Here are answers to five of the most common questions about employment arbitration agreements that employees (and sometime employers) often have:
1.Is it legal for employers to require employees to sign an arbitration agreement as a condition to being hired or continuing employment? The answer to this question is yes, and its a common practice for many companies to do so, as long as the agreement is properly and fairly drafted, is not “unconscionable”.
2.What is the significance of a typical arbitration agreement? The whole idea behind arbitration agreements is for parties (i.e. employees and employer) to agree to avoid lawsuits in court, and to submit any work related dispute to a privately hired arbitrator. There are a few organizations in the US that provide arbitration services. The two largest ones are JAMS (Judicial Arbitration and Mediation Services) and AAA (American Arbitration Association). The arbitration process is pretty similar to litigation in court except it’s more streamlined and more simple than handling the case in court. There are fewer formalities, and arbitrators are not bound by all the court rules that judges are when handling a case. The key differences are that there will be no jury in arbitration, and if the case proceeds all the way to arbitration, then one single arbitrator will decide the case.
3.Why do many employers make their employees sign an arbitration agreement? There are several reasons for this. The main one is probably avoiding the risk of being hit with a huge verdict against them, which would be based on a juror’s emotional response to employer’s conduct and employee’s damages. Arbitrators are more conservative and the amounts they typically award for emotional distress and pain and suffering are usually lower that those awarded by jurors, who are “regular” people with no legal background. Of course, this is a gross generalization, as every arbitrator is different and every jury is different, but overall it’s known that arbitrators are not as generous as jurors can potentially be, and it’s generally harder for a Plaintiff to win a case in arbitration.
It’s also not a secret that many, if not most, arbitrators are extremely pro employer in part because they have financial incentive to rule in their favor in order to get repeat business, especially if the employer is a large company who is likely to have claims over and over. Therefore, if you are an employee who demanded arbitration, it’s critically important to choose an arbitration who has earned the reputation of being fair in the community, and its well worth spending the time researching potential candidate for arbitrating your case.
4.Can arbitration agreement be challenged in order to strike it down and proceed with a court case anyway? Yes, there is a whole body law about how an arbitration agreement can be deemed unenforceable based on one or more factors. Without going into too much detail, the main reasons for successfully challenging an arbitration agreement are if it’s unfairly drafted and if it deprives one party of the rights that they would otherwise have in court, such as shortening the statute of limitation, limiting potential recovery for damages that otherwise would be available under the law and allocating costs associated with pursuing the case in a manner inconsistent with the law. Otherwise, if the arbitration agreement is fairly drafted and it pretty much says that the arbitration proceedings will be conducted according to the law without significant deviations, then the agreement is valid and there is no point in trying to challenge it. An experienced attorney who is familiar with the factors that can make an arbitration agreement unenforceable should be able to determine whether it’s worth challenging it and proceeding with the lawsuit in court.
5. Who pays for the costs of private arbitration services? Under the law – the employee should only pay the same amount in arbitration that he would have to in court. This means that the employee should only be paying a filing fee for submitting a demand for arbitration and the rest of the arbitration costs are to be born by the employer. This means that the employer will have to pay the arbitrator an hourly fee for all the pre-hearing work that needs to be done. This often but of course not always encourages employers to try to settle the case sooner than later in order to avoid this expense.