Signing an Arbitration Agreement With Your Employer

Signing an Arbitration Agreement With Your Employer

Many employers ask employees to sign arbitration agreements, in which they give up their right to sue in court over job-related issues such as wrongful termination, breach of contract, and discrimination. An employee who signs an arbitration agreement promises to pursue any legal claims against the employer through arbitration, rather than through a lawsuit. It might not sound like a big deal when you're just starting a new job and don't see any legal disputes on the horizon. But if your rights are later violated at work, that arbitration agreement might come back to haunt you. It could even mean the difference between winning or losing your case.

An arbitration agreement is a contract in which you agree to bring any legal claims you may have against your employer to arbitration, rather than filing a lawsuit in court. Unlike civil court, where matters are decided by judges and juries, an arbitration takes place before an arbitrator who is chosen by the parties. The parties often don't have access to as much information from the other side as they would in a lawsuit, and the arbitrator's decision can rarely be appealed. For these reasons, arbitration is generally seen as more favorable to employers, which is probably why many employers ask new employees to agree to the process up front. Most courts have found that an employer can refuse to hire employees who refuse to sign an arbitration agreement, as long as the agreement isn't blatantly one-sided in the employer's favor. For information on arbitration agreements and tips on negotiating with your employer for a fairer shake, see Nolo's article Signing an Arbitration Agreement With Your Employer.

The Advantages of Arbitration

An arbitration does have some advantages over a court trial. Arbitrations are less formal than court trials, and this informality can make the process easier for all involved, especially employees who are not used to litigation. Also, cases in arbitration are heard and decided much more quickly than court cases, which can take several years from start to finish.

What is an arbitration agreement?

An arbitration agreement is a written contract in which two or more parties agree to settle a dispute outside of court. The arbitration agreement is ordinarily a clause in a larger contract. The dispute may be about the performance of a specific contract, a claim of unfair or illegal treatment in the workplace, a faulty product, among other various issues. People are free to agree to use arbitration concerning anything that they could otherwise resolve through legal proceedings.

An arbitration agreement can be as simple as a provision in a contract stating that by signing that contract you are agreeing to arbitration in the case of any future disputes. For example, a business owner can ensure that potential dispute costs remain low by requiring anyone doing business with them to sign an agreement to arbitrate instead of litigate--to settle the matter out of court. In the case of more complicated business matters, a mandatory arbitration clause may be necessary. An arbitration provision in a contract might look like this:

“Upon written request of either Buyer or Seller, any controversy or claim between or among the parties hereto including but not limited to those arising out of or relating to the Sale, any of the sale documents, or any related agreements or instruments executed in connection with the Sale, including any claim based on or arising from an alleged tort, shall be determined by binding arbitration in accordance with the Federal Arbitration Act (or if not applicable, the applicable state law), the Commercial Arbitration Rules of the American Arbitration Association, and the “Special Rules” set forth below unless both Lender and Borrower, in their respective sole discretion, agree in writing to mediate the dispute prior to submitting to binding arbitration. In the event of any inconsistency, the Special Rules shall control. Judgment upon any arbitration award may be entered in any court having jurisdiction. Any party to this Agreement may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this agreement applies in any court having jurisdiction over such action. The party that requests arbitration has the burden to initiate the arbitration proceedings pursuant to and by complying with the Commercial Arbitration Rules of the American Arbitration Association and shall pay all associated administrative and filing fees.”

Is a binding arbitration decision really binding?

All arbitration results are binding arbitration awards unless the parties agree to advisory arbitration. If the agreement says "arbitration" without any modifier, the arbitration decision is binding. The parties to an arbitration agreement can, however, mutually agree to withdraw the case from arbitration at any time before an award is issued by the arbitrator. If they withdraw the case, the arbitrator loses her authority to decide it.

