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Can I Sue if I Signed an Arbitration Agreement?

In some instances, you may be able to sue if you signed a valid arbitration agreement. While courts generally favor arbitration agreements, they will allow you to file a lawsuit if either you didn't understand your rights or your claims fall outside the arbitration provision's scope. Establishing this, however, can be a challenge.

Arbitration agreements can be found in many arenas in which you form a contract. One of the most common circumstances people encounter arbitration agreements is in the employment law context.

This article discusses arbitration, including how it works. It addresses the pros and cons of arbitration. The article also discusses arbitration provisions in employment contracts, the enforceability of arbitration provisions, and the validity of contracts. While employment agreements are offered as an example, most of the general principles discussed apply to any arbitration agreement.

What Is Arbitration?

Arbitration is a way to resolve a legal issue or legal claim without going to court. Generally, arbitration is an alternative dispute resolution (ADR) procedure in which the parties agree to submit their dispute to an impartial third party (the arbitrator) who makes a binding decision. An agreement to arbitrate a claim is called an arbitration agreement.

Arbitrations have several characteristics:

  • They are consensual (the parties must agree to arbitration)
  • They are generally confidential
  • The parties select the arbitrator (often a retired judge) or arbitrators
  • The decision of the arbitrator is legally binding on the parties
  • The arbitrator's decision is relatively easy to enforce in the courts

Unless the parties make it expressly clear in their employment contract that state arbitration law governs, the Federal Arbitration Act (FAA) will apply to their arbitration. The FAA establishes broad parameters. Most of those parameters can be modified by the parties' agreement, including how an arbitration begins, proceeds, and resolves.

How Does an Arbitration Work?

Many arbitration agreements will set out specific rules governing the arbitration. Sometimes, rather than include rules in their contract, the parties will agree to follow an organization's rules, such as those of the American Arbitration Association (AAA).

The parties' agreed-upon rules will set out how to start an arbitration. Generally, the arbitration process begins when one party submits a demand for arbitration. The party submitting the claim is typically called the claimant. The party opposing the claim is called the respondent. The claimant's demand may include a description of the nature of the dispute. Then, the respondent may submit a response to the claim.

Following that, the parties select an arbitrator. They might propose their own arbitrator or, if they agreed to follow the AAA's rules, they might select one from the AAA's roster. Once the parties agree on an arbitrator, they prepare for the arbitration. They will gather evidence and exchange documents, all in a manner agreed to by the parties or contained in applicable arbitration rules. The parties typically then submit written arguments to the arbitrator before the arbitration.

At the arbitration, the parties will present their respective cases. In many ways, the procedure is like a court hearing before a judge. The claimant presents evidence and calls any witness they might have. Then the respondent presents evidence and offers the testimony of their witnesses. Once the parties have finished, the arbitrator will consider the matter and issue a written decision. If the claimant wins and needs to enforce the arbitrator's award, they can petition an appropriate court.

Arbitration Pros and Cons

Many lawyers are fans of arbitration as a way to resolve disputes. Here are some of the reasons why:

  • Speed: Arbitrations are generally concluded in less time than it takes to resolve a court case.
  • Expense: Arbitrations are often (but not always) less expensive than court cases.
  • Choosing an arbitrator: The parties have some say in who will decide the dispute instead of being assigned a judge to the case. This can be particularly helpful in cases involving science and technology.
  • Informality: Arbitrations tend to be less formal and more flexible than court cases.

Other lawyers believe the downsides of arbitration don't outweigh the upsides. Some of these include:

  • No jury trial: If you agree to arbitration, you lose the right to have a jury of your peers decide the facts of your case.
  • No right to an appeal: Unless the parties agree otherwise, you generally don't have the right to appeal an arbitrator's decision if it goes against you.
  • Individual claims: Most modern arbitration clauses require you to give up the ability to group your claims with similar claims of others and have them resolved in a single proceeding in a “class action" as you could in court. The U.S. Supreme Court has upheld class action waivers.
  • Expense: Sometimes arbitration is just as expensive as court cases.
  • Terms: The party who wrote the arbitration provision largely controls the terms and conditions of the arbitration.

Whether arbitration is a good idea in your situation depends on, among other things, the relationship that you have with the opposing party. One relationship in which arbitration clauses are becoming increasingly common is the employer-employee relationship.

