What is an Employee Arbitration Agreement?

When an employee starts a new job, his employer may ask him to sign multiple documents.  These documents can include an employee contract, a receipt of an employee handbook or even an acknowledgement of corporate policies.  Sometimes, an employer will include an employee arbitration agreement within those documents.  The employee arbitration agreement can be a stand-alone document or it can be buried within a document, such as the employee handbook.  Regardless of how the agreement is presented, if an employee signs that document, he is most likely agreeing to arbitrate most legal disputes.   

What is an employee arbitration agreement? 

Typically, an employee arbitration agreement is an agreement between the employer and the employee to bring any legal claims that may arise between the two parties to arbitration, rather than to court.  An employee arbitration is a legal proceeding; it is conducted by an arbitrator, a private citizen (i.e. not elected or appointed) who is often times a lawyer herself. 

A claim in arbitration proceeds much in the same way as if the claim were in the court system.  The parties can conduct discovery, take depositions and file motions.  The arbitrator decides any disputes between the parties, just as a judge would.  Should the case proceed to trial, that trial takes place in front of the arbitrator, in a neutral location.  The arbitrator’s decision after the trial is final and binding. 

Is employmee arbitration preferable to filing a court case? 

Currently, courts are strongly in favor of parties arbitrating their claims rather than pursuing them through the judicial system.  This is because arbitrations conserve judicial resources, are conducted more quickly and can be less costly to both parties.  The Federal Arbitration Act (9 U.S.C. Sec. 1, et seq.) requires that courts send parties to arbitration if a valid arbitration agreement exists; in other words, a judge cannot choose to keep the case in his courtroom.

Employers also tend to favor arbitrations as the arbitrations are usually a quicker, less costly way to resolve disputes.  The employers may also like to avoid emotional juries/peer-driven juries/the uncertainty of jury awards.  (first two maybe a bit controversially stated?) 

Employees, however, may resent being forced to skip their proverbial ‘day in court.’  They are deprived of their chance to tell their story to a jury, a jury which may be more generous with an employer’s coffers than a professional arbitrator might be.  (Again, controversial?).  More often than not, it is juries (comprised of an employee’s (perhaps more sympathetic) peers) that award large monetary verdicts.  (controversial?)

Are employee arbitration agreements enforceable? 

Because they may want their day in court, many employees try to avoid arbitration.  If they have signed an employee arbitration agreement, can their employer force them to arbitrate?  While the current caselaw does favor compelling employees to arbitrate, a court may strike an agreement if it does not comply with certain legal standards.  For instance, the arbitration agreement must cover the claims at issue (e.g. state that an employee agrees to arbitrate any wrongful termination claim).  Additionally, an agreement must be both procedurally and substantively conscionable (essentially, the bargaining position of both parties must be somewhat equal and the actual terms of the agreement must be reasonable).  If an arbitration agreement does not cover the employee’s claims, and/or if the agreement is substantially unfair, a judge could disregard the arbitration agreement and instead allow the employee to litigate his claims through the court. 

Do you have questions about employee arbitration agreements?  Contact us:  we can help.  Call or email any time.