Why does my employer want me to sign an arbitration agreement?

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Question:

I just started a new job, and my employer asked me to sign a bunch of forms, including an Arbitration Agreement. The agreement says I'm giving up my right to sue over anything that happens during my employment. This seems fishy to me: I've spent all of one day on the job, and they already want me to give up my rights. Does this mean they are planning to break the law? Why do they want me to sign this? 

Answer:

A very good question, and the answer is that there are many reasons why employers want employees to sign agreements to arbitrate. Most of them start with a dollar sign: Employers believe that they stand to lose less often -- and less money -- in arbitration than they would in court. Interestingly, the data don't entirely bear this out. 

But first things first: An arbitration agreement is a contract in which you give up your right to bring certain claims to court. Instead, you agree that you may raise those claims only in an arbitration proceeding. An arbitration is similar to a trial, in that there is a decision maker (the arbitrator), who decides issues as a judge would. But there is no jury, there are no rules of evidence, and the procedures in arbitration are much more streamlined. Cases go to arbitration more quickly, and often cost less, than they would in court. 

Employers have long believed that they fare better in arbitration. The main reason for this belief is juries: Generally, juries are thought to be more sympathetic to the little guy (the employee, in an employment dispute), more easily swayed by emotion, and more likely to award huge dollar amounts to someone they feel was wronged. Arbitrators are generally retired judges or lawyers, and are thought to be more likely to side with business and more likely to set their emotions aside and look only at the facts. 

Is this true? All the subjective stuff is anyone's guess -- certainly every employment lawyer can tell you about a stingy juror who didn't want their client to get a red cent. But as for the win/loss record and dollar amounts, the jury is still out. Some research shows that employees (and former employees) tend to win more often in arbitration than in court. And, while some studies show that employees win larger awards in court, others show that employee awards in arbitration are comparable to those in litigation. 

Despite this research, however, the perception remains that employers will fare better in arbitration. Which is likely why yours want you to agree to bring any disputes in that forum. Although it's possible your employer has nefarious plans for you, it's much more likely to simply be covering its legal bases, just in case. 

Before you sign the agreement, read it carefully -- and check out the advice in our article Signing an Arbitration Agreement With Your Employer. There are certain provisions in these agreements that courts have struck down as unfair to employees, and a few items you might want to at least try to negotiate before you sign on the dotted line. 

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