Employment Arbitration Clauses

It's becoming more and more common for employers to require potential employees to sign employment contracts that include a "binding arbitration" clause. Many employers are requiring employees to agree to forego taking any employment disputes to court. Instead, the employer and employee agree to submit any disputes to a neutral third party- called an "arbitrator" - for final resolution.

What Can't Be Arbitrated

There are certain employment agreements, such as those involving railroad workers and seamen- which aren't governed by the Federal Arbitration Act. Arbitration also doesn't apply where the government is a party to the case, such as with OSHA claims, workers' compensation and unemployment claims.

Advantages of Arbitration

Arbitration is generally cheaper, faster and less stressful than going to court. The process is less intimidating, and you'll be able to get on with the rest of your life a lot quicker.

Disadvantages of Arbitration

Arbitration limits you to a single person's decision-making, without the opportunity to submit your case to a jury through the court process. Many feel juries are more likely to be sympathetic to you as an individual employee.

Arbitration also limits the amount of information you can force your employer to disclose - called "discovery." This usually works to an employee's disadvantage, because the employer usually has a lot more information and documentation.

It's also very difficult to appeal an arbitration result. You must generally prove that the arbitrator was personally biased to the point of affecting his or her ability to rule fairly. Or you must prove that the arbitrator "manifestly disregarded the law." Some courts have interpreted this to mean that an arbitration ruling will only be overturned if the arbitrator understood and correctly stated the law, but then ignored the law in applying it to your case.

Negotiating Something You Can Live With

If you're presented with an arbitration clause, you may not have the option of simply refusing to sign it, without putting your job at risk. But rather than just sign something you don't understand or agree with, it's a good idea to insist any arbitration clause you sign have the following minimum terms:

Attorney Representation

The arbitration agreement should be clear that you have the right to have an attorney represent you throughout the arbitration process.

Equal Say In Picking An Arbitrator

Your employer is likely to know more about which arbitrators lean toward employers, so it's important to have as much say as your employer in choosing who the arbitrator will be. And there should be a written requirement that the arbitrator disclose any potential conflicts of interest that might bias him or her.

Protecting Your Substantive Civil Rights

Any arbitration clause you sign should make it clear that you have the same state and federal rights in the arbitration process as you'd have in court, such as the right to collect specific kinds of damages and attorney's fees. Courts have ruled that an arbitration clause without these provisions is likely unenforceable.

Employer Footing The Bill

Because your employer is the one insisting on arbitration instead of litigation, the employer should be the one bearing the costs of arbitration. In fact, a clause that the "loser pays" is likely to make the entire arbitration clause invalid in an employment law setting.

Alternatives to Arbitration

Just because you're bound by arbitration after signing an arbitration clause doesn't mean that your grievance can't be dealt with outside of the arbitration process. For instance, a government agency such as your state attorney general or the Equal Employment Opportunity Commission ("EEOC") is free to sue your employer if it concludes there is a pattern of deception or fraudulent practices involved.