DEC 13, 2013

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Compliance Matters

Keep Lender-Employee Arbitration Agreements

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There has been considerable confusion as of late concerning the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on arbitration agreements. Many mortgage lenders have become confused, believing that such agreements with employees are no longer permissible. In fact, Dodd Frank makes clear that arbitration agreements are prohibited with consumers. The law makes no mention whatsoever that arbitrating claims with employees is impermissible.

This is important because lenders who have been saddled with substantial wage hour class actions over the past decade now have a powerful tool in preventing them, the class action waiver/arbitration clause. This provision is particularly useful now that the U.S. Court of Appeals for the Fifth Circuit has reversed the NLRB’s decision in D.R. Horton Inc. v. the National Labor Relations Board, which strikes down such agreements. Such clauses are useful because they prevent a single disgruntled former employee from initiating a class action that can impact the entirety of a lenders’ workforce going back several years.

Of course, before relying upon such an agreement, lenders must be careful to draft it properly. It must cover the relevant disputes but contain legal carve outs for certain governmental claims as well as avoiding provisions that could lead a court to deciding the agreement is coercive or cuts off an employee’s ability to vindicate his/her rights. Drafted correctly these arbitration agreements can save mortgage lenders millions of dollars. Therefore, don't throw them away. Dodd Frank does not prohibit them. In fact, due to the Fifth Circuit decision in the D.R. Horton case they are more enforceable than ever.

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