Healthcare Arbitration Agreements: The Good, the Bad and the Enforceable

Transcript

Stephanie Peet
Office Managing Principal, Philadelphia 

Welcome and thank you for joining us. I'm Stephanie Peet. I am co-leader of Jackson Lewis' Healthcare group. I am joined today by my colleague in our St. Louis office, Joe Wientge.

Today we're going to be talking about arbitration agreements. More specifically, we're going to be talking about the good, the bad, and the ugly as it relates to arbitration agreements for healthcare employers. We're going to discuss some of the key considerations that healthcare employers should keep in mind, including the benefits and potential challenges, and some practical issues that can arise when using these arbitration agreements, particularly in the healthcare setting.

Joe, thank you for joining me.

Joe Wientge
Principal, St Louis

Hi Stephanie, thanks for having me. It's always a good day when I get to talk about arbitration. I'm part of Jackson Lewis' Arbitration group, and we have plenty of experience working with clients across the country on difficult issues of enforcing arbitration. Certainly, healthcare organizations can present some challenges. 

One thing to keep in mind as we get started, though, is that we know arbitration works because we often have to defend it. If it wasn't so beneficial for our healthcare clients, we wouldn't see as many challenges as we do today.

Peet

Good point, Joe. Let me kick it off. Arbitration agreements, you know, they've become a standard risk management tool for many employers. Can you explain for us why they are particularly important for health organizations today?

Wientge

As the arbitration guru or nerd, depending on your perspective, they are good for all employers. 

As we mentioned, healthcare organizations in particular are uniquely positioned because of the complex regulatory issues they have to deal with. Oftentimes, the emotional issues, compliance, employment issues, and wage-and-hour issues really make them targets. We know that, and our clients who are listening to this have dealt with that burden for years. Arbitration is a tool in the toolbox to address those issues. 

Whether you are a huge multi-state hospital system with tens of thousands of employees, or if you're a smaller healthcare provider with just a few dozen employees, you still would get the same benefit by being able to prevent those class actions from occurring. Even single-plaintiff claims are brought into arbitration, lowering settlement values and reducing the time spent defending these claims. For all those reasons, our healthcare clients have benefited from rolling out arbitration agreements across the country.

Peet

Let me ask you this, Joe. Is there anything about a healthcare employer that makes it more difficult to implement an arbitration agreement in comparison to other industries?

Wientge

That's a good question. I would certainly say yes. It has to do with the unique aspects of their workforce. When we talk about the rollout, it really breaks down into two different categories.

The first is the execution: how we actually have the employees sign the agreement. 

Then the second is the communication piece. What are we talking about with our employees as we go live with either the new agreement or the update to it? Because we have employees in a whole raft of different locations with different levels of experience and education, it can be challenging for healthcare clients to navigate those different options for execution and rollout. For example, we may have remote workers who have nothing but access to their computer all day long. On the other hand, we may also have employees who have no access to any technology because they are working in the kitchen as a culinary employee. Navigating how we roll out an agreement to that diverse group can be challenging. The good news is we have options for how to handle it.

Peet

Well, I'm going to ask you the next question then. We have healthcare employers with physicians, environmental services staff, transport personnel; it runs the gamut. Given what you just discussed, how should or can healthcare employers tailor this rollout strategy to reach all of their employee groups effectively?

Wientge

First of all, it's important to understand that there's no one-size-fits-all solution here. It really needs to be a deliberate and thoughtful process where we partner with the organization and think through what makes the most sense. When we talk about the execution, for example, we have three different options. We can do the wet signature, the old school pen and paper; chicken scratch on the paper still works. In some instances, that may be the only option for some of our employees. On the other end of the spectrum, we have e-signatures, where we're doing it through some sort of HRIS system, which is often more administratively acceptable to our team but can present some enforcement challenges. Then we have a hybrid approach where we would allow the agreement to be executed under either approach based on the nature of the employee. Thinking through those options early becomes particularly important. 

Also important is the consistency and how we then roll it out to those different segments. Once we've decided how we're going to execute for that particular group, we need to make sure everyone is doing it the same way. Ultimately, the goal is to get 100% execution. Taking the time on the front end to think through how we're going to tailor this rollout strategy to each employee so we get the best results is what we found to be most successful.

