compensation and benefits, such as pensions, bonuses, and health insurance, which are often administered through written policies.  More importantly, some employers require employees to sign formal documents that attempt to contractualize the relationship.[1]  These employment contracts can be overwhelming for a lot of people, as they often contain a lot of legal language and terms with which most people are not familiar.  Unfortunately, many elements of employment contracts can be disadvantageous to women.  It is always important for women to know what rights they might be signing away, or what benefits they might be agreeing to, when they sign an employment contract. 

What Should a Job Applicant Look for Before Signing an Employment Contract?

  • Job applicants should look for non-compete agreements, arbitration agreements (where they give up a right to a jury trial), bans on joining class actions, bans on speaking to other employees about salary/benefits non-solicitation agreements, confidentiality agreements, agreements that whatever they invent belongs to the employer and a no rehire clause if the employee sues the company.   Some employers put in provisions that require employees to pay for their attorney’s fees if there is a lawsuit over the contract, no matter who wins and who loses.  If the contract is over two pages, when possible, the employee should get a legal opinion.[2]

 

What are Arbitration Agreements (often called “Mandatory Arbitration Contracts”) and why are they Significant?

  • Some employers require employees to sign mandatory arbitration agreements contracts as a condition of employment.[3]  These clauses must be express and written, unlike other terms of the employment relationship which can be sometimes be established by oral or implied agreements.[4]
  • The agreements generally provide that all claims arising out of employment will be heard by an arbitrator or a panel of arbitrators instead of by a judge and jury.[5] Women who sign these contracts are then barred from bringing claims to a jury of their peers.[6] 
  • Although there are some courts that will allow an employee an opportunity to be heard in court despite having signed an arbitration agreement, most courts now enforce pre-dispute mandatory arbitration contracts that are signed by individual employees.[7] 
  • Although mandatory arbitration contracts can reduce legal fees and lead to a quicker resolution, the employee lacks standing to negotiate the terms of the agreement.  Additionally, the cases are heard before arbitrators who are more reasoned and predicable decision makers.  However, arbitrators are not usually experts in sex harassment, aren’t bound to follow the law, don’t have to issue written opinions explaining their decisions, and are subjected to extremely limited judicial review.  Furthermore, these agreements take away the possibility of a jury trial, and in turn, monetary settlements may decrease.[8]

 

What Makes an Arbitration Agreement Valid or Invalid?

  • The Federal Arbitration Act (“the FAA”) provides that agreements to substitute arbitration for litigation are valid, irrevocable, and enforceable.[9]  It also imposes some requirements of a fair arbitral process and award.[10]  In essence, in order to be valid, the agreement must enable a party to “effectively vindicate” their substantive rights.[11]  It must preserve all rights and remedies to which the plaintiff would otherwise be entitled, such as attorneys fees as required under Title VII.[12] 
  • When questioning the validity of the arbitration agreements, courts have struck down provisions that that impose too great a cost on employees in the form of excessive arbitrator fees, limit an employee’s ability to recover attorneys fees or punitive damages where the substantive law allows such recovery, put unreasonable time limits on the filing of claims, do not allow reasonable discovery, give the employer greater power over the selection of arbitrator, and provide that the employer can reserve the right to change any feature of the agreement at any time.[13]
  • Generally, job applicants/employees should look for language in the agreement that points to neutral arbitrators, more than minimal discovery, a written award, all relief that would be available in court, and no unreasonable costs or fees as a condition of access to arbitration.[14]  Agreements with these provisions are more “employee-friendly,” but are not required by all courts in order to be valid.[15]

 

 

What are Non Compete Agreements and why are they Significant?

·      By signing a non-compete agreement, a job applicant/employee is waiving the right to “compete” post-employment.[16]  What this means is that, once an employment relationship between an employer and employee has ceased, that employee’s rights to practice their occupation in competition with the employer is constrained.[17]

·      Similar to mandatory arbitration agreements, non-compete agreements must be express and written.[18]

 

What makes a Non-Compete Agreement Valid or Invalid?

·      Courts will look at the legitimacy of the employer interests that they protect add the reasonableness of the restraints they place on post-employment competition.  These agreements can be invalid if they last too long, reach too far geographically, or if the employer can not show that the agreement is needed to protect trade secrets or something similar.[19]

·      In order to enforce a covenant not to compete, even one which the employee knowingly entered into, the employer must show 1) that it has a legitimate protectible interest at stake; 2) that the particular restrictions are closely tailored to the protections of those legitimate interests and 3) that the restrictions are not too burdensome to the public or employee.[20]

 

Does Enforcement of Non-Compete Agreements Vary Depending on the Location?

