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Employment Arbitration Agreements

Arbitration is a method of alternative dispute resolution. Under such an agreement, workers can't pursue their claims in court but must allow an arbitrator to handle their grievances. The arbitrator's decision is generally binding.

Mandatory arbitration agreements in employment contracts are becoming commonplace. Employers increasingly require workers to sign arbitration agreements as a condition of employment. In 2017, 56% of all private-sector non-union employees were subject to arbitration by their employers, up from 2% in 1992.

But many employees are unsure about what they are signing. This article evaluates arbitration agreements, including whether you should sign a contract with an arbitration clause and what to do if you must sue your employer.

Can I Sue My Employer If I Signed an Arbitration Agreement?

No. You can't take your employer to court if you signed an arbitration agreement.

If your employment contract includes an employment arbitration clause, you agreed not to pursue legal action against your employer in court. Instead, you must settle any employment-related disputes with your employer through arbitration.

Also, most arbitration provisions include a class-action waiver. A class-action waiver is a legal provision that prevents people from participating in a group lawsuit against a company.

But some types of claims are exempt from mandatory arbitration agreements. Your employer can't force you to sign an arbitration clause that covers claims involving workplace sexual misconduct. The "Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act" became law in 2022. The federal law provides that if you're alleging sexual harassment or sexual assault, you may pursue your claim in court rather than arbitration, even if you agreed to arbitrate your claims.

Downsides of Arbitration

Some of the downsides of arbitration include the following:

  • Unlike a trial, where you may be able to have your legal claim heard by a jury of your peers, your dispute will get handled by a neutral third party called the arbitrator. The arbitrator's decision is generally fair and will follow the law. But sometimes, employees prefer to have a jury hear their cases because juries are often more sympathetic to employees.
  • Parties going through arbitration generally get to request less evidence and documents from the other side than if the dispute had gone through a trial. In most situations, this will hurt the employee because the employer can access more evidence and documents.
  • You can't appeal arbitration decisions, in general. This finality is unlike court decisions that routinely get appealed to higher courts. Employees who do not like the arbitration result can't get a higher authority to review the dispute.

Upsides of Arbitration

Despite the disadvantages of arbitration, there are some upsides to the process. These include:

  • Arbitration is much less formal than a court trial, which could save you money in attorney's fees and preparing and filing documents.
  • Because of the informality, you may not need to hire an employment attorney for the arbitration, although often, it's a good idea to do so.
  • Arbitration proceeds and finishes much more quickly and efficiently than court trials. Getting a court date will take months, and some court trials may last weeks or months.

Be Careful What You Sign

As mentioned, it's common for employers to include arbitration agreements in standard employment forms and documents. As an employee, you may not know that you have signed away your rights to sue because the agreement is usually included as a clause within an employment contract or in an employee handbook.

So, read everything before you sign it. Make sure to read through:

  • All the clauses in an employment contract
  • Your employee handbook, particularly if you must sign a paper that says you have read and understood everything contained in the employee handbook

Ask your new employer if any documents you are signing contain an employment arbitration agreement.

Be Careful About Not Signing

Next, consider whether you want to give up your rights. Remember, your employer might take back the job offer if you don't sign the arbitration agreement. Also, if you're an at-will employee, refusing to sign could mean getting fired.

But you should always think about your bargaining power. If a certain employer has been courting you for months, they might be willing to give up the arbitration agreement to get you on board.

Your last option is to sign the agreement but with certain modifications.

Fair Arbitration Agreements

Even though your employer may not be willing to get rid of the arbitration clause altogether, you may be able to negotiate to make it fairer to you. After all, you're just looking out for your interests.

If you're uneasy about a broad or restrictive arbitration clause, seeking legal advice before negotiations might be wise. Attorneys have a knack for identifying clauses within arbitration agreements that may need modification.

In general, these are some points that you may want to try to negotiate in your arbitration agreement:

  1. The arbitrator: In determining which arbitrator to use in the arbitration process, ensure you have as much control as your employer will. To this end, be sure you and your employer get to throw out at least one arbitrator without providing any reasons. Remember that the arbitrator's decision will most likely be final, so you need to have a say in who makes this decision.
  2. Disclosure of information by the arbitrator: Be sure to include a provision in the agreement that allows you or your employer to request that the arbitrator disclose all information that could relate to some interest they may have in the dispute. For example, if the arbitrator is a shareholder of your employer's business, they may be biased in favor of your employer. You and your employer should have the right to reject an arbitrator with a conflict of interest.
  3. Costs: Because your employer wants the arbitration, be sure that your employer is the one that will pay the costs.
  4. Do not give up any of your remedies: Again, because your employer wants all disputes settled in arbitration, be sure you are not limited to awards and remedies that are normal to arbitration. Ensure you can still seek damages for emotional distress and punitive damages.
  5. Do not give up your right to an attorney: If this were a court case, you would have been able to hire an attorney to represent you. Be sure that you can still have an attorney represent you in arbitration.

Agency Remedies

The arbitration agreement only applies to you and your employer. You may still be able to sue your employer for certain reasons. For example, if you believe your employer has discriminated against you, you can file a complaint with the Equal Employment Opportunity Commission (EEOC). The EEOC can take your case to court because the arbitration agreement you made with your employer does not apply to state or federal agencies.

State Law

Arbitration agreements are valid under federal law. The Federal Arbitration Act (FAA) makes arbitration valid and enforceable.

State laws may also cover arbitration. According to Reuters, several state legislatures have placed limits on workplace arbitration agreements before the 2022 federal law banning mandatory arbitration in certain circumstances.

New York, for instance, voided agreements to arbitrate sexual harassment claims in 2018. The next year, the state expanded the statute to apply to all discrimination claims.

In 2019, California passed a law that banned employers from mandating arbitration agreements as a condition of employment for most employment law claims.

Reuters reports that "the enforceability of such statutes themselves remains in legal limbo." Many courts have held that the federal FAA preempts these state arbitration laws.

Next Steps: Get a Lawyer to Help

Arbitration may not be in your best interests. An experienced employment lawyer can answer your questions, tell you about the law in your state, and explain how it applies to your situation.

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