Employee Arbitration Clauses

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 What Is Arbitration, and When Is Arbitration Used?

The term arbitration refers to a legal process in which parties resolve legal conflicts or disputes. Arbitration is a private resolution alternative to going to court, or proceeding with litigation. The disputing parties may voluntarily submit to arbitration, while in other cases, arbitration is mandatory. There are certain agreements, such as employment agreements, which contain clauses requiring that all disputes are to be resolved through the arbitration process. This will be further discussed below.

Generally speaking, the arbitration process is conducted by a neutral third party. They are known as an arbitrator, and they are responsible for listening to the parties’ claims in order to make a decision regarding those claims. The arbitrator’s decision will take the form of an arbitration award.

It is important to note that specific disputes cannot be arbitrated, because either state or federal law requires litigation of some matters. An example of this would be disputes over whether a crime was submitted; such disputes must be addressed through the court system. However, most common disputes between private parties can be arbitrated. Common disputes that can be arbitrated include contract disputes, as well as commercial disputes, which are disputes between businesses.

Alternatively, there are some disputes that must be submitted to arbitration; meaning, they cannot be submitted for litigation. This is because the agreement that the parties entered into may mandate the use of arbitration.

An example of this would be an employment agreement. The terms of mandatory arbitration are detailed through a provision in the agreement, which is referred to as a mandatory arbitration clause. This clause generally requires that the party seeking to resolve a dispute must first try to resolve it through arbitration.

What Is An Employee Arbitration Clause? What Are The Advantages and Disadvantages Of Employee Arbitration Clauses?

Some employment arrangements are governed by an employment contract between the employer and employee. This contract may clarify important terms regarding the employment arrangement, such as:

  • Pay rate;
  • Length of employment;
  • A specification of benefits; and
  • Information regarding vacation time.

In some cases, it is requested that the employee address all employment-related conflicts through arbitration, as opposed to a formal lawsuit. As previously mentioned, such an agreement is referred to as an arbitration clause, or arbitration agreement. Employee arbitration clauses may be included as a standard part of the employment contract.

Arbitration can be beneficial for both the employer and the employee. Disputes are solved more quickly when an arbitration clause is in place, as opposed to court trials. Additionally, arbitration is generally less expensive than going through a formal court trial. However, there are some disadvantages to employee arbitration clauses. Arbitration is determined by a single person, instead of a judge. Because arbitrators tend to be retired judges, they are generally more sympathetic towards employees. This fact is not necessarily a disadvantage, but it is something to consider.

Something else to consider is that decisions made during arbitration cannot usually be appealed. Once the third party arbitrator has issued their decision, the disputing parties are generally legally bound to this decision.

Additionally, the arbitration process limits the amount of evidence that each side may obtain from the other. This puts the employee at a larger disadvantage due to the fact that the employer already has access to all of the employee’s files and documentation.

Can An Employee Refuse to Sign an Employee Arbitration Clause?

Generally speaking, yes, an employee could refuse to sign an employee arbitration clause. However, doing so is not without risk. This is because employers are generally granted the right to rescind a job offer if the prospective employee refuses to sign an employee arbitration clause. That is why instead of outright refusing, it is recommended that the employee attempts to negotiate different terms with the employer.

It is important to review any employment contract before agreeing to sign the document. An arbitration clause may be overlooked due to the fact that it is in fine print. Or, the clause may appear at the end of the contract, or is otherwise difficult to locate. Having an attorney review the employment contract, including the arbitration clause, is suggested.

It is important to note that, even if an employee signs an arbitration agreement with their employer, it may still be possible to file a lawsuit against the employer under specific circumstances. An example of this would be in cases involving workplace discrimination. The employee would need to contact the Equal Employment Opportunity Commission (“EEOC”), or a similar agency. The agency would conduct an investigation into the employer and provide a remedy, or a right to sue letter. They may file a claim on behalf of the employee, which would then enable the employee to obtain relief for their losses.

Are Employee Arbitration Clauses Enforceable Under Law?

Although an employee arbitration clause may be preferable in some situations, an employee or prospective employee should seriously consider before signing such an agreement. By signing an employee arbitration clause, the employee is essentially signing away their right to file a lawsuit if any legal dispute arises associated with their work or employer.

Additionally, arbitration adheres to different rules than those of a court of law. An example of this would be how some types of arbitration may be decided on the basis of a religion, rather than on the basis of secular law. This is a major decision that should be carefully considered prior to signing the contract.

Generally speaking, employee arbitration clauses are enforceable according to state and federal laws. Arbitration clauses are governed by the Federal Arbitration Act, or the FAA. The Act considers arbitration clauses to be enforceable as long as they meet various requirements. These requirements will be further discussed below. However, it is important to note that the FAA does not apply to all industries. An example of this would be those involving employees who work in the transportation industry.

As long as the employee arbitration agreement does not deprive an employee of their rights, it is generally considered to be legal. The terms of an arbitration agreement may be considered unfair enough to be considered illegal. Some examples of such terms include, but may not be limited to:

  • Agreements that bind only the employee, but not the employer;
  • Agreements that grant only the employer the right to choose the arbiter;
  • Agreements that require the employee to travel a great distance to pursue arbitration; and
  • Agreements that force the employee to forfeit their rights to specific remedies, such as punitive damages or emotional distress.

What If an Employee Arbitration Clause Is Violated?

An example of the most common way in which an employment arbitration clause is violated would be when the employee attempts to file a lawsuit in court, although they have already signed an arbitration clause. The case may be thrown out by the judge.

However, it may be possible to appeal such a decision if there is a good reason to do so. An example of such a reason would be if the original arbitration clause was invalid on the grounds of fraud, coercion, or unfairness.

Do I Need a Lawyer For Help With Issues Involving Employee Arbitration Clauses?

If you are being asked to sign an employee arbitration clause, or if you are experiencing issues with a clause you have previously signed, you should consult with an experienced and local contract lawyer. An attorney can review an arbitration clause prior to you signing it, and assist with negotiations if need be.

Additionally, an attorney can determine what legal options are available to you if you have issues involving a clause you have already signed. Further, an attorney will also be able to represent you in court as needed. Because state laws regarding the employee arbitration clauses and contracts can vary to a great degree, it is recommended that you consult with an area attorney, as they can provide the most relevant legal advice.

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