·      The simple answer to this question is yes.  California stands at the most restrictive end of the spectrum.  There, “every contract by which anyone is restrained in engaging in a lawful profession, trade, or business of any kind, is that extent void.”[21]

·      Other employee friendly states include: Alabama, Colorado, Georgia, Montana, Nebraska, North Dakota, Oklahoma and Texas.  There are, of course, exceptions and variations, but generally speaking, these states either void non competes or include more strict limitations.[22]

·      States where non competes are permitted include: Alaska, Arizona, Arkansas, Connecticut, Delaware (except doctors), D.C., Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.[23]  Again, there are exceptions within each of these states.

 

 

What are bans on Joining Class Actions and why are they Significant?

·      Increasingly, employers include provisions that bar aggregate claims or class actions either within arbitration or outside of it.[24]  Some employers see the ability to foreclose class actions as the greatest advantage to mandatory arbitration.[25]

·      Under wage and hour laws, a ban on aggregate/class actions can have significant effects.[26] For example, some employers might have policies that exact several minutes per day of work from employees off the clock and without pay.  For individual employees, this might total a couple thousand dollars, which in the big picture of adjudication, is not an insignificant amount.  However, if a whole class of employees was affected by the same policy, a class action could go forward and would be wroth much more.[27] 

·      For employees who are bound by a class action waiver, an employer has a virtual free pass to engage in these illegal practices, and to skim thousands or millions of dollars off their employee paycheck with virtually no worries about liability.  Because these are so often contained within mandatory arbitration agreements, employment protections which would otherwise be enforced through private rights of actions are effectively nullified.[28]

  • Employers can try to argue that the Federal Arbitration Act prohibits class-wide arbitration.  However, the line is not so clear, and in response to a 2004 Supreme Court Case where the court found that it was up to an arbitrator to determine whether contract language allowed for class-wide arbitration, employers  are increasingly trying to include explicit no-class action clauses in employment contracts[29]

 

 

 

 

 

 

 


[1] Rachel Arnow-Richman, The Role of Contract in the Modern Employment Relationship, 10 Tex. Wesleyan. L. Rev. 1-2 (Fall 2003)

[2] Information obtained from Rebecca Pontikes, Esq.  She is an employment lawyer in Boston, MA, at the firm of Davis, Pontikes and Swartz.

[3] Miriam A. Cherry, Not-So-Arbitrary Arbitration: Using Title VII Disparate Impact Analysis to Invalidate Employment Contracts That Discriminate,  21 Harv. Women’s L. J. 267, 269 (Spring 1998)

[4] Cynthia Estlund, Between Rights and Contract: Arbitration Agreements and Non-Compete Covenants as a Hybrid Form of Employment Law, 155 U. Pa. L. Rev. 379, 391 (December 2006).

[5] Id. at 269.

[6] Id. at 269-270.

[7] Cherry, 21 Harv. Women’s L.J. at 275, citing Cremin v. Merrill Lynch, Pierce, Fenner, & Smith Inc., 957 F. Supp. 1460 (N.D. Ill. 1997) and Benefits Communication Corp. v. Kleiforth, 642 A.2d. 1299 (D.C. 1994).

[8] Cherry, 21 Harv. Women’s L.J. at 276-286.

[9] Estlund, 155 U. Pa. L. Rev. at 397

[10] Id. Citing 9 U.S.C. s2 (2000)

[11] Id. citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28.

[12] Id.

[13] Estlund, 155 U.Pa. L. Rev. at 398-399.

[14] Id. citing Armendariz v. Found Health Psychare Servs., Inc. 6 p.3d. 669, 690, 681. 682 (Cal. 2000).

[15] Also  Circuit City v. Adams,276 F.3d. 889, 893-895 (9th Cir. 2002)  where the court skipped right to question of whether it was unconscionable.

 

[16] Estlund, 155 U. Pa. L. Rev. at 379.

[17] Estlund, 155 U. Pa. L. Rev. at 381.

[18] Estlund, 155 U. Pa. L. Rev. at 392.

[19] Estlund, 155 U. Pa. L. Rev. at 381

[20] Estlund, 155 U. Pa. L. Rev. at 393, citing Restatement (Second) of Contracts, s188(1)(a)(b)(1981).

[21] Estlund, 155 U. Pa. L. Rev at 392, citing Cal. Bus. & Prof. Code s. 16600

[22] cite

[23] Cite needed

[24] Estlund, 155 U. Pa. L. Rev at 427.

[25] Id.

[26] Estlund, 155 U. Pa. L. Rev at 427-428.

[27] Id. noting that these types of challenges have been brought against wal-mart.

[28] Estlund, 155 U. Pa. L. Rev at 427-428

[29] Peter J. Kreher, Substance, Process, And the Future of Class Arbitration, 9 Harv. Negot. L. Rev. 409, (Spring 2004), citing Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003).  In Green Tree,  the U.S. Supreme Court heard argument regarding the validity of class-wide arbitration for the first time.  The court recognized class-wide arbitration as a permissible procedure under the FAA and empowered arbitrators to decide issues of class certification and whether ambiguously worded agreements allowed class arbitration.  The case called into question the use of mandatory arbitration provisions to prevent class actions. 

 

 

 

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