If your employer gives you an arbitration agreement to sign, you should read it carefully. A typical arbitration agreement requires you to give up your right to sue your employer in court for a violation of your workplace rights.
Instead, you agree to resolve these claims through arbitration: a private, less formal procedure in which there is no jury and you have virtually no right to appeal the decision.
Although many employees automatically sign arbitration agreements without giving them much thought, that decision may come back to haunt you if your employer breaks the law.
What Is an Arbitration Agreement?
An arbitration agreement is a contract in which you and your employer agree that certain disputes will be decided in arbitration, not litigation.
When you sign a binding arbitration agreement, you are giving up your right to go to court. If you have claims against your employer that are covered by the agreement, you must take them to arbitration instead.
What Happens at Arbitration Proceedings?
An arbitration proceeding is a private dispute resolution process in which an arbitrator (or sometimes a panel of arbitrators) acts as a judge. The arbitrator is typically a lawyer or judge who has experience in employment law and who offers his or her services for a fee.
The rules in arbitration are more relaxed than in court, and there is no jury. Once both sides have presented their evidence, the arbitrator makes a decision. That decision is final, with almost no right to appeal.
Can You File a Complaint With a Government Agency If You Signed an Arbitration Agreement?
Arbitration agreements do not preclude you from filing a complaint to a government agency about discrimination. For example, even if you signed an arbitration agreement, you can file a charge with the Equal Employment Opportunity Commission alleging that your employer harassed or discriminated against you.
You cannot sue your employer, but the agency can investigate, encourage you and your employer to settle, and even sue your employer on your behalf (although these lawsuits are exceedingly rare).
Drawbacks of Arbitration Agreements for Employees
Although arbitration may sound like a reasonable alternative to going to court, most commentators agree that arbitration favors employers over employees, for several reasons:
- Limited discovery. Discovery is the process by which parties to a lawsuit exchange information and documents before the case is heard in court. In arbitration, discovery is often limited in time and in scope. While both sides are subject to the same limits, employees are at a bigger disadvantage because they don’t have access to all of the employer’s paperwork, policies, emails, and information on other employees. Limitations on discovery can make it much harder for employees to prove their claims.
- No jury. Lawyers who represent employees much prefer to have their cases heard by a jury, rather than a judge. The perceived wisdom is that juries tend to favor—and be made up of—the average employee, not occupants of the C-suite. In contrast, most arbitrators are retired judges, lawyers, or professionals in the employer’s industry. Most studies show that employees tend to win less often, and to win smaller amounts of damages, in arbitration than in court.
- Confidentiality. A lawsuit creates a public record; in contrast, arbitration is a private proceeding. This means you can’t benefit from another employee’s arbitration win. If, for example, your coworker wins an arbitration claim that she should have been paid overtime, you can’t use that arbitration award as evidence in your own overtime claim.
- No appeals. Because arbitration awards can generally be appealed only for extreme arbitrator misconduct (such as failing to disclose a conflict of interest), whatever the arbitrator decides is final.
Mandatory Arbitration and Sexual Harassment Claims
In 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act. The law prohibits enforcement of mandatory arbitration clauses for claims involving sexual harassment and sexual assault.
That means even if you sign such an agreement, you always retain the option to file a lawsuit in court rather than being forced to arbitrate your claim.
Should You Sign an Arbitration Agreement?
Unfortunately, if your employer asks you to sign an arbitration agreement, your options might be quite limited. Courts have consistently allowed employers to make signing an arbitration agreement a condition of employment or continued employment.
In other words, it is legal for your employer to rescind a job offer if you refuse to sign an arbitration agreement. And, if you are employed at will—as the vast majority of employees are—your employer may fire you for refusing to sign. So, you may be putting your job in jeopardy if you don’t sign the agreement.
Changing or Opting Out of an Arbitration Agreement
However, you might be able to negotiate some changes to the agreement, especially if your employer is really eager to keep you. Read the agreement carefully, and consider requesting changes to any of the following types of provisions:
- Discovery. Ask for the same rights to request and receive documents and information from your employer that you would have in court.
- Who chooses the arbitrator. Studies show that employers who are “repeat players” before the same arbitrator tend to do better as time goes on. This is one reason why you should make sure you get equal say in choosing who will decide your claims.
- Damages and fees. Because your employer is requiring you to arbitrate, it should pay the costs of the procedure. The agreement should also provide that you can be awarded the same money damages that you could get in court, including attorneys’ fees.
- Attorneys. Speaking of fees, you should make sure the agreement allows you to be represented by an attorney in the arbitration proceedings.
Talk to a Lawyer
As you can see, arbitration agreements can get complicated and negotiating with your employer might be more than you want to take on. Consider asking a lawyer to review any agreement you’re asked to sign, to help you decide what to do.
If you already have claims against your employer when you are asked to sign the agreement, you should absolutely talk to a lawyer before signing. After all, an arbitration agreement gives up your right to sue in court, and that right is much more valuable when you have an actual claim to make against your employer.