Issues in Employment Law

February 2002

An employer must avoid circulating arbitration rules that could be deemed unfair and thus frustrate the object of the contracting parties to submit to an unbiased resolution.

Rules that (1) require that the employer unilaterally create the list of arbitrators with no limits on the employer, (2) require employees to give notice to the employer of their claims but do not require the employer to give notice of defenses, and (3) allow the employer to expand the scope of the proceedings, are unfair rules and need to be avoided in arbitration contracts. An employer should also provide their employees with a copy of the rules and procedures of arbitration.

In Hooters of America, Inc. v. Phillips, No. 98-1459 (Apr. 8, 1999), the Fourth Circuit Court of Appeals, which includes Maryland, North Carolina, South Carolina, Virginia, and West Virginia, held that employer Hooters committed an egregiously unfair breach of contract when promulgating the rules mentioned above. In its rules, Hooters reserved the right to modify the rules at any time and without notice to its employees. It reserved the right to move for summary judgment before a hearing is held as well, while not permitting the same for employees. The Court said that rescission was the appropriate remedy here because this breach defeated the object of the contracting parties.

Please consult us when designing arbitration clauses in employment contracts and when promulgating arbitration rules.

An employer who wishes to make changes in employment contracts to implement arbitration clauses must make every effort possible to notify employees of these changes.

In Hightower .v GMRI, Inc., No. 01-1302 (Nov. 14, 2001), the Fourth Circuit Court of Appeals, which covers Maryland, North Carolina, South Carolina, Virginia, and West Virginia, cited several facts that evidenced employee assent to the arbitration provisions instituted by the employer. Continuance of employment by the employee after receiving notice of the changes constituted assent and made the arbitration clause enforceable.

An employer may only make changes to an employment contract if the employee agrees to them. Such changes should be made known to an employee during an info session where all the changes can be explained. If an info session is held, the employees should be required to sign a record of attendance.

Please consult us if you wish to make changes to an employment contract, so we can ensure these changes will be binding on employees.