You may have heard forced arbitration mentioned in the news in
recent months and years. That’s not surprising since these agreements have
become more common in many workplaces—affecting more than 60 million workers in
the U.S., by the Economic Policy Institute’s estimate—and stirring up intense criticism from some
employees and advocates.
It’s
also likely that you’ve encountered a forced arbitration clause in your own new
hire paperwork—maybe you saw the words “mandatory arbitration,” something about
potential disputes, and complicated-sounding stipulations—and weren’t sure what
it all meant.
Read
on to learn what forced arbitration agreements are, how you may encounter them,
and how to navigate them.
Before you keep reading, an important note: While I am a lawyer
and interviewed other lawyers for this story, every case is different. So
please consider this a general resource to help you get started and, if you
need it, seek personalized advice specific to your situation from an actual
lawyer!
What Is Forced Arbitration?
Arbitration
is a way to settle disputes within the legal system that can be used as an
alternative to traditional litigation. When most people think of resolving a
legal issue, they think of the court system and the lengthy process wherein a
judge and jury decide the outcome of a case. Arbitration is a different
process. Like litigation, a third party decides the outcome of a dispute, but
it’s not a judge or jury and it doesn’t happen in court.
Instead,
a neutral decision maker called an arbitrator holds a hearing, receives
testimony and evidence from the parties involved, and makes a decision in a
process that’s generally faster and less costly than litigation. Unlike in
court where a judge is appointed to a case, arbitration allows the plaintiff
and/or the defendant to select a decision maker. It’s also generally less
formal and commonly takes place in office conference rooms: Parties to a
dispute sit on opposite sides of a table while an arbitrator presides at the
head of it. And although they often come from the legal field, arbitrators are
not required to be licensed attorneys.
In
general, you can decide whether you want to pursue arbitration instead of going
to court—unless you've signed a contract that makes it mandatory. Such a
provision is known as a “forced arbitration clause.”
When Would a Forced Arbitration Clause Arise at Work?
These
days, many employers include a forced arbitration agreement within the broader
employment contract they have you sign to accept a job offer. If you don’t sign
a formal employment contract, your employer may include a forced arbitration
agreement with other new employee paperwork or within your employee handbook.
It’s
important to note that you don't have to
sign a forced arbitration agreement. But remember that certain employment
benefits—and often employment itself—depend on agreeing to such a clause. In
many cases, saying “no” to a forced arbitration clause is the equivalent of
saying no to a job.
What Are the Pros and Cons of Arbitration and Forced
Arbitration?
While
arbitration is not inherently bad and is a worthwhile alternative resolution
process in many legal disputes, forced arbitration can sometimes be problematic
for employees. Here are a few of the potential concerns:
Appeals and Compensation
Like
litigation, arbitration can span several days and even weeks. When it’s over,
the arbitrator issues a decision. But unlike litigation, arbitration is
generally binding and doesn’t allow for appeals. That means you have little
recourse if you lose. And even if you win, arbitrators typically issue smaller
compensation awards than what’s available through litigation.
Ability to Present Your
Case
Dana
Pustinger, a former California employment attorney and business owner,
emphasizes that signing a mandatory arbitration agreement takes away your
ability to fully litigate an issue. Because arbitration doesn’t afford the same
time for and amount of discovery—i.e. it limits the evidence you can
submit—arbitration can hamper your ability to fully present your case. These
narrower rules around evidence contribute to a quicker process but may
negatively impact your case if important testimony and documents are excluded.
Confidentiality
Arbitration
is also a private process and doesn’t typically result in public decisions the
way a trial would. This can be positive or negative depending on the issues and
goals of both sides. If, for example, you don’t want a lengthy court process,
don’t want any of the circumstances of your case to be made public, and want
the matter resolved as quickly as possible, arbitration may be the right path
for you.
But
that confidentiality can also pose problems when applying forced arbitration in
employment discrimination cases, says Lindy Korn, an attorney whose law firm focuses on helping employees dealing with
discrimination at work and an early proponent of alternative dispute resolution
in Western New York. (Full
disclosure: I previously worked as an associate for Korn at The Law Office of
Lindy Korn, PLLC for several years and remain affiliated with the firm in an
advisory role.)
Since
arbitration is a private process, it keeps an employer’s alleged misconduct out
of the spotlight and allows the company to avoid damage to its reputation. In
other words, the confidentiality required in most arbitration proceedings means
you wouldn’t be able to warn other current and future employees about
discrimination, harassment, and other serious issues at the company.
Cost
An
employer who has a blanket forced arbitration policy will also likely save
money on legal costs, but the reverse is not true. Employees are less likely to
win in arbitration than in court, and you may find yourself stuck with your
employer’s legal costs in addition to your own if you lose.
What Does a Forced Arbitration Clause Look Like?
