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Arbitration Delegation Clauses: Be Careful What You Wish For

Most of the time, employers that draft and enforce arbitration agreements want to send their disputes with an employee to arbitration. To ensure that all disputes are covered, agreements often use broad language, such as requiring the arbitration of “any or all” disputes, those “regarding the interpretation, applicability and enforceability of the agreement” or “the arbitrability of any dispute.” In two recent decisions [Reyna v. Int’l Bank of Commerce, No. 16-40057 (Oct. 4, 2016)Kubala v. Supreme Prod. Servs., July 20, 2016], the Fifth Circuit has made clear that these provisions, called delegation clauses, transfer the power to decide threshold questions of arbitrability to the arbitrator.

Absent a delegation clause, there could be some uncertainty as to whether a dispute is arbitrable. So a broad delegation clause makes sense – right? Not so fast. When an employee seeks to represent an entire class of employees and the employer has not explicitly agreed to class arbitration, a broad delegation clause actually may not be in the employer’s best interest.

Employers should consider whether a court or an arbitrator should decide if their arbitration agreements allow class or collective arbitration. While the Fifth Circuit (among others) has warned against lightly inferring an agreement to class arbitration, examples of arbitrators doing so are not uncommon. Compounding the problem, an arbitral decision is not subject to vacatur as long as an arbitrator is interpreting the contract–even if the arbitrator is flat-out wrong. Thus, an arbitrator’s decision that class or collective action procedures are available in arbitration may be difficult to challenge.

Here’s the bottom line: Employers should remember that arbitration is a matter of contract. In drafting arbitration agreements, they should carefully consider what potential threshold and other disputes might arise, decide who (court or arbitrator) should decide what issues, and then carefully draft the agreement to facilitate those decisions. Then they should cross their fingers.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.