Signing an Arbitration Agreement With Your Employer

Employers are increasingly asking workers to give up their rights through arbitration agreements, so be careful what you sign.

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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.

The Disadvantages of Arbitration

You may wonder why you should care where your claims get heard, as long as they are heard somewhere, whether in an arbitration proceeding or a court of law. An arbitration differs from a court case in several ways, and many of these differences work against employees.

Most important, an arbitration is heard and decided by an "arbitrator" -- a private citizen (often a retired judge) who is paid by one or both sides to listen to the evidence and witnesses. That means you won't have a jury hear your story -- and juries are often sympathetic to employees.

In addition, the arbitration process limits the amount of information each side can get from the other. In employment cases, this generally hurts the employee, because the employer is usually the one in possession of most of the documents and information relating to the employee's case.

Finally, an arbitration usually cannot be appealed, which makes arbitration awards more final than court verdicts. If you think the arbitrator's decision is unfair or wrong, you won't get a second chance to argue your case before a higher court -- a second chance that you might have gotten had you gone to a court trial.

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.

Read All Documents Carefully

Employees often sign arbitration agreements unintentionally. How can this happen? Some employers give new employees piles of paperwork to fill out on their first day, and some employees, in turn, sign documents without reading them. Although many employers are straightforward and present the arbitration agreement to employees openly in a separate contract, others bury arbitration agreements in other documents, such as an employment contract, a hiring letter, or an employee handbook.

When you sign a contract, letter, handbook acknowledgment form, or any other document from your employer, you agree to all the terms of the document -- even the ones that you may not have read. This is a particular problem with handbooks, which might be very long. To protect yourself from unwittingly giving up your rights, don't sign any document acknowledging you've read something unless you actually have read it and understood it completely. And don't sign any document that says you agree to the terms unless you have read all of the terms and do in fact agree to them.

The Risks of Refusing to Sign

If your employer asks you to sign an arbitration agreement, you can refuse, but that may put your job in jeopardy. Usually, an employer can rescind an employment offer if a prospective employee refuses to sign the arbitration agreement. And an employer can fire an at-will employee who refuses to sign one. Therefore, declining to sign the agreement could jeopardize your job.

Some employers will negotiate this point, however, especially if they are more excited about you than they are about arbitration. If you are a highly sought after prospect, or if you are a valued employee in your company, your employer may allow you to refuse to sign rather than give you up.

Another option is to agree to sign, but only if you can negotiate an agreement that is fair to you, as described below.

Making the Agreement Fair

If your employer won't let you outright refuse to sign, it may allow you to negotiate certain terms of the agreement to make it more fair to you. Although an employer may not agree to your requests, it is not likely to fire you for asking. Negotiating your agreement to arbitrate is no different from discussing your salary or benefits. The employer is negotiating for its best interest, as you are for yours.

You may have to consult with an attorney for help negotiating the fairest agreement possible. Here are some provisions that can help create a more balanced arbitration process. 

  • Choice of arbitrator. You should get as much say in choosing the arbitrator as the employer. Given the power of the arbitrator, and given the fact that you probably won't get to appeal the arbitration decision, you will want to have rights equal to those of your employer in selecting the arbitrator. You and the employer should have the right to reject at least one arbitrator without having to give a reason.
  • Disclosure of information. A potential arbitrator should have to disclose information about his or her business and personal interests so you can make sure that the arbitrator is not biased in favor of the employer. For example, the arbitrator should not be someone who is a stockholder in the company. You and the employer should have the right to reject any arbitrator who has a conflict of interest.
  • Costs of arbitration. Because the employer is the one who wants to use arbitration -- something that costs money -- the employer should have to pay for it.
  • Remedies available. Make sure that you can receive through arbitration all of the remedies that you would have gotten if you had filed your claim in a court of law. For example, the agreement should not prohibit you from seeking punitive damages or damages for emotional distress.
  • Attorney representation. You should have the right to be represented by an attorney throughout the arbitration process.

You Can Still Use Government Agencies to Fight Discrimination

If you sign an arbitration agreement and your employer discriminates against you, you can still complain to a government agency, such as the federal Equal Employment Opportunity Commission (EEOC) -- and the agency can decide to sue the employer in court on your behalf. The arbitration agreement you signed applies only to you; it doesn't apply to an agency that wants to step in and enforce the law. 

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