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An Update Regarding Arbitration Clauses For Employment/Independent Contractor Agreements

An Update Regarding Arbitration Clauses For Employment:Independent Contractor Agreements

Many business owners have multiple employees and/or rely on independent contractors to perform services related to their business. Anyone who has sought legal counsel from The Jacobs Law LLC on the use of independent contractors (especially in Massachusetts) knows that doing so is a legal minefield. (Here is an old blog we wrote on this topic). And if you are doing so now and have not sought our counsel; please do!

To mitigate our clients’ risk, for many years we have advocated for the inclusion of arbitration clauses (among other important clauses) with class action waivers in virtually all of our employee and independent contractor agreements. Similarly, nearly all of those agreements drafted by our firm has included an arbitration clause. We did this even when some courts ruled that arbitration clauses and class waivers were not enforceable and so the employer/business owner could not compel to arbitration those wage and salary claims brought by the employee or contractor. We did this for many reasons, three of which are: (1) the clause and waiver are still a deterrent from bringing suit, (2) many wage and salary lawyers are not up-to-speed on recent case law and were unaware of the unenforceability rulings, and (3) we anticipated that the U.S. Supreme Court would eventually have to hear this issue due to conflicting rulings in various federal court systems, and would likely rule that the Federal Arbitration Act mandates enforcement of properly written arbitration clauses and class action waivers.

An Update Regarding Arbitration Clauses For Employment:Independent Contractor Agreements

Alas, we were correct.

In a recent case before the U.S. Supreme Court, “Epic Systems Corp. v. Lewis”, SCOTUS has ruled that arbitration clauses and class action waivers are enforceable pursuant to the Federal Arbitration Act: (“Congress has instructed that arbitration agreements like those before us must be enforced as written,” … “While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA — much less that it manifested a clear intention to displace the Arbitration Act.”).

The lawyers who typically represent employees and contractors in these types of class actions are now threatening to bombard employers/business owners with hundreds or thousands of individually filed arbitration claims – but this is a double-edged sword. First, not all claimants have a ‘good’ case. Named Plaintiffs in a class action lawsuit are typically the ‘best’ cases and all the other workers get the benefit of that when the case is filed as a class action lawsuit. Now all those ‘good’ cases will need to be arbitrated separately from the ‘bad’ or ‘not so good’ cases – and some will no doubt lose. Second, although these types of cases typically allow the plaintiff to recover attorney’s fees, they are also typically contingency fee cases. So the goal of the plaintiff’s lawyer is to recover the most money for the least amount of work and out of pocket expense. Paying arbitration fees, as well as the hours and hours of additional work required to separately arbitrate hundreds (or thousands) of ongoing actions (instead of one class action) will likely drain many firms’ resources and deter many of these lawsuits from ever being brought in the first place. The loss of a handful of the ‘bad’ or ‘not so good’ cases may end up being too much for some firms to handle. Third – it’s all about leverage. If an employer’s / business owner’s lawyer knows the plaintiff’s lawyer can either settle or arbitrate a thousand individual cases, it will put downward pressure on settlement amounts. Therefore, even if plaintiff lawyers bombard employers / business owners with individual arbitrations, the incentive (and desire) to settle will likely be greater for the employee side than the employer / business owner side – and that translates into less expensive settlement amounts and lower defense costs.

If your business has employees and especially if your business uses independent contractors to perform various services, contact The Jacobs Law LLC at 800-652-4783 or ContactUs@TheJacobsLaw.com as soon as possible for legal advice on employment laws, the use of independent contractors, and to obtain a written employment and/or independent contractor agreement. Although every set of circumstances is unique, having a written employment or independent contractor agreement (as opposed to nothing) can mitigate your risk of a lawsuit, the value of damages and the legal cost of defense.

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