Employment Arbitration Agreement

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 What is an Employment Arbitration Agreement?

An employment arbitration agreement is an agreement which is signed by an employee that promises to settle any disputes outside of court using arbitration. Arbitration is a subcategory of alternative dispute resolution (ADR), which allows individuals to settle legal disputes outside of a courtroom.

In an arbitration, a neutral third party, called an arbitrator, hears the two sides to a dispute and issues a decision. Depending on the type of arbitration agreement, the decision may be final.

In some employment arrangements, the employer-employee relationship is governed by an employment contract, which provides important terms regarding employment. In some cases, this contract includes an arbitration provision which requires employment-related conflicts to be resolved using employee arbitration instead of a lawsuit.

This type of agreement is called an arbitration clause or an arbitration agreement and is often included as a standard part of an employment contract. An employee may refuse to sign an arbitration agreement, but it does come with risks.

An employer generally has the right to rescind a job offer if a potential employee refuses to sign the mandatory arbitration agreement in the employment contract. An alternative option may be for the potential employee to negotiate with their employer for different terms rather than outright refusing to sign the agreement.

It is important for a potential employee to review any employment contract prior to signing. In many cases, an arbitration clause may be overlooked because it is fine print, appears at the end of a document, or is simply difficult to locate. It is also helpful to have an attorney review the contract prior to signing.

There are two different types of arbitration, a binding arbitration and a non-binding arbitration. In a non-binding arbitration, the results do not carry any legal precedents. In addition, the parties are not required by law to follow them. The results are only guidelines which assist the parties in avoiding conflict regarding future conduct.

In a binding arbitration, in contrast, the results are final. The parties are bound by the decision made by the arbitrator and the results are enforceable by law. A binding arbitration is often difficult to challenge.

A binding arbitration is often used to resolve contract disputes, such as business transaction contracts or employment contracts. Many contracts for services also include arbitration clauses.

What is Included in an Employment Arbitration Agreement?  

In general, a contract arbitration clause contains language that provides that the parties to the contract agree to resolve any legal disputes through arbitration rather than a civil lawsuit. The clause may vary and be tailored to the parties’ needs.

An arbitration clause is typically enforceable under state and federal laws. These clauses are governed by the Federal Arbitration Act (FAA).

The Act views arbitration clauses as enforceable so long as they meet certain requirements, including being in writing and equal or fair for both parties. The FAA, however, does not apply to all industries, including those that involve employees working in the transportation industry.

What is an Arbitrator? 

An arbitrator is a neutral third party who oversees an arbitration. If the parties voluntarily agree to an arbitration, they will typically select an arbitrator from an arbitration organization.

The American Arbitration Association is one available association. The arbitration organization will provide rules regarding how matters are to be arbitrated as well as provide the credentials of the arbitrators and their fees.

In situations that require mandatory arbitration, the arbitration clause typically specifies the arbitration organization which is to be used. The clause will also describe the procedure which will be used to initiate arbitration proceedings.

The procedure typically consists of a party who wishes to arbitrate serving a notice to arbitrate upon the other party, who then responds. Once this occurs, the arbitrator is selected and the arbitration hearing is held.

In general, any individual can act as an arbitrator. An arbitrator is not required to be a lawyer.

Many former judges, however, do act as arbitrators because the only general requirement is that both parties agree to who will serve as the arbitrator. In many fields, the arbitrators who are chosen are also experts in the field of law or business involved. For example, reinsurance arbitration clauses typically require that an arbitrator be selected from among current or former officers of insurance companies. 

Typically, one arbitrator is sufficient to hear a case. Sometimes, however, an arbitration agreement will provide for three or more arbitrators. It is, however, important to note that the number of neutral, third-party arbitrators must be an odd number so that the decision can be made by a majority.

What do California Employment Arbitration Agreement Laws Cover? 

In California, the California Arbitration Act (CAA) regulates private arbitration. In 2019, the Governor of California signed Assembly Bill 51 (AB 51) into law which prohibits an employer from requiring a job applicant and/or an employee to sign a mandatory arbitration agreement to resolve claims that arise under the California Fair Employment and Housing Act (FEHA) or the California labor code. 

AB 51 was originally scheduled to take effect on January 1, 2020. However, lawsuits have been filed and as of March 2010, the new law has not taken effect.

It is important to note that a binding arbitration clause may only be challenged in California in very limited circumstances. If a court hears an appeal of a binding arbitration award, a court will determine whether an arbitration award should be enforced or vacated. 

The review of an arbitration award is based upon the FAA guidelines and public policy. It is important to note that it is rare for an arbitration award to be vacated. Circumstances in which an appeal may be permitted include:

  • The arbitrator exceeded their powers as they were outlined in the arbitration clause;
  • The arbitrator engaged in prejudicial misconduct;
  • The contract that contained the arbitration clause is void, rendering the arbitration clause itself unenforceable;
  • The prevailing party used corruption or fraud to obtain a decision in their favor; and
  • The arbitrator made an inaccurate calculation when determining the financial award for the prevailing party.

What Remedies are Available Through Arbitration? 

Once an arbitration hearing is concluded, an arbitrator will consider the evidence that was presented and submitted by each party. Following an evaluation of the evidence, the arbitrator will issue a decision which is called an arbitration award. In an arbitration award, the arbitrator will outline what each party is entitled to receive. 

It is common for an arbitrator to find in favor of one party and issue an award which only provides that party with relief. In some circumstances, however, an arbitrator may find that the claims of both parties have merit. In these cases, an arbitrator may render an award which grants each party a measure of relief.

An arbitration award typically consists of money which one party is required to pay to the other party. It may also include a non-financial award, which may include ceasing a specific business practice or the addition of employee incentives. 

An arbitration award is not the same as a jury award. A jury award is granted following the conclusion of a civil trial, where an arbitration award is granted by an arbitrator outside of a courtroom.

As previously noted, a non-binding arbitration agreement only provides the parties with guidelines and are not legally enforceable. Therefore, a violation of this type of arbitration will not result in legal penalties.

A binding arbitration, however, is legally enforceable. A violation of these agreements may lead to legal penalties, such as:

If a violation is severe, it may lead to a lawsuit in court.

Do I Need to Hire a California Employment Lawyer? 

Yes, it is essential to have the assistance of a California employment lawyer for any employment arbitration clause issues you may be facing. If you are a prospective employee or an employee, it is important to have a lawyer review your contract prior to signing it. 

If you have already signed the arbitration agreement, your attorney can determine whether the clause is enforceable. Your attorney can also represent you during the arbitration process and ensure your rights are protected.

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