Peet

You have a lot of experience, Joe, with healthcare employers in particular, but with lots of employers introducing a new arbitration agreement or updating an existing one. I'm sure you have seen some mistakes that employers have made along the way. Can you share with us what some of the bigger mistakes employers can make when they're either introducing a new program or updating the existing one?

Wientge

You're right. A lot of times the issues we see when they come up, particularly on a new arbitration rollout, for example, are employers assuming that what we have done before with other new hire documents will work in the arbitration context. We know from experience, unfortunately, that's simply not the case. 

For example, we're going to have a new employee packet, and they may acknowledge a number of different policies, procedures, and the like. There are HRIS systems, large nationwide HRIS systems that I've worked with, that probably many folks that are listening to this currently use. That system is fine for acknowledgments because that's the language used. But there are cases where an employee acknowledges receipt of a handbook, for example, after the agreement has been accepted. As you can imagine, that presents no good options for us as the employer, but would, conceivably anyway, give an employee an opportunity to say, yes, I've had to click this button in order to get this job, but I really didn't mean it, and it shouldn't be enforced against me and all that sort of thing. 

Being thoughtful, being deliberate and reviewing that rollout approach before it goes live so we can assess those issues and address them up front will make the rollout process go so much more smoothly.

The communication piece is critical. However, it's often overlooked. We think a lot and spend a lot of time correctly on the language of the agreement, on that rollout process that we were just discussing. Perhaps there are some opportunities there to spend some additional time thinking through how we are managing what we are saying to the employees about this. 

To give you an easy example, as everybody's seen with the proliferation of AI in the last year, when we've gone live with rollouts to different healthcare employees, we get a lot of misinformation back. We know it's AI because a lot of times they even leave the prompt at the bottom of the page when they send the email back to us saying why they're not going to enforce it. What I always encourage our clients to do is, again, be proactive with that communication on the front end. We know that there are a handful of myths, just outright misunderstandings that relate to arbitration, so let's get out in front of that. Let's have a one-page rollout memo sent to the employees, explaining in simple, easy-to-understand English what arbitration is. As importantly, why it's good for employees too. 

The argument we always hear is that this is one-sided; it's purely for the benefit of the company. That's simply not the case. When we start to have conversations with the employees about, if you have a legitimate complaint against us, you're going to get it heard and resolved. From their perspective, it's paid out more quickly in arbitration than it would in litigation. That starts to turn some heads and starts to get people to understand that what we're talking about here is just a different venue for resolving claims, not essentially making the claims go away or some of these other myths that are out there. 

The communication piece is critically important, not only with the employees, as we've been talking about, but there's also an opportunity to educate our frontline staff. What I mean by that is our managers, our HR folks who may be the front line taking those questions from the employees when the rollout goes live, arming them with the information to say, hey, if you get this frequently asked question, this is how you should respond to it. Importantly, having an outlet for managers or HR folks to know who to go to if they don't understand a question or need to escalate it. There's a clear chain of communication and chain of command for how we're to respond to employee questions because we want to invite those questions. Once we've addressed them, we often see employees who might otherwise be hesitant to execute come around and sign the agreement once their questions have been answered. We're not Pollyanna, and we know it doesn't happen all the time, but we have had success with it. 

We think it's worth going through that process up front before we go live with the rollout.

Peet

Joe, we've been talking a lot about arbitration rollouts, some practical tips, things to be on the watch for. Let's switch gears a little bit and talk about some of the increased judicial scrutiny that we're seeing of arbitration terms. What kinds of provisions, Joe, are attracting the most scrutiny by judges?

Wientge

Again, going back to my initial point about the success of arbitration as a defensive tool, because it is so beneficial, it is being attacked left, right, and center. We've already talked about the attacks based on execution, but the terms are now coming under further attack as well. 

Our baseline for understanding here is that the Federal Arbitration Act applies to the vast majority of our healthcare employees. That's a good thing. The FAA tells us to look to the applicable state law to determine whether a contract has been formed between these two parties. One part of that analysis can be, depending on your location, what we call a review for substantive unconscionability. Essentially meaning, are there too many items in the agreement that are against the employee?

