Should I Sign an Arbitration Agreement at Work?

Your new employer just handed you an arbitration agreement to sign. They say it’s all part of the onboarding process, but an alarm bell rings in your head. Should you sign it? It depends on your situation and bargaining power, but you should understand what you’re agreeing to before you sign.

An employment arbitration agreement means you give up your right to sue your employer in court and must instead resolve disputes through private arbitration. This is a legal process in which a neutral third party (rather than a judge) makes binding decisions.

This article explains what arbitration agreements mean for your rights, the pros and cons of signing, and how to negotiate better terms if you must sign. Over half of private-sector workers are now subject to these agreements, so it’s important to know your options.

If you’re concerned about entering into an arbitration agreement or other contract with your employer, consider speaking with a local employment attorney before you sign. They can explain how an arbitration agreement might impact your situation and walk you through your options.

What Is an Employment Arbitration Agreement?

Arbitration is a method of alternative dispute resolution. Under such an agreement, workers can’t pursue legal claims against their employer in court. Instead, they must allow an arbitrator to handle their grievances. The arbitrator‘s decision is generally binding and final.

Most arbitration provisions also include a class-action waiver. A class-action waiver is a legal provision that prevents you from participating in a group lawsuit against your employer.

Employers increasingly require workers to sign arbitration agreements as a condition of employment. These agreements often appear buried in employment contracts or employee handbooks. More than half of all private-sector non-union employees are now subject to arbitration agreements, up from just 2% in 1992.

Can I Sue My Employer if I Sign an Arbitration Agreement?

In general, 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.

Some types of claims are exempt from mandatory arbitration agreements. For example, your employer can’t force you to sign an arbitration clause that covers claims involving workplace sexual misconduct under the 2022 Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. This federal law provides that if you’re alleging sexual harassment or sexual assault, you may pursue your claim in court rather than arbitration, regardless of whether you previously agreed to arbitrate.

Arbitration agreements only apply between you and your employer. You may still file complaints with government agencies. 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 bind state or federal agencies.

What Rights Do You Lose in Arbitration?

Some of the downsides of arbitration include:

• No jury trial: Unlike a trial, where you may be able to have your legal claim heard by a jury of your peers, your dispute will be handled by a neutral third party called the arbitrator. The arbitrator is required to be fair and follow the law. Employees may prefer to have a jury hear their case, since juries are often more sympathetic towards employees in workplace disputes.
• Limited discovery: Parties in arbitration generally get to request fewer documents and less evidence from the other side than in a trial. In most situations, this puts the employee at a disadvantage because the employer has access to more evidence and documents.
• No appeals: In general, you can’t appeal arbitration decisions. This finality is unlike that of court decisions, which are routinely appealed to higher courts. Employees who disagree with the arbitration result can’t get a higher authority to review the dispute.
• No class actions: Most arbitration agreements include class-action waivers, meaning you can’t join with other employees to bring a group lawsuit. This applies even if many workers experienced the same problem.

There’s no guarantee of winning a jury trial, but you won’t have the option to try if you’ve signed an arbitration agreement.

Are There Any Benefits to Arbitration?

Despite the disadvantages of arbitration, there are some potential upsides to the process:

• Lower costs: Arbitration is much less formal than a court trial. This can save you money in attorney’s fees and in preparing and filing documents.
• Faster resolution: Arbitration proceeds and finishes much more quickly and efficiently than court trials. Getting a court date can take months, and some court trials may last weeks or months.
• Less formal process: Because of the informality, you may not need to hire an employment attorney for the arbitration. It’s a good idea to do so to ensure you understand your options.
• Privacy: While court trials are public record, arbitration proceedings are private. This may benefit you if you want to keep your employment dispute confidential.

Due to the details, each arbitration case is different.

Should I Sign? Factors To Consider

Hopefully, your employer won’t require an arbitration agreement. If they do, consider the following factors before signing:

Your Bargaining Power

If a certain employer has been courting you for months or you have specialized skills that are in demand, they might be willing to remove the arbitration agreement or modify it to get you on board. If you’re in a competitive job market with many qualified candidates, you may have less leverage.

