Arbitration clauses in employment contracts protect employers from being sued by employees for wrongful firing or discrimination.

Employment Arbitration Agreements

Most employers put employment arbitration agreements in their employees' contracts and usually the employee is unaware of what they're agreeing to. Anyone who has recently signed an employment contract probably agreed to employment arbitration, meaning they won't sue the company if they think they were terminated unfairly or might have been subject to discriminatory practices. 

If you find yourself unable to sue your employer, then you likely signed a contract with an arbitration clause. Once a contract with an arbitration clause is signed, the employee has agreed not to take the employer to court for any reason.

If the employee does have any issues with the employer, they have to settle their problems through arbitration. Arbitration is very different from a lawsuit, as the case doesn't go to court or before a judge or jury. 

Many times people are just excited to be starting a new job and don't see any issue with signing their rights to a lawsuit away because they probably think the likelihood of a lawsuit is pretty low. If later on down the road issues arise with the company, an employee will probably regret signing the contract with an arbitration clause, because it could cause a legitimate case against the employer to be lost. 

As part of the arbitration process, the following will happen:

  1. A neutral party (known as an arbiter) will go over any evidence given for the case against the employer.
  2. The arbiter will make a decision on the case.
  3. The arbiter will decide if the employer owes the employee any money and how much (which is called an arbitration award).

Employers prefer arbitration to court cases because it is simpler and not as costly. 

Disadvantages of Arbitration

There are some disadvantages to arbitration, including:

  • There is no jury, but the outcome relies solely on the view of the arbitrator who is likely fair and lawful, although juries tend to sympathize more with employees. 
  •  Usually, employees going through arbitration won't have access to all of the files and potential evidence that they need to make their case because they can't request as much from the employer as they could in a court case.
  • Most arbitration decisions are final and can't be appealed, so if an employee feels that they received an unfair ruling, there isn't much they can do about it.

Advantages of Arbitration

Arbitration does have some advantages, including:

  • Arbitration is usually less expensive than a full court case, so employees are more likely to be able to afford it.
  • Sometimes an attorney is not necessary for arbitration because it isn't as formal as a court trial. 
  • Court trials tend to last at least a year, if not longer, whereas arbitration is usually completed within a few months.

Be Careful What You Sign

Most current employment contracts, and sometimes employee handbooks, will include an arbitration clause as this practice is common for companies. Because employees are asked to signed quite a few forms upon hiring, they frequently will sign arbitration agreement without knowing. They are unaware that they agreed to not take the company to court for any issues that might come up. 

Everyone should always read their contract or any paperwork before they sign it. Sometimes handbooks will come with a paper asking an employee to sign which shows agreement with everything in the book, so they should be sure to read the book first. If an employee is unsure of what's included in a contract, they are always free to ask if an arbitration clause has been included. 

Be Careful About Not Signing

If an employee is aware that their employment contract includes an arbitration clause, they'll need to decide if not signing the contract is an option for them. Job offers can be revoked if the potential employee refuses to sign a contract or any part of it, and at-will employees can be fired for refusal to sign new contracts.

Sometimes the potential employee does have some power and can ask for the arbitration clause to be removed from the contract, especially if this person is, or would be, an asset to the company.  Employers will sometimes allow an employee to sign a modified version of a contract. 

If you need help with arbitration clauses in employment contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.