The
American Arbitration Association, a nonprofit organization that provides
guidance and alternative dispute resolution services to businesses throughout
the United States, has some examples of forced arbitration clauses on its website. In an employment setting, you might see
something like:
Any controversy or claim
arising out of or relating to this [employment application; employment
Alternative Dispute Resolution (ADR) program; employment contract] shall be
settled by arbitration administered by the American Arbitration Association
under its Employment Arbitration Rules and Mediation Procedures and judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
American Arbitration Association
The
Society for Human Resources Management (SHRM) also includes a sample forced arbitration agreement among its
resources:
As a condition of your
employment at ABC, you agree that any controversy or claim arising out of or
relating to your employment relationship with ABC Company or the termination of
that relationship, [except for . . . (indicate exceptions, if any)] must be submitted
for non-binding mediation before a third-party neutral and (if necessary) for
final and binding resolution by a private and impartial arbitrator, to be
jointly selected by you and ABC Company.
Society for Human Resources Management
As
these examples show, language that refers to claims, controversies, and other
disputes with the company is a signal that a forced arbitration clause may
follow. While you may not want to sign any arbitration
clause, the two above are decent examples in the sense that they don’t seem to
be overly burdensome for an employee relative to other clauses.
What Information Should You Pay Attention to When Considering a
Forced Arbitration Clause?
Arbitration
agreements commonly state when, where, and how prospective arbitrations will
occur. Here are some of the most common terms addressed in an arbitration
agreement that you should make sure to think about (and potentially try to
negotiate):
Fees
It
costs money to arbitrate, so pay attention to who will be responsible for these
costs.
Look
for language stating that arbitration will follow the rules of the American Arbitration Association.
In most employment arbitration cases conducted according to these rules, the
employer must pay the arbitration fees in full, says Lise Gelernter, a labor arbitrator and member of the
teaching faculty at SUNY Buffalo Law School. (Full disclosure: Gelerntner taught a labor arbitration
course I took several years ago.)
Don’t
sign anything that could make you solely responsible for paying for a potential
arbitration. Look out for language that assigns costs of a potential
arbitration to the employee, complainant, plaintiff, or “charging party.”
Even
if arbitration fees and expenses are split between the parties, it could end up
being more expensive for you to arbitrate a case than litigate it in court.
Arbitrators typically charge a per diem fee, which can range from $1,000 to
$3,000 (or more) depending on the regional variations, the experience and
prestige of the arbitrator, and the nature of the conflict being arbitrated.
Location Requirements
In
some cases, an agreement could require you to travel thousands of miles or even
to a different country for the actual arbitration. Pustinger says that many
businesses choose Delaware as an arbitration venue because it’s the “most
conducive jurisdiction for corporations, taxes, and larger companies.”
As
an employee, paying for travel, lodging, and all other expenses related to an
out-of-state or far-away arbitration can quickly add up, even if you’re not
responsible for paying the arbitrators themselves.
So
when reviewing an arbitration clause, take note of where a potential
arbitration would occur and make sure it’s not a burden, financially or
otherwise, to get there. Some arbitration agreements state outright where a
potential arbitration will happen. For example, it might say something like:
"All disputes between the parties will be resolved in ‘the state of X’ or
‘X County, State of X.’”
But
if your employer’s clause doesn’t specify, ask if they can modify it to say
that a potential arbitration would take place in the county and state where the
events underlying the action arose (i.e. where your job is located).
Choice of Arbitrator
Unlike
in court, parties can choose the decision maker in arbitration hearings. When
reading an arbitration clause, note whether the clause permits you and your
employer to mutually select an arbitrator or whether only one side gets a say.
Ideally, you and your employer should be able to review a list of potential
arbitrators, research who they are, propose your top choices, and come to a
mutual agreement on which one to use.
If
the clause gives the company sole power to pick an arbitrator, or even just to pick
the pool of arbitrators both sides will end up choosing from, the company could
select decision makers who are biased in its favor. For example, if the
employer is choosing the arbitrator in a sexual harassment case and knows that
a specific arbitrator frequently decides against employees who have complained
of harassment, then your chances of succeeding are stacked against you from the
get-go.
Rights and Remedies
When
reviewing an arbitration clause, pay attention to whether the agreement
restricts the type or amount of relief you can be awarded compared to what
you’d have been able to get through traditional litigation.
You
also want to ensure you have the right to an attorney in a potential
arbitration, so steer clear of agreements that want you to waive that right.
And
pay attention to terms in the clause that mention signing away rights to class
or collective actions, which result when a large number of people have
experienced the same harm from a corporation. A class action is often the most
efficient way to resolve claims of unfair pay or sexual harassment, for
example, so be wary of clauses that prevent you from joining one.
Some
forced arbitration agreements specifically mention a class action waiver (or a
requirement to only bring a claim on an “individual” basis). But even without
specific language around class actions, there’s a danger to waiving all claims.
Since you’re agreeing to arbitrate all potential claims rather than taking them
to court, an employer could argue that this means you can’t participate in a
class-action lawsuit.
What Are Your Options When Presented With a Forced Arbitration
Clause?
