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Mandatory Arbitration for Employees – No Way Out?

by | May 9, 2016 | Business Law


While filing a lawsuit is the most well-known form of getting legal relief, arbitration has become an alternative to resolving employment disputes, like discrimination, wrongful termination and wage claims. The 2 sides go before a neutral arbitrator, usually an attorney or retired judge, but are limited to whatever terms are in the employment agreement that was signed, usually at or after the time the employee begins his or her job.

Employers favor arbitration over litigation, since it is usually faster, less expensive and takes the dispute out of the hands of a jury. Employees, on the other hand, should be wary of arbitration’s finality and potential for one-sidedness, while still having to pay one-half of the costs, including the arbitrator’s fee.

The increasingly common mandatory arbitration clauses (which may be a condition of employment) prevent employees from raising any claims against the employer in court, forcing them to go to arbitration, with or without a lawyer. In 2013, a Federal Appeals Court overruled the decision of the National Labor Relations Board (NLRB) and said that mandatory arbitration clauses in employment contracts are not a violation of workers’ rights. In enforcing the clause, the Court referred to the Federal Arbitration Act (FAA), which says that mandatory arbitration provisions are “valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

Despite the clause’s legality in that case, employers aren’t given complete free rein in drafting employment contracts. The contract cannot reduce the number of rights granted to an employee by the federal (or state) government. This means that the employee must be