Legal Trends Newsletter – November 2015

| |

Legal Trends Focuses On Employment Documents In The Workplace.

In this issue of Legal Trends, we discuss common problems that employees confront when they start and terminate employment, in light of various employer documents and the developing law.

Employment Agreements

Employees Face Arbitration Hurdle When a Dispute Arises.

You have just started your first sales job and cannot wait to begin the next journey of your life. On your first day, your boss hands you an employment agreement for your signature. Buried in the multipage document is a provision styled, “Arbitration Policy/Agreement.” Not thinking about it, you gladly execute the document figuring that it is just something that Human Resources needs for your personnel file.

During the course of your employment, your supervisor begins making sexual advances toward you. Trying to avoid your superior at all costs, you realize that it is impossible. As the year progresses, you decide to pursue a sexual harassment claim against your employer. In order to protect yourself, you request your personnel file in accordance with Illinois law. Before you can tell your boss off, “I will see you in Court!,” you discover the employment agreement that you forgot about. Reading it in earnest, your heart sinks when you realize that the courthouse doors have been slammed shut.

The trend is for more employers to incorporate this draconian provision into employment agreements. How does the arbitration affect your rights? Ordinarily, a victim of sexual harassment, or other type of discrimination claim can file a charge of discrimination and haul their employer into court. Not so if you have executed an arbitration agreement.

An arbitration provision requires that the employee submit their claim to an arbitrator, oftentimes a former judge, for resolution of the dispute. You tell yourself that it is no big deal – I will get a fair shake. A common misconception of the public is that arbitration provides a fair and inexpensive way of dispute resolution. First, depending on the arbitration forum, there is usually a sliding scale for the filing fee, which is based on the value of the claim. It is possible that the filing fee can run into the thousands of dollars, and it is usually two to three times the cost of filing a lawsuit in state or federal court.

The bad news, however, continues. The employment agreement may specify a particular forum for dispute resolution. Furthermore, arbitrators are paid by the hour and your employment agreement may specify that the cost of arbitration is split with the employer. In the Chicago metropolitan area, arbitrators’ hourly rates typically range from $250-$500 per hour. If the arbitration results in a full blown hearing with an arbitration award, each side could easily bear $20,000 in fees depending upon the complexity of the dispute.

Any attempt to circumvent the process by filing suit will usually hit a brick wall— courts generally uphold arbitration agreements and compel parties to arbitrate if that is what they agreed upon.

How will the arbitration turn out for the aggrieved party? In a recent talk given by Professor Alexander J.S. Colvin and PhD. Candidate Mark Gough (both from Cornell University), these academics provided startling findings regarding arbitration outcomes. Professor Colvin found “gross differences in arbitral and litigation outcomes.” Specifically, he found that overall employees had a 57% win rate in state court, 36% win rate in federal court, and a 21.4% win rate in AAA arbitration.

Thus, not only is a worker’s win rate substantially diminished in arbitration, but the recovery rate is compromised as well. For example, state court verdicts averaged $328,000, federal jury verdicts resulted with an average of $143,500, and AAA arbitration awards resulted in an average recovery of $23,500.

Restrictive Covenants

Another substantive provision of an employment agreement may be a restrictive covenant. A restrictive covenant prohibits an employee from certain kinds of conduct after they have separated from the employer. There are three types of restrictive covenants: covenants not to compete, non-solicitation provisions, and confidentiality agreements.

In a covenant not to compete, the employee agrees to refrain from competing with the employer for a certain period of time, typically two years, and within a specified geographic area – often defined by the number of miles from the employer’s office, or a number of counties where the company did business.

A non-solicitation clause prohibits the employee after they separate from contacting clients or customers whom the employee worked for, or from attempting to get employees to leave the employer.

The last type of covenant, a confidentiality agreement, bars the employee from sharing confidential information with anyone once they leave. Typically, this would include client lists and pricing models, but not general information which the employee may have coincidentally learned on the job or that is available to the public.

Are these agreements enforceable? Courts typically disfavor them as they often inhibit an individual’s ability to earn a living. Historically workers complained because they felt unduly restricted having only worked for the employer a short period of time. A recent decision from the Illinois Supreme Court requires two years of post-employment from the employee to consider such a non-compete provision enforceable.

How does an employee contend with these onerous provisions? It is difficult – employees often lack bargaining power, especially if it is their first job. We recommend getting counsel involved before you start your employment.

Separation Agreements

General Release Usually Bars All Employment Claims.

Upon termination, an employer may offer the employee a certain cash payment which he is ordinarily not entitled to as long as he agrees to waive and release any and all employment claims that he may have against the company. The release typically includes any state and federal discrimination claims, as well as disputes for unpaid wages and commissions. By signing, the employee agrees not to file suit against the company for any such claim.

Discrimination claims require that an employee file a charge of discrimination with the EEOC or the Illinois Department of Human Rights before filing suit. The EEOC has taken the position that notwithstanding a severance agreement barring an employee from filing suit, the employee may still file a charge of discrimination.

The good news? The EEOC has filed two lawsuits in federal court in Chicago for employees in that situation. An employee may benefit from this backdoor maneuver in a subsequent settlement or jury verdict. The bad news is that for fiscal year 2014, the EEOC filed only 167 lawsuits nationwide, so the odds that the EEOC will actually file suit on your behalf are incredibly remote.

We strongly urge you to consult with a lawyer before negotiating or accepting any type of severance offer.

Employee Handbooks

Often given little thought, employee manuals may give employees substantive rights regarding progressive discipline. The Illinois Supreme Court has held that handbooks, under certain circumstances, can be enforceable contracts. In that scenario, if an employer fails to adhere to its own criteria prior to termination, the employee may have a breach of contract case against the company.