Employment Contracts: Arbitration Clauses

It is becoming more and more common for employers to require potential employees to sign employment contracts that include a "binding arbitration" clause. An arbitration clause requires the employee and employer to submit any disputes to a neutral third party called an arbitrator. Arbitration is a type of alternative dispute resolution that can be less costly than going to court and can be completed more quickly.

What Cases are Subject to Arbitration?

The Federal Arbitration Act provides federal courts the power to require parties to comply with arbitration clauses in employment agreements for all employees, except those employed in the transportation industry, such as railroad workers and seamen. Arbitration also doesn't apply where the government is a party to the case, such as with OSHA claims, workers' compensation and unemployment claims.

Why Would I Prefer to go to Arbitration rather than court?

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.

Are there any Disadvantages to going to 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 discovery, which is the amount of information you can force your employer to disclose. 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.

Should I Sign an Employment Agreement that has an Arbitration Clause?

If your employer insists that you agree to an arbitration clause in your employment agreement you may not have the option of simply refusing to sign it, without putting your job at risk. Rather than refusing to sign it, you may have the option of insisting that certain terms be included in the arbitration agreement, such as:

• The right to be represented by an attorney throughout the arbitration process
• The right to have a voice in the choosing of the arbitrator
• The types of claims that are covered
• That you are entitled to the same state and federal rights in the arbitration process as you would have in court, such as the right to collect specific kinds of damages and attorney's fees
• An obligation that your employer pays for the 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.

Questions for Your Attorney

• Are there any alternatives to signing an arbitration agreement?
• What if my employer has a relationship with the arbitrator that it chooses?
• Can I be fired or denied employment if I refuse to agree with an arbitration clause?

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