Arbitration Provisions in Employment Agreements

According to the Economic Policy Institute, more than 60 million American workers are bound by mandatory arbitration provisions as a condition of employment. There are many reasons why employers like arbitration provisions so much.

First, requiring an employee to arbitrate a claim on an individual basis reduces the amount an employer can be required to pay. Lawyers call this “liability exposure." Arbitration provisions that prevent you from grouping claims into one proceeding substantially reduce an employer's liability exposure.

Second, the employer, who drafts the arbitration provision, decides the arbitration terms. Most employees lack the negotiating power to persuade an employer to modify or even drop an arbitration provision. So, the dispute with the employee is resolved through arbitration according to the terms the employer drafted.

Third, arbitrators are supposed to be neutral, but this is only sometimes apparent. Large companies that face similar lawsuits from their employees may use the same arbitrators repeatedly. They develop relationships with the arbitrators through employment arbitration and are inclined to choose arbitrators that they believe, based on their experience, will decide the dispute in their favor.

Enforceability of an Arbitration Provision

If a party needs to enforce an arbitration provision, they file a petition with an appropriate court. However, the issue often arises within the context of an actual lawsuit. An employee sues, and the employer files a motion to compel arbitration in accordance with the terms of the arbitration provision.

Public policy favors arbitration because, among other things, it resolves disputes without the need for court resources. Generally, courts will enforce an arbitration provision so long as:

  • The party entered into a valid contract with the understanding that they were giving up the right to a jury trial
  • The dispute falls within the scope of the arbitration provision

Valid Contract

When considering whether to enforce an arbitration provision, courts first look to see if the agreement containing the provision is otherwise a valid contract. A contract is valid if it consists of:

  • An offer
  • Acceptance of that offer
  • A bargained-for exchange of something of value

If the contract is valid, the court will look to the arbitration provision. As long as the parties understood that they were giving up their right to resolve their dispute in court, including having a jury decide the facts of their case, a court will most likely uphold the arbitration provision.

That's why arbitration provisions are often so long. The employer will specifically identify all of the rights that you are giving up, (especially the right to a jury trial and the right to appeal), state that you had the chance to consult with a lawyer, and acknowledge that you knowingly and willingly give up these rights and agree to arbitrate any disputes.

This is also why your employer may require you to sign or initial the arbitration provision separately. In fact, some states require a separate signature or initial under state law. A court may not enforce an arbitration provision tucked into an employee handbook.

Scope of the Arbitration Provision

If a court finds an arbitration provision valid, it will next look at the nature of the dispute. If the arbitration provision covers the dispute, the court will order the parties to arbitrate their claims. If not, your lawsuit will proceed in court.

This is why mandatory arbitration clauses in employment agreements are so broad. They may say, “Any and all disputes of any kind, whether in law or equity, between the parties shall be resolved by binding arbitration according to the rules of the AAA." A clause that broad covers virtually all employer-employee disputes, including those over:

  • Wages
  • Benefits
  • Family and medical leave
  • Wrongful termination

That's where a creative employment lawyer can be helpful. They can read the fine print, analyze your employment contract, and give you advice about whether your dispute may be outside the scope of an arbitration provision.

Exception: Sexual Assault and Sexual Harassment

No matter how broad an arbitration clause may be, your employer can't force you to arbitrate a dispute involving allegations of sexual assault or sexual harassment, unless the parties agree to arbitration after the allegations giving rise to the claim of sexual assault or sexual harassment occurred. This is due to a federal law President Biden signed in 2022. You can choose to arbitrate your claim, but you can't be forced to do so.

An Employment Attorney Can Help

Forced arbitration may not be in your best interest. Still, if you want a new job, you may have to agree to arbitration as part of an employment contract. However, that doesn't mean every dispute you have with your employer must be decided by an arbitrator.

If you have an arbitration provision in an employment contract and want to know if it prevents you from suing your employer in court, consult an experienced employment attorney. They can give you legal advice within an attorney-client relationship about whether your arbitration clause is enforceable and, if so, whether your claim may be outside the scope of the agreement.

If the issue is outside the terms of the agreement, they can represent you in the court system when you bring your legal action. If it isn't, they can help you with the arbitration proceeding.

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