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Arbitration Agreements in Employment Contracts

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What Is an Arbitration Agreement?

An arbitration agreement is an agreement signed by an employee promising to settle disputes outside of court through arbitration.  Arbitration is a process in which two parties bring their dispute to a neutral third party who listens to their problems and arguments and then issues a decision.  Depending on the arbitration agreement, that decision may be final. 

What Are the Advantages of Arbitration?

Arbitration can be beneficial to both you and your employer. Some of the advantages of arbitration include:

  • Quick Resolution: Arbitration disputes are settled much quicker than court trials.
  • Less expensive: Arbitration is generally cheaper than going through an entire trial.

What Are the Disadvantages of Arbitration?

Although arbitration may be more convenient than a court trial, it also has several serious disadvantages including:

  • Arbitration is decided by a single person, often by a retired judge, instead of a jury.  Juries are generally more sympathetic towards employees.
  • Arbitration sometimes cannot be appealed.  Once the third party judge issues his decision, you may be bound by it.
  • Arbitration limits the amount of evidence each side can get from the other.  This puts the employee at a marked disadvantage since the employer already has access to all the employee files and documents.

Can I Refuse to Sign an Arbitration Agreement?

You can refuse to sign an arbitration agreement, but it is risky.  Employers generally have the right to take back job offers if you refuse to sign an arbitration agreement.  A better option to refusing outright might be negotiating with your employer for different terms. 

Also, you’ll want to review any employment contract before you sign it.  It can often happen that an arbitration clause might be looked over because it’s in the fine print, appears near the end of the document, or is just difficult to locate.  You may wish to have an attorney review your employment contract before signing it.   

Lastly, even if you sign an arbitration agreement with your employer, it may still be possible to file a lawsuit if you have a dispute.  This can be done by filing a claim with a government agency like the EEOC.  The agency can file a claim on your behalf, which would enable you to obtain relief for your losses.

Are All Arbitration Clauses Legal?

As long as the arbitration agreement does not deprive you of your rights, it is usually considered legal.  However, sometimes the terms of an arbitration agreement may be unfair enough to be illegal.  Some examples of such terms include:

  • Agreements that bind only the employee and not the employer.  These agreements make it so that your employer can sue you, but you can't sue your employer.
  • Agreements that give only the employer the right to choose the arbiter.
  • Agreements that require you to travel a great distance to pursue arbitration.  For example, it is probably not legal to force you to arbitrate at company headquarters in Switzerland.
  • Agreements that force you to forfeit your rights to certain remedies like punitive damages or emotional distress.

Should I Get a Lawyer if I Have a Problem with an Arbitration Agreement?

If you have a problem with an arbitration agreement, a labor lawyer will be able to let you know if it is enforceable or not.  A labor lawyer can also help you in the arbitration process and make sure your rights are protected.

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 03-30-2012 01:33 PM PDT

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