As an example, oftentimes, in fact, the vast majority of times, we'll have our arbitration agreements set up based on a mutuality of promises between the parties. This is the employee agreeing to arbitrate claims in exchange for that same promise coming back from the healthcare company. Now, what happens is if we have one-sided language in the agreement, for example, with injunctive relief, that's one that happens quite frequently, where it says that the company only has the ability to seek injunctive relief. Some courts have started to question whether there is a lack of mutuality. Because of the lack of mutuality, there's no consideration and thus no enforceable contract. We have to be very careful anytime we are getting away from a consistent application. If we want to have injunctive relief, that's fine. In fact, we do in the vast majority of the agreements that I draft. We just need to make sure that it's mutual.

Other issues that we've seen also relate to shortening of the statute of limitations, shrinking of judicial remedies, anything that a court can look at that says we are trying to strip away the rights that an employee may otherwise have; that's when courts will certainly scrutinize the agreement more often. There's no bright-line test for how much restriction is permissible. But the more we include in the arbitration agreement, the more likely it is to be found to be unconscionable and thus unenforceable.

Peet

Interesting Joe. Let's say a court finds a single provision in the arbitration agreement to be problematic. Would that jeopardize the enforcement of the entire agreement?

Wientge

Well, it shouldn't. One way we attempt to address those sorts of challenges is by suggesting what we call a delegation clause. What this does, and folks again who are listening may already be familiar with this, but it's a great tool. It allows us to tell the court, once you've assessed enforceability, all those issues that we discussed earlier, and you've determined that yes, there is an enforceable contract in place between these two parties. All these other challenges, no matter what it may be, whether it's discovery limitations, hearing location, statute of limitations, as I mentioned earlier, remedies, whatever it is. Now the arbitrator decides those specific challenges because the court already found that there isn't an otherwise formed contract here. That's a great defense to those claims because it allows us to essentially kick the can down the road. 

Oftentimes we find that once the matter gets into arbitration, opposing counsel, not surprisingly, drops all those challenges. They understand the ship has sailed. They just want to get into the substantive allegations that they're raising. All of a sudden, magically, those other claims go away. Definitely a great tool for us. It's important to keep in mind that without the delegation clause, then yes, those types of limitations that we've talked about could potentially lead to the unenforceability of the entire

Peet

Really stress the importance of the delegation clause?

Wientge

Along with that, I would also say, and this is fairly standard as well, but the severability clause that we'll include in the agreements is also very important. Although we have seen pushback from the courts, even when we have severability clauses. That just means that if there isn't any offending provision, it should be struck and the remaining terms of the agreement enforced. We are seeing more courts go further in saying that even if it's one issue, if it's a significant issue that they believe bears on the fundamental fairness of the plaintiff's ability to prosecute his or her claim, then they will say that even the severability clause doesn't save the agreement.

Peet

Interesting. Joe, a lot of our employers and clients have this desire to go for arbitration because they want efficiency. But they also want to make sure that the agreement withstands judicial review.

Do you have any tips or suggestions for how a healthcare employer can balance those two interests – efficiency, but also making sure that the agreement is upheld?

Wientge

I mentioned this a little bit before, but certainly the first place I would start on the enforceability side is making the mutual promises. As long as the courts don't see this as a one-sided affair, it helps on the enforceability side. It also helps on the communication side with employees to get them to execute it in the first place. Love the idea of making it a mutual agreement, so long as obviously our clients understand what that means for them. We walked through that, but that's a great option to make sure it's enforceable. 

In terms of effectiveness, again, that's where we have to balance enforceability. One of the things that I always encourage is applying it to both sides, again, with some limitations on discovery. We can get away with that for two reasons. 

First, by its very nature, the U.S. Supreme Court has recognized this over and over again. Arbitration is meant to be an expedited resolution of a dispute between the parties. It is not intended to be a two-and-a-half- to three-year process before we get to trial, much less any kind of appeal. Because of that, we can and have successfully articulated a reduction, not an elimination, but a reduction in the discovery. 

