Arbitration Agreements: What They Mean for Your Employment Claims

Many employees discover after a layoff that they signed an arbitration agreement, often buried in onboarding paperwork. This can significantly affect your ability to pursue legal claims. Here's what you need to know about arbitration and your rights.

Important: Arbitration law is complex and evolving. This is general information, not legal advice. Consult an attorney about your specific situation.

What Is Arbitration?

The Basics

Arbitration is a private dispute resolution process where a neutral third party (arbitrator) makes a binding decision instead of a judge or jury.

How it differs from court:

• Private (not public record)
• Arbitrator decides, not jury
• Limited discovery (evidence gathering)
• Limited appeal rights
• Usually faster than court
• Often less formal

Types of Arbitration Agreements

Pre-dispute agreements:

• Signed before any dispute arises
• Typically in employment contracts or onboarding
• Requires arbitration for future claims
• Most common type

Post-dispute agreements:

• Signed after dispute arises
• Both sides agree to arbitrate specific issue
• Less controversial

Class Action Waivers

Many arbitration agreements also include:

• Waiver of right to participate in class actions
• Requirement for individual arbitration only
• Can prevent joining WARN Act class actions
• Significant impact on employee rights

Where Arbitration Agreements Are Found

Common Locations

Check these documents:

• Employment application
• Offer letter
• Employment contract
• Employee handbook
• New hire paperwork
• Electronic sign-on agreements
• Benefits enrollment forms

"Click-wrap" Agreements

Digital agreements:

• "I agree" checkboxes during onboarding
• Electronic signature platforms
• Online acknowledgments
• These are often enforceable

Did You Sign One?

How to find out:

• Request copies of all signed documents from HR
• Review your employment files
• Check email for electronic agreements
• Look for "dispute resolution" sections

What Arbitration Means for Your Claims

Claims Typically Covered

Most arbitration agreements cover:

• Discrimination claims
• Harassment claims
• Wrongful termination
• Wage and hour disputes
• Breach of contract
• Retaliation claims

Claims Sometimes Excluded

May not be covered:

• Workers' compensation claims
• Unemployment benefit disputes
• NLRA rights (union organizing)
• Criminal matters
• Sometimes EEOC charges

Impact on Your Options

With arbitration agreement:

• Cannot file lawsuit in court for covered claims
• Must use arbitration process instead
• May waive class action rights
• Can still file with government agencies (EEOC, DOL)

Pros and Cons of Arbitration

Potential Advantages

For employees:

• Faster resolution
• Less expensive (sometimes)
• More private
• Less formal process
• Can be less intimidating

Significant Disadvantages

For employees:

• No jury (juries often favor employees)
• Limited discovery
• Limited appeal rights
• Arbitrator selection concerns
• Often lower damages
• Confidentiality can hide patterns
• Class action waivers

Statistical Reality

Research shows:

• Employees win less often in arbitration than court
• Awards tend to be lower in arbitration
• Repeat employer players may have advantage
• Limited ability to appeal unfavorable decisions

When Arbitration Agreements May Not Apply

Enforceability Issues

Agreements may be unenforceable if:

• Unconscionable (extremely one-sided)
• Lack of consideration (nothing given in exchange)
• Not properly executed
• Violate public policy
• Fraud in the inducement
• Lack of mutual assent

Legal Challenges

Courts may refuse to enforce when:

• Terms are excessively unfair
• Employee didn't know they were agreeing
• Costs are prohibitively expensive
• Forum is unreasonably inconvenient
• Remedies are unfairly limited

Recent Legal Developments

Evolving law:

• Some sexual harassment claims now exempt (2022 law)
• State laws limiting enforceability (California, others)
• NLRB rulings on class action waivers
• Ongoing legislative efforts

State Law Variations

Some states limit arbitration:

• California has significant restrictions
• New York limits for sexual harassment
• Various states have pending legislation
• Check your state's current law

The Arbitration Process

Starting Arbitration

Typical process:

1. One party files demand for arbitration
2. Arbitration provider administers case
3. Arbitrator is selected
4. Pre-hearing procedures
5. Hearing (like a trial)
6. Arbitrator issues decision

Major Arbitration Providers

Common organizations:

• American Arbitration Association (AAA)
• JAMS (formerly Judicial Arbitration and Mediation Services)
• ADR Services
• Various industry-specific providers

Selecting an Arbitrator

Process varies but typically:

• Provider sends list of potential arbitrators
• Parties can strike unacceptable names
• Parties rank remaining candidates
• Provider selects based on rankings

Discovery in Arbitration

Limited compared to court:

• Less document production
• Fewer or no depositions
• Limited interrogatories
• Arbitrator controls scope

The Hearing

Similar to a trial:

• Opening statements
• Witness testimony
• Document evidence
• Closing arguments
• Usually shorter than trial

The Award

Arbitrator's decision:

• Typically final and binding
• Very limited grounds for appeal
• May or may not include reasoning
• Can include monetary damages

Costs of Arbitration

Who Pays

Typical allocation:

• Filing fees (often split or employer pays)
• Arbitrator fees ($300-1,000+ per hour)
• Administrative fees
• Attorney fees (each side pays own)

Employer Payment Requirements

Many courts require:

• Employer pays most arbitration costs
• Employee pays no more than court filing fee
• Cost provisions can make agreement unenforceable

Strategies for Employees

Before You Sign

If possible:

• Read arbitration provisions carefully
• Negotiate removal or modification
• Opt out if option available
• Understand what you're giving up

If You Already Signed

Your options:

• Comply and use arbitration
• Challenge enforceability
• Argue claims aren't covered
• File with government agencies (still allowed)

Challenging Enforceability

Work with attorney to argue:

• Agreement is unconscionable
• Procedural defects in formation
• Specific claims are exempt
• State law makes it unenforceable

Making the Best of Arbitration

If you must arbitrate:

• Hire experienced arbitration attorney
• Research arbitrator backgrounds
• Prepare as thoroughly as for court
• Use available discovery fully
• Present strong case at hearing

Government Agency Rights

What You Can Still Do

Arbitration doesn't prevent:

• Filing EEOC charge
• Filing with state civil rights agencies
• Filing wage claims with Department of Labor
• Filing OSHA complaints
• Filing with NLRB

Why This Matters

Benefits of agency filing:

• No cost to you
• Agency investigates
• May pursue case on your behalf
• Creates record
• May provide additional remedies

Common Questions

Can I refuse to sign an arbitration agreement?

Generally yes, but employer may not hire you or may terminate you. Some states have protections.

I already signed. Can I still sue?

Possibly, if the agreement is unenforceable. Otherwise, you'll need to arbitrate covered claims.

Does arbitration cover WARN Act claims?

Usually yes, but class action waiver may be the bigger issue for WARN claims.

Can I still file an EEOC charge?

Yes. You retain the right to file with government agencies regardless of arbitration agreement.

Are arbitration agreements ever void?

Yes. Courts find some unenforceable due to unconscionability, lack of consideration, or other defects.

Can I opt out of arbitration?

Some agreements have opt-out periods (typically 30 days). Review your agreement carefully.

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Key Takeaways

1. Check if you signed one — Review employment paperwork carefully
2. Arbitration is different than court — No jury, limited discovery, limited appeals
3. Class action waivers are common and significant
4. Some claims may be exempt — Recent law excludes some sexual harassment claims
5. Agreements can be challenged — Consult an attorney about enforceability
6. You can still file with agencies — EEOC, DOL, and other rights preserved

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Related Resources:

• Filing an EEOC Complaint →
• Class Action Lawsuits →
• Severance Agreements →
• WARN Act Guide →