The Job Offer

Is this your dream job or just one option? If it’s the latter, you might choose to walk away rather than sign away your rights. Keep in mind that arbitration agreements are becoming increasingly common. You may encounter them at other employers.

Your Risk Tolerance

Consider whether you’re the type of person who might need to sue an employer. While no one anticipates workplace disputes, some industries or positions carry a higher risk of conflicts over commissions, discrimination, or wrongful termination.

The Reality of Refusing

Your employer might withdraw the job offer if you don’t sign the arbitration agreement. If you’re an at-will employee, refusing to sign could mean getting fired if they present it after you’ve already started working.

Red Flags To Look for in Arbitration Agreements

When presented with an employment contract or a standalone arbitration agreement, be sure to read everything carefully. Arbitration agreements are often buried in standard employment forms and documents. 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 it

Ask your new employer directly if any documents you are signing contain an employment arbitration agreement. If you’re reviewing an arbitration agreement, watch out for these problematic provisions:

• One-sided arbitrator selection: The employer gets to choose the arbitrator or arbitration service without your input
• Unlimited costs: You’re required to pay half or all of the arbitration costs, which can be thousands of dollars
• Shortened deadlines: You have less time to file claims than you would in court
• Limited remedies: The agreement caps damages or prevents you from seeking certain types of relief
• Overly broad scope: The agreement covers disputes that have nothing to do with employment

If you see these red flags, the agreement may be unenforceable under state law or worth negotiating.

How To Negotiate a Fairer Arbitration Agreement

Even though your employer may not be willing to eliminate the arbitration clause altogether, you may be able to negotiate to make it fairer. 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.

Here are some points you may want to try to negotiate:

• The arbitrator selection process: Ensure you have as much control as your employer in determining which arbitrator to use. Be sure you and your employer get to reject 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.
• Disclosure of information by the arbitrator: 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.
• Costs: Because your employer wants the arbitration, ensure that your employer pays the costs. At a minimum, the agreement should limit your costs to what you would have paid in court filing fees.
• Do not give up any of your remedies: Because your employer wants all disputes settled in arbitration, ensure you are not limited to only normal arbitration awards. Make sure you can still seek damages for emotional distress and punitive damages.
• 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. Ensure that you can still have an attorney represent you in arbitration and that the employer will pay your attorney’s fees if you win.

When in doubt, consider consulting with an employment attorney.

What if I Already Signed? Can I Challenge It?

If you already signed an arbitration agreement and now face a dispute, you may still have options. Courts have refused to enforce arbitration agreements that are:

• Unconscionable: So one-sided that no reasonable person would agree to them
• Against public policy: Preventing you from exercising statutory rights
• Fraudulently obtained: You were misled about what you were signing
• Procedurally defective: Not properly presented or explained

As mentioned previously, the 2022 federal law allows you to pursue sexual harassment and sexual assault claims in court regardless of any arbitration agreement you signed.

State Laws on Arbitration Agreements

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

Several state legislatures have attempted to place limits on workplace arbitration agreements. New York, for instance, voided agreements to arbitrate sexual harassment claims in 2018, then expanded the statute to apply to all discrimination claims in 2019. In the same year, California passed a law that banned employers from mandating arbitration agreements as a condition of employment for most employment law claims.

There are still legal questions surrounding the statutes themselves. Many courts have held that the federal FAA preempts state arbitration laws. The legal landscape continues to evolve, so check whether your state has specific protections.

Get Legal Help Before Signing

Arbitration may not be in your best interests, especially if the agreement is one-sided or you have significant bargaining power. An experienced employment lawyer can review your specific agreement, tell you about the law in your state, explain how it applies to your situation, and help you negotiate better terms.

Don’t wait until after you sign to get help. Once you’ve agreed to arbitration, your options become much more limited.