Mandatory Arbitration Clause: Everything You Need to Know
The mandatory arbitration clause in a contract states that if you have issues with the contract, there is a hearing with third party to determine a resolution.3 min read
The mandatory arbitration clause in a contract states that if you have issues with the contract, you can have a hearing with a neutral third party to determine a resolution.
Introduction to Arbitration
Arbitration is a way to resolve disputes involving two parties that present their respective sides of a complaint. An arbitrator or a panel of arbitrators listens to the complaint, determines the rules, and resolves the dispute. This process can be used as an alternative to binding and lengthy lawsuits.
Employers often prefer arbitration because it's less expensive than having to go to court. Many employers include arbitration clauses in their employment agreements or in separate arbitration agreements.
Benefits of Arbitration
In addition to saving time and money, other benefits of arbitration include:
- More control. Both parties have more control over the arbitrator and can find someone trained in the disputed area. For instance, you can find someone who focuses specifically on employment agreements.
- Minimal preliminary legal work. The lack of depositions and discovery can save you money.
- No need for an attorney. If you opt for arbitration, you might not need to use an attorney, which can save both parties money.
Drawbacks of Arbitration
There are also disadvantages to arbitration, which include:
- Lack of formality. An arbitration does not involve formal evidence or discovery of facts. Testimony is not taken either.
- No appeal. You cannot appeal the arbitration decision like you can in lawsuits. The decision is binding for both parties. You usually can't appeal the decision from an arbitration, as you can with lawsuits.
Voluntary Arbitration and Mandatory Arbitration Clause
Voluntary arbitration occurs when both parties in a dispute voluntarily agree to take their disagreement to arbitration. The parties have a chance to investigate their best choice for resolving the issue.
The mandatory arbitration clause found in a contract prevents the issue from heading to court. Recently, many online companies have included mandatory arbitration clauses in user contracts. These clauses are also found in terms of agreement and contracts such as those for insurance, car loans, employment, and credit cards.
While the employee or consumer can decide whether to sign the arbitration agreement, signing the agreement is often required to get the job or consumer product being sold.
Mandatory Agreement in Employment Contracts
The mandatory arbitration clause found in employment contracts can be an issue for workers affected by it. Mandatory employment arbitration is hotly debated due to an increasing amount of evidence showing that employees suffer from due process problems while the employers benefit.
Typically, employees must sign an arbitration agreement at the time of hiring. Sometimes businesses include arbitration procedures in their employment policies. Most companies that have these agreements have large workforces.
The contract cannot prevent employees from submitting claims to prosecutorial agencies, such as the U.S. Equal Employment Opportunity Commission. However, they can't submit claims to administrative ones such as the state's Labor Commissioner.
If employees believe their state or federal rights have been violated, they must handle the claim through the arbitration procedure listed in the agreement.
Differences Between Mandatory Employment Arbitration and Labor Arbitration
Although they both resolve disputes between management and unions, mandatory employment and labor arbitration do differ. Mandatory employment arbitration is required by employees, while labor arbitration involves unions and management. In addition, labor arbitration involves a contract enforced by a private negotiation between an employer and a union. Mandatory employment arbitration deals with employment laws created in statutes.
What Can One Do in Case of Dispute?
You can sometimes opt out of arbitration agreements. The company can then refuse you service, however. If necessary, try to negotiate this term of the contract. Ultimately, you must read and understand the mandatory arbitration agreement found in your employment agreement. It's up to you to read through the entire contract and check for a mandatory arbitration clause.
Conversely, if you're trying to get out of a clause once you've signed the contract, you might need an attorney to determine your next course of action. While certain state consumer protection laws can help, the U.S. Supreme Court adopted a policy that favors arbitration that can overrule these laws. It's up to you to read the contract.
If you need help with a mandatory arbitration clause, 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.