Arbitration Agreements Including Emergency Relief Provisions

There are many sorts of business disputes where “emergency relief” may be called for.  One common example is where trade secrets are stolen, often by employees or former employees.  In view of that possibility, it is common for employment agreements to not only require the employees agree not to divulge company trade secrets, but likewise authorize the employer to seek emergency, “injunctive relief” to stop the use of stolen trade secrets.

Injunctive Relief – What is it?

Injunctive relief is where a party is ordered to do, or not to do, something.  This is opposed to monetary relief, for example, where a party is ordered to pay money, or declaratory relief, where the ongoing rights and obligations of a party are confirmed by a decision of a judge or arbitrator.

Continuing with our trade secret example, if a former employee is using company trade secrets, the employer will typically want both monetary relief, to compensate for lost profits, and injunctive relief, i.e. an order directing the employee to STOP using company trade secrets.  If, however, the parties need to go through a long legal process, either in Court or arbitration, before the former employee is finally ordered to stop using company trade secrets, the damage to the company may be beyond remedy. It is for such situations that emergency injunctive relief, usually in the form of a “Temporary Restraining Order”, or “TRO”, may be sought.

In California, the authorizing statute is Code of Civil Procedure §527.  Under that section a party can file a complaint and go to Court immediately, even before the other party has been served, and on a proper showing of proof, including declarations under oath and other evidence, that emergency relief is necessary to prevent “irreparable injury”, the Court may issue a TRO.  The TRO is, by definition, “temporary”, usually just long enough to give the opposing party an opportunity to come forward in a hearing for “Preliminary Injunction”, with any opposition papers and evidence to dispute the requested relief. If the TRO is confirmed and a Preliminary Injunction is granted, the injunctive relief may remain in effect until the case is resolved, and may become part of a final judgment.

Injunctive Relief in Arbitration

There are various organizations which provide arbitration services. The biggest and most well-known is probably the American Arbitration Association (“AAA”), but there are many others.  Some industries, such as the securities industry, for example, require their members resolve disputes using the services of the Financial Industry Regulatory Authority “FINRA”. The various arbitration organizations have different rules which apply, and sometimes various sets of rules which parties can select from, but almost all of them include injunctive relief among the available remedies in arbitration.

Traditionally, however, emergency injunctive relief, of the sort one can obtain by filing a lawsuit and immediately appearing before a Court to ask for a TRO, was unavailable or ineffective through arbitration. The process of initiating arbitration usually involves the parties selecting and agreeing on a neutral arbitrator, or panel of arbitrators, and there was no process for one party to immediately file an arbitration claim and seek an immediate TRO.  Accordingly, it was not uncommon for a party to an arbitration contract to file a regular lawsuit in State or Federal Court, simply to obtain a TRO and preliminary injunction, and then to file a claim in arbitration.  While it may be a cumbersome multiplicity of effort, it was the only option for preventing irremediable harm from occurring while a claim was arbitrated.

Today this has changed.  Now most of the major arbitration organizations are offering procedures for seeking immediate TROs. This makes arbitration an option that should be considered by every business owner, both in employment contracts with its employees, and in its various commercial contracts with customers and suppliers, in an effort to avoid the expense and delays common in court proceedings.

Advantages to Including Emergency Relief In Arbitration Provisions

While we used the example of “trade secrets” in this brief article, emergency relief can become necessary or desirable in a wide variety of business disputes. We recommend mandatory arbitration clauses in most (not all) business and employment contracts, because the costs of actual Court litigation are so prohibitive. Additionally, Court litigation is also much more public than private arbitration. We likewise typically recommend that the arbitration clause specifically identify the arbitration organization that will be used, and that emergency injunctive relief will be authorized. This need NOT be exclusive, depending on how the contract is drafted. In other words, an injured party may have the option of seeking a court ordered TRO and preliminary injunction or seeking such injunctive relief through arbitration, whichever is determined to be most advantageous.

Business Owners Should Have Their Arbitration Provisions Reviewed

The business law attorneys at Gehres Law Group understand how arbitration clauses can and should be drafted to benefit the unique interests businesses. An ounce of prevention is worth a pound of cure. If you have not had your business and employment contracts recently reviewed by competent business attorneys, contact us to discuss your legal needs. There is no cost or obligation to do so.

By Stephen Lux, Of Counsel Litigation Attorney to Gehres Law Group, P.C.

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