Seeing
a forced arbitration clause in your new hire paperwork can put you on the spot,
because you're excited and grateful to have a new job and don't want to rock
the boat by protesting, even if you're not quite sure it’s a good thing for
you. You want to prove that you’re an invested, engaged team player, but you
also need to think of your rights as a worker. While you don’t want to imagine the
worst-case scenario right after accepting a new job, it’s important to
understand what you may be getting yourself into.
If
your employer asks you to sign a forced arbitration clause, you have a few
options:
§ Refuse to sign
the agreement. Doing this means you risk not being hired, promoted, or
closing whatever deal you are trying to finalize.
§ Seek
modifications to the agreement. You could try to negotiate
the venue for an arbitration, who is responsible for costs, the process for
choosing an arbitrator, which types of claims the clause covers (as opposed to
using it as a catch-all for any potential lawsuit), and any other terms you
don’t like. While success isn’t guaranteed, you can attempt to negotiate your
arbitration agreement just as you would other employment terms like salary or
benefits.
§ Sign the
agreement. Arbitration can be a convenient and less costly way to
resolve disputes than litigation in court under the right circumstances. And
you may not be willing or able to give up the job and decide it’s worth signing
the agreement to avoid risking the opportunity. Remember though that you’re
signing a binding legal agreement that’s very difficult to get out of. If you
were to later attack the agreement in court, you would need to show that terms
in the clause were unconscionable or that you were coerced into signing by
fraud or duress—generally not an easy task.
When
Emily Kearney was hired as an attorney early in her career, her former law firm
asked her to sign a forced arbitration clause. “I was so excited to start my
career I just signed the mandatory arbitration clause with all my other
pre-employment paperwork,” says Kearney, who still works as an attorney for
multiple companies and has also since founded Mothergood Co., a virtual platform and podcast that
supports women through motherhood. “I knew an arbitration clause probably
wasn’t in my best interest. But, since I felt like I had no choice, I signed
it.”
Then
she found out that others had made different decisions. “Later, I also
discovered that a senior associate had refused to sign the arbitration
provision since he had already been working at the firm a while” by the time he
was asked to agree to it, Kearney says. Although the partners didn’t take any
action against him, everyone knew this associate had said no and could tell the
partners were slightly annoyed. In some cases, then, you can refuse to sign a
forced arbitration agreement without losing a job, but be aware that your
decision can still have lasting effects on your relationships at work,
depending on the culture of the company and management.
Although
she never had to exercise the clause, Kearney realized how many rights she’d
given up and concluded that she wouldn’t sign another forced arbitration
agreement. “Now that I have more experience and am more picky about my jobs, I
would like to think I would refuse to sign such a clause in the future,” she
says.
But
she concedes that the decision would depend on the job market and her
circumstances. “If I was applying in a great economy and could land a different
job the next day, I would definitely cross out the arbitration clause and ask
not to sign,” she says. “If I needed a job ASAP in a bad economy where jobs
were hard to come by, I would probably sign it again,” she adds. “So at the end
of the day, my willingness to sign would be dependent on whether or not I was
OK walking away from the job offer.”
Understand
that refusing to sign a forced arbitration clause could negatively impact your
relationship with your employer and even cost you your job. However, signing a
forced arbitration clause may also strip you of any legal rights you have
against your employer, which could end up being a very costly decision in the
long run. You should take time to consider all risk factors when making a
decision—and don’t be afraid to seek help during the process.
What Else Should You Do if You’re Not Sure How to Proceed?
If
you’re asked to sign any paperwork that includes a forced arbitration clause
and you’re still confused about what it means and how to proceed, there are two
other things you can do:
Check Your Local Laws
Like
most laws, the rules governing forced arbitration in employment are ever
changing and different depending on where you are.
Most
states continue to allow for mandatory arbitration in employment discrimination
and other cases. But with the increased awareness of workplace discrimination
and harassment issues in recent years, some jurisdictions are limiting the use
of forced arbitration in this context to protect victims and make the workplace
safer for all employees.
As
of October 2019, for example, “the New York State Human Rights Law was amended to
prohibit mandatory arbitration of any discrimination or harassment claim based
on any characteristic protected by any law,” Korn says—meaning discrimination
or harassment based on gender, race, national origin, age, and more. A separate
prohibition on mandatory arbitration in relation to sexual harassment claims
went into effect in New York on July 11, 2018.
California
passed a similar law in the fall of 2019. However, a California federal judge issued a temporary restraining order on the bill
after business groups rose up against it.
Talk to a Lawyer
The
decision whether to sign such a forced arbitration agreement is personal and
depends on many factors. If you have hesitations about signing an agreement—or
any other issues that might come up around your contract or throughout your
employment—it’s important to consult with an attorney familiar with your case
and jurisdiction.
Most
counties have attorney bar associations, many of which offer referral services
for attorneys in a variety of practice areas. You can find your local bar
association online by searching “X County Bar Association” and then call to
inquire about employment attorneys in your area.
Wading
through a forced arbitration clause can be scary and confusing. However,
understanding the consequences of such an agreement can help you decide how to
navigate the situation and move forward in your career.