If you’ve read the title of this article and the title does not ring a bell, it could be that you are the very person who should be reading this article. If you are employed and you signed an employment contract as a condition for being hired, chances are, you have also signed an employment arbitration agreement as a clause embedded in the employment contract.

Most employees apply for a job and then, after being told that they have been hired, they immediately sign the employment contract the employer hands them. If you’re like most people, you just run through the employment contract and you zero in only on the compensation package, the benefits, and the description of your duties and responsibilities. You rarely look at the standardized arbitration clause in your contract.

What is a standard arbitration clause?

A standardized arbitration clause provides that in case of disputes arising from the terms and conditions of employment, the disputes shall be brought individually through arbitration. It may even provide the state whose laws will govern your dispute. For example, if you work for a large corporation with corporate headquarters in California and your place of work is in a state other than California, still, the laws of California will be used to resolve your dispute. Take note, this standard arbitration clause prohibits you from bringing a suit in civil court. It limits your actions to arbitration.

In practical terms, an example

Recently, the Obama Administration has raised the salary cap that is used to distinguish between employees who must be paid for overtime work that they perform and those who are exempt from overtime. The question of whether you should receive payment for the overtime work you put in is an example of terms and conditions of employment that you may find yourself disputing, especially if you feel that you squarely fall under the classification of employees who should receive overtime work but you are denied overtime pay.

So what should you do? Normally, you would file a case in court to claim overtime pay. But then, because of the employment arbitration agreement, you cannot go to court – you have to go through arbitration.

Waiver of concerted action

Sometimes, you’re not alone. Let’s say, there are four or five of you in your department and in other departments of your office (and even other branches in other states of your office) who also feel that, as a class of employees, you are all entitled to overtime pay. To share costs, you would like to band together and file a joint suit. If there are so many of you (your employer has a big workforce across the country), you might want to file a class action lawsuit.

Guess, what? An employment arbitration agreement usually prohibits you from filing a joint suit or a class suit. Each and every single employee can only file a dispute individually in arbitration. In effect, when you signed your employment contract, you also signed an agreement to waive all your rights to sue as a group along with other employees in your company who may be similarly situated as you.

Individual suit in arbitration, implications

Consider this: if you were wrongfully terminated, if you have suffered sexual harassment or discrimination based on your race, color, religion, sex, nationality, age or disability, you will have to assert your claims before an arbitrator instead of in court. Technically, it shouldn’t matter. Arbitration is an alternative dispute resolution that was designed to be speedy, cost effective, not too technical, uncomplicated and binding. It is an informal kind of decision-making mechanism for when disputes arise in the workplace between the employer and the employee regarding the terms and conditions of employment. Arbitration is a mode of alternative dispute resolution. It is usually less acrimonious than litigation in court and there is an emphasis on reaching agreements that are mutually beneficial to both employer and employee. Ideally, that’s what arbitration should be. In reality, it might not be as beneficial to employees.

Choosing an arbitrator

Depending upon the terms of the arbitration agreement you signed in your employment contract, you are usually entitled to choose an arbitrator who will sit as a neutral party to hear and decide your dispute. But if your employer is the only one who can choose, then you are at a disadvantage. It may be in your favor to ask your employer to specifically address this in your contract.

Costs of arbitration

The costs of arbitration are usually shared by both the employer and the employee. Many agreements shift most of the arbitration costs to the employer. So, the amount you will spend to litigate your claim may be less in arbitration than in civil courts. But clarify this so that the cost of the arbitration does not create a prohibitive obstacle to bringing your claim, and so that you don’t end up paying for arbitration costs that will exceed the award you stand to gain.

Rules of procedure

The hearings and pleadings are not as formal in arbitration as they are in courts. There may not be strict deadlines for filing documents and the usual technical rules of procedure applicable in courts are not used in arbitration. This means that arbitration may not take as much time to resolve your employment dispute as a court would.

There is no jury in arbitration. The arbiter hears and decides your case all by himself. Arbitration decisions are usually private decisions affecting only the parties to the litigation, and so they do not need to be published, unlike court decisions. Thus, you may not be able to tell the bend of the arbitrator’s mind, if he or she has a bias for or against employees on a particular issue.

Rules on evidence

There is also a limited process of discovery in arbitration. This means that your employer, who holds all the records of your employment, is at an advantage. The employer holds all the logs, all the time records, all your work output, your passwords and even your emails. If you are going to use any of those documents as evidence, you may have difficulty forcing your employer to bring them before the arbitrator because you would need to specifically describe and itemize all the documents you seek.

Finality of the arbitrator’s award

Arbitrators’ decisions are usually not subject to appeal, especially arbitrators’ findings of fact and their appreciation and application of the law. Their decisions are subject to appeal when there is fraud or manifest disregard for the law.

Prohibition from joining concerted actions

Recently, cases have been brought to appellate courts questioning the enforceability of arbitration agreements that prohibit employees from filing joint suits or class action suits. The National Labor Relations Act recognizes the right of workers to engage in concerted activities, including bringing a concerted legal claim (such as a joint action or a class action suit) to press for or dispute terms and conditions of employment. The right to form associations and to collectively bargain for better terms and conditions includes the right to bring concerted actions or suit.

Some court decisions have found that employment arbitration agreements that required employees to bring wage & hour claims only through individual arbitration are unenforceable because they violate employees’ legal rights to band together and to press for better conditions of employment.

What does this mean for employees?

Well, the age-old advice to read first before you sign a contract should be heeded all the more now. The law presupposes that when you sign a contract, you do so knowingly. So, before you sign an employment contract, ask your employer to explain to you exactly what is contemplated by the arbitration provision. Ask questions so that you know exactly which rights you are giving up and what your options are. Ideally, consult a lawyer before you sign the employment contract.

Since most employment contracts already contain these arbitration agreements and these waivers of concerted actions, you must negotiate terms that are favorable to you. For instance, insist that you get equal right to choose the arbitrator. You can ask that the arbitrator disclose his business and personal interests so that you can see if he or she has connections with the employer or at least know what biases he or she may have. You can also negotiate that the costs of arbitration be shouldered by the employer (they gain an advantage by pressing arbitration, they might as well pay for the whole thing). Make sure that your arbitration agreement does not prohibit you from obtaining legal representation. And make sure that the arbitration agreement does not prohibit you from seeking punitive damages or damages for emotional distress.

Whether you are faced with the request to sign an arbitration agreement by your employer, or you have already signed it and are now seeking to initiate a claim, contact a competent employment attorney now for guidance.

References:

American Arbitration Association – Employment Arbitration

Workplace Fairness – Arbitration Agreements

FindLaw – Employment Arbitration Agreements

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