Unlike the regular court system, binding arbitration does not provide for an appeal. Rather, the arbitrator simply hears the evidence and grants an award with an explanation, the arbitration decision. If the result of a binding arbitration is inaccurate and both parties are willing to acknowledge the inaccuracy, then the arbitration will no longer be binding. If only one party feels the decision is inaccurate, the arbitration decision will most likely still stand unless the opposing party takes further legal action.

If you personally disagreed with the arbitration decision, but your attorney is advising you that it was in all likelihood correct, then you should simply honor the award. If your attorney is advising you that the award was granted inaccurately, then you may wish to consider taking your case to the regular court system. Contrary to popular belief, cases that are decided in binding arbitration can still be filed in the court system. However, you will be sued by the opposing party for breach of contract since you will have previously signed a contract waiving your rights to a trial.

Arbitration is less expensive than a trial and is completely private. Unless you actually decide to then file a lawsuit, the public will never be made aware that you were disputing with the opposing party. In addition, arbitrations are typically heard by retired judges, so you will be getting an equivalent result to a trial, simply without all the extra time and expenses.

What is a pre-dispute arbitration agreement?

A pre-dispute arbitration agreement is an agreement made by parties in a contract before any issues or problems arise. The agreement mandates that any disputes that the parties have will be handled not in a court system, but through binding arbitration. Such contracts are extremely common in business transactions. Insurance companies, cell phone providers, car companies or any other corporation or business entity may include an arbitration agreement with customers. Businesses also sometimes include arbitration agreements when they are doing business with each other.

Understanding Binding Arbitration

When an agreement is in place to arbitrate a dispute, that agreement is almost always going to be enforced by the court. There may be some limited exceptions, such as if one party had no power of negotiation and no real choice about the terms of the contract (called an "adhesion" contract), and if the terms of the arbitration within that adhesion contract are unreasonable and/or not advantageous. Except under these limited exceptions, parties to a pre-dispute arbitration agreement won't be allowed to sue; they will have to work with an arbitrator.

The arbitrator will be an independent third party. S/he will hear arguments presented by both sides and review evidence. Sometimes, the proceedings will be very formal, much like they would be if the issue was being decided in court. After hearing all the information, the arbitrator will make a decision that is legally binding on the parties. This makes arbitration distinct from other forms of alternative dispute resolution (ADR) like mediation.

The parties can appeal a decision made by an arbitrator, but that appeal isn't going to be successful unless there were procedural or substantive irregularities in the arbitration.

What is a post-dispute arbitration agreement?

A post-dispute arbitration agreement means that an issue has arisen that could lead to litigation, but the parties instead decide to make an agreement to submit the case to binding arbitration. A post dispute arbitration agreement is different from a pre-dispute arbitration agreement or arbitration clause found in a contract, because a pre-dispute agreement is used before and in case an issue arises. A post-dispute arbitration agreement is used afterward. This means when the parties sign one, they know for sure they are actually going to end up in arbitration.

Understanding a Post-Dispute Arbitration Agreement

Parties who are involved in some kind of legal dispute may choose to sign a post-dispute arbitration agreement for several reasons. For one, as a form of alternative dispute resolution, arbitration may be less contentious than courtroom litigation. The arbitration process often resolves disputes faster than litigation. Arbitration may also be less expensive than a full, protracted, drawn out court battle. Furthermore, and perhaps most importantly to some, when a dispute is arbitrated, private matters remain private instead of becoming court record.

A post-dispute arbitration agreement can also be made in many different types of situations. A divorcing couple may decide to sign a post-dispute arbitration agreement if they can't work out a property settlement or custody division in their divorce. A company who is having a dispute with a customer or client may decide arbitration will be a more equitable way of resolving their issue and still be able to maintain a business relationship. Whatever the reason, once the parties agree and arbitrate an issue, the arbitrator's decision is binding on them.

Who decides whether an arbitration agreement is binding?

Arbitration is an out-of-court alternative to solving legal disputes. Unlike the regular court, arbitration is only binding in certain specific circumstances, and an arbitration decision never infringes upon the court’s authority on a case. Arbitration cases cannot be appealed like court decisions, so it is imperative that you act if you are dissatisfied with the arbitration outcome.

