Understanding Dispute Resolution Clauses in Employment Contracts

If you’re lucky enough to have an employment contract (most employees aren’t), you probably paid the most attention to the most interesting clauses when reviewing it — salary, benefits, non-competes, etc. You probably gave only a passing glance to the lengthy assortment of boilerplate clauses near the end of the contract. One of those clauses may have been a dispute resolution clause, which governs the procedures by which disputes between you and your employer will be handled. If you’re an executive in a dispute with your employer (or think you might be soon) and are wondering what you agreed to or how binding it really is, a Richmond employment contract attorney can advise you. 

Types of Dispute Resolution Clauses 

Several different types of clauses fit under the umbrella of “dispute resolution,” the most common being:

Arbitration 

Arbitration clauses (or “alternative dispute resolution” clauses) require the parties to settle disagreements arising under the contract outside of court, typically through arbitration. Arbitration is a formal, legally binding method of dispute resolution in which the parties submit their cases to a neutral third party (the arbitrator) who then hears evidence, questions witnesses, and issues a decision. These clauses typically are “binding” in two different senses of the word — they bind the parties to use arbitration instead of litigation, and the parties agree to be bound by the outcome of the arbitration. Arbitrators’ decisions are enforceable in court, and there are very few grounds to appeal them. 

Arbitration clauses in employment contracts are enforceable under Virginia law. Virginia has adopted the Uniform Arbitration Act, which provides, in pertinent part, that “a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract.” Such gourds include duress, fraud, misrepresentation, and breach, among others. 

A party has a right to be represented by an attorney in arbitration, and any waiver of that right prior to the proceeding is ineffective. Given the stakes of arbitration and your right to representation, you should seriously consider at least speaking to a Richmond employment contract attorney either before signing an arbitration agreement or beginning the arbitration process. 

Forum Selection and Choice of Law 

Forum selection clauses dictate which state’s courts will hear disputes arising under the contract, while choice of law clauses dictate which state’s laws will apply. For small companies, the forum and the law will typically be where both the employer and the employee reside. But for larger companies operating in multiple states, forum selection and choice of law become much more important (and potentially burdensome). For example, a company that is based in Massachusetts but that has employees in Virginia might use a forum selection/choice of law clause that reads “Disputes arising under this contract shall be governed by the laws of the state of Massachusetts and decided exclusively by state or federal courts located in Massachusetts.” Like arbitration clauses, most state courts, including Virginia’s, generally enforce forum selection and choice of law clauses unless they are fraudulent, unreasonable, or based on unequal bargaining power. 

Jury Trial Waiver 

If your employment contract does not mandate arbitration, it may require you to waive your right to a trial by jury. And while most disputes (including disputes over employment practices) are settled before they reach a courtroom, waiving a jury trial can potentially have consequences. Bench trials generally are faster and less expensive than jury trials, but many litigants may be uncomfortable with having a single individual (i.e., the judge) deciding the outcome of their case. Moreover, sympathetic litigants (such as those in David vs. Goliath employment disputes) may fare better in jury trials, as emotional appeals tend to be more effective with juries than judges. Regardless of the merits of jury trials vs. bench trials, Virginia courts generally enforce jury trial waivers. If you’d like to discuss how a jury trial waiver could affect your employment law case, you should speak to a Richmond employment contract attorney. 

Challenging Dispute Resolution Clauses

No contract is ironclad, and employment contracts with dispute resolution clauses are no exception. As we’ve hinted at throughout, the enforceability of dispute resolution clauses is governed by contract law, so standard contract defenses are applicable when trying to get around them. A few common contract defenses and how they might apply in this context include: 

• Unclear or ambiguous language: Virginia courts enforce dispute resolution clauses only to the extent that they clearly and unambiguously define the rights of the parties. Unclear, ambiguous, or inconsistent language may result in the clause being unenforceable. 
• Fraud or misrepresentation: Virginia courts also require the parties to employment contracts to enter into them voluntarily and with full knowledge of their contents. If an employer induced an employee to sign an employment contract by fraudulently misrepresenting that the contract did not contain any dispute resolution clauses when, in fact, it did, such clauses may be found unenforceable. 
• Unconscionability: Dispute resolution clauses may be unenforceable if they are unconscionable or grossly one-sided. For example, an unconscionable contract might be one in which the employee must agree to binding arbitration but the employer is free to sue in court. 
• Public policy violation: Not all employment disputes can be handled via arbitration. For example, the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 invalidates pre-dispute arbitration agreements for sexual assault and sexual harassment claims. 
• Lack of consideration: Contracts must be supported by an exchange of value known as “consideration.” This defense might be applicable, for example, if an employer presented an employee with a dispute resolution agreement many months after the employee had been hired, with no additional benefits to the employee. 

Find Out What Your Rights Are by Speaking to a Richmond Employment Contract Attorney 

If you signed an employment contract that contains dispute resolution clauses or are considering doing so, make sure you understand what your rights are by contacting a Richmond employment contract attorney at Pierce / Jewett by calling 804-502-2320 or using our online contact form.