The second piece of that that's particularly important is making sure that the arbitrator has the authority to provide additional discovery if he or she deems it necessary. That gives us the best of both worlds: an expedited review. We keep costs down and get into the arbitration hearing more quickly, while also avoiding any potential attacks on the enforceability of the agreement, because we can always point to this discretionary language for the arbitrator to order additional discovery if necessary. That combination, when applied to other issues as well, is what we've found to be the best approach to achieve both ends.

Peet

Let me ask you this, Joe. If a healthcare employer hasn't reviewed its arbitration agreement in a few years, what would you say are the top three issues it should review and evaluate immediately?

Wientge

For those that already have agreements, if you haven't looked at it in a few years, you definitely need to dust it off. There are going to be things that need to be updated. Starting first with any of our clients that have employees in California, a couple of big decisions with respect to PAGA and that lovely statute that everybody's all too familiar with out there means that we need to update our agreement to address those new developments. 

More nationally, we have an amendment to the FAA itself, again the Federal Arbitration Act, that specifically excludes sexual assault and sexual harassment as being arbitrable claims. That was based on an amendment to the FAA that went into effect in 2022. If it's been that long and you haven't updated it, there's another opportunity. 

There are other options and other issues we need to spot as well. Certainly, some that have to do with the transportation employee exemption; that is a deep dive that we can save for a different day, but stay tuned for coming attractions. As a red flag to at least issue-spot, if you have employees whose primary job duties are either transporting goods across state lines or loading and unloading those goods, there's at least a chance that the transportation exemption could apply. We need to update your agreement in order to address that contingency. 

The final thing, again, and we touched on this at the beginning, is your rollout process itself, particularly if you are using e-signatures for any portion of your employee population. If it hasn't been addressed recently, you may be updating that process now. Critically important that we have a discussion about what that looks like again before you go live with any potential new updates. 

It's always a new day in arbitration. There's always some new challenge, and it's always worth reviewing, particularly if it's been a few years.

Peet

Do you expect any trends to shape employment arbitration over the next few years?

Wientge

I do. We're going to see a continuation of what we've already seen from some states, which is chipping away at arbitration at the margins. There are many states, and you can probably already think about which ones those are in your head, that are very much anti-arbitration. What we've seen now is that direct kind of frontal assaults on arbitration have been overruled repeatedly by the U.S. Supreme Court as being preempted by the FAA. As a result, what we've seen states start to do is, again, like I said, kind of chip away at it. 

For example, by passing statutes that require invoices be paid immediately upon issuance and failure to pay within 30 days can result in basically defaulting the matter out of arbitration and sending it back into court. There are a number of states that have passed that. We would anticipate that additional states will continue to look at something along those lines in order to again prevent arbitration without outright and explicitly saying that they're preventing arbitration. 

We're also going to see issues with respect to legislation at the national level. If the Democrats were to win, perhaps even taking a full run at the FAA itself. Under the Biden administration, there was that attempt. Fortunately, it was not successful. But depending on which way the political winds blow over the next few years, if the Democrats come back into power, that could be something that we think may be challenged yet again. The good news there is we have a whole bunch of backing from the various chambers of commerce that are against that and other business organizations. We've been able to successfully beat those efforts back, and hopefully we'll continue to do so in the future.

Peet

Joe, final question. Are you ready? If you have to say what is the single most important takeaway for healthcare employers that they should remember when either designing or implementing an arbitration program, what is it?

Wientge

I would say it's that it's worth it. I get this question a lot, particularly when I'm dealing with new clients. They want to know why bother with this when we talked about all these challenges today; should we just let it go, is it worth the effort? The answer is yes. The data on this is clear. Again, as I mentioned before, from just the time spent defending to settlement valuations to hearing awards, even if you do lose and also just the deterrent effect, making you a harder target and hopefully just scaring opposing counsel off from even bringing claims against you, or at least lessening the number of claims that our clients are going to deal with. All of those benefits of arbitration mean that ultimately it is worth it. If you do it the right way, you can have an enforceable agreement that provides you with that protection.

Peet

Joe, thank you so much for your time today. I really appreciate all of the tips and practical considerations you've given us. Thank you all for listening to us. We really appreciate it, and we hope that you have some takeaways now when you go back, look at those arbitration agreements, and see if any changes need to be made. If you do, call Joe. Thank you, Joe. Really appreciate it.