What is arbitration? Arbitration is, for all intents and purposes, a rehearsal trial. An arbitration proceeding is overseen by an arbitrator who is usually either a retired judge or attorney. Both parties will be represented by their attorneys and can present all of their evidence and arguments. At the end of the arbitration proceeding, the arbitrator will make a finding and draft an arbitration agreement that specifies his finding.

What is the arbitration agreement? The arbitration agreement is equivalent to a judgment from a trail court judge. The only difference is that an arbitrator made the decision instead of a judge. The decision usually follows typical law with regard to damages, but the arbitrator does have the freedom to propose alternative measures to solve a problem.

Is an arbitration agreement binding? There are two ways that an arbitration agreement becomes binding. First, if the parties agree that the arbitration agreement will be the final judgment, then the judge overseeing the case will enter it as such. Second, if the parties signed a binding arbitration agreement for dispute resolution, then the arbitrator’s decision is final.

What if I do not agree with the arbitration decision? If you do not agree with the decision of the arbitrator, then you can reject the arbitration ruling and opt for a trial instead, in which case the trial judge will set the court date. If you were arbitrating based on a binding arbitration agreement, you can still file a complaint; however, you will most likely be counter-sued by the other party for breach of contract

Am I bound by an arbitration clause in a preprinted contract?

Usually, you are going to be bound by an arbitration clause, even if the agreement or the clause itself wasn't expressly negotiated. Arbitration clauses have become very common and courts, on the whole, will tend to enforce one except in rare cases.

When You Might See an Arbitration Clause

An arbitration clause mandates that you submit a dispute to an arbitrator, instead of to the courts. When you buy a new car, health insurance or any other product that you have to sign a contract to buy, there is a good chance it has an arbitration clause included. This is the case because companies believe arbitration can protect them from large jury verdicts and that it often results in lower legal fees.

If a Dispute Arises

If a dispute does arise when you've signed an arbitration clause, it will then have to be submitted to a third party arbitrator who will make a decision that is binding on you and the other party. If you attempted to file a lawsuit based on the issue, then the other party would point to the arbitration clause and the court would usually require the dispute be arbitrated and would refuse to hear the case.

Exceptions

The only exception occurs when the terms are unconscionable and the contract was an adhesion contract. This means that the contract must have been one you had no opportunity to negotiate, and that the actual terms and requirements of the contract and arbitration are grossly biased and unfair. It will generally be your burden to prove these points if you want the court to decide not to enforce an arbitration clause that you've signed.

What if there is a signed arbitration agreement but one side decides it does not want to arbitrate?

If a signed arbitration agreement is in place, one side may not unilaterally decide that it does not want to arbitrate. In all but a few very limited cases, courts will refuse to hear the case and compel the parties involved to decide the dispute according to the terms of the arbitration outlined in their contract.

Enforcement of an Arbitration Agreement

There is a very limited array of exceptions in which a court will not enforce an arbitration agreement. The major exception is something called "unconscionable adhesion contracts." If a party does not wish to arbitrate and wants to convince the court that he shouldn't have to because the contract and/or arbitration clause was an unconscionable adhesion contract, there are a few key things he has to prove: ?He must prove there was no reasonable opportunity for any sort of negotiation, and that the contract was presented to him on a take-it-or-leave it basis. This is the essential definition of an adhesion contract. Many contracts are adhesion contracts, like those for the purchase or use of airline tickets, insurance, cars, credit cards, cell phones, or any other consumer goods where you may sign a contract or agreement. ?He must prove the terms were extremely unfair/unreasonable/advantageous to the party offering the contract. Essentially, this is what it takes to prove the terms are "unconscionable."

If the court doesn't find that a contract was an unconscionable adhesion contract, they will enforce the arbitration clause, and the two parties will have no choice but to handle their issue in arbitration. Further, whatever decision the arbitrator makes will be binding on both parties, unlike in other types of alternative dispute resolution (ADR) like mediation.