Arbitration Agreements, Audits, and Records Retention

A restaurant is barred from enforcing an arbitration agreement it required applicants to sign, because there was no consideration for signing and the agreement was unfair.

A large steakhouse chain that required all job applicants to sign an arbitration agreement to even be considered for a job could not enforce the agreement for numerous reasons. Therefore, employees who had filed a case alleging violations of wage and hour laws did not have to arbitrate their claims, but could instead continue in court.

The court used ordinary contract law to explain the different reasons the arbitration agreement was unenforceable. First, the restaurant did not offer the applicants anything (like extra money) in exchange for the agreement to arbitrate. It just required them to sign it if they wanted to be considered for a job. Also, the restaurant did not give the individuals time to carefully read or think about the agreement, and in some cases, managers gave prospective employees the wrong information about the contract.

The court found that the individuals did not knowingly sign the agreements to arbitrate, and that many of them did not have the education, experience or background necessary to understand what they were signing. Finally, it was unfair for the restaurant to offer the agreement on a "take it or leave it" basis.

This case shows the types of issues an employer should consider if it wants to have its employees sign arbitration agreements. It is critical to give something to employees in return for their signing such an agreement, and also to give the employees time to understand the contract and ask questions.

Wage-and-hour audits are becoming common for many employers under the FLSA.

With the amendments to the regulations interpreting the Fair Labor Standards Act (FLSA) now almost nine months old, many employers and employees are beginning to understand how these new regulations actually affect the decision of whether an individual is exempt from the right to be paid overtime. Additionally, many employers who want to avoid the possibility of litigation, as threatened by the Department of Labor, have undertaken in-house audits of their workforce to make sure all workers are being paid in compliance with the law.

An audit involves categorizing job titles and classifications as exempt or nonexempt after an analysis of job duties, rates of pay and other factors. Some employers have discovered that they have not taken a careful look at their workforce classifications for many years, and that many employees whom the employer classified as exempt may be nonexempt. Armed with new data about their workers, and knowledgeable about the changes to the FLSA, employers have been able to reclassify employees correctly before being faced with a lawsuit.

It is important for both employers and employees to understand their rights and obligations under the FLSA, to make sure that employees are receiving all the money they are entitled to, and that employers are not unintentionally paying their workers too much or too little.

--Marc Jacobs, Labor and Employment attorney, Seyfarth Shaw LLP, with assistance from Melanie H. Berkowitz, Esq., Seyfarth Shaw LLP.

An effective records-retention policy is a must for any employer.

Having a good policy in place for records retention can help employers avoid liability, protect employees' privacy and assist in responding to legitimate information requests. An easy rule for records management is that business records should be retained as long as they retain value for some business purpose and are legally required, but no longer than that.

Employment and labor matters are heavily regulated. Federal, state and sometimes local governmental agencies enforce a wide range of laws and regulations affecting wages and hours, equal employment, employee organizational activities, workplace health and safety and employee benefits. Many of these regulations also impose record-keeping and reporting requirements. Compliance with these many laws and regulations is often determined by human resources personnel.

In addition to employment law requirements, employers often create and keep large volumes of records without thinking about the need to do so. Frequently, these records are distributed to people who cannot practically use the information. The cost of such practices, including reading, filing and storing originals and multiple copies, is enormous. Further complications arise because records often outlast the recollections of their authors or recipients. Poorly worded documents require extensive research to clarify ambiguities, and the outcome of lawsuits sometimes hinges on uncertainties caused by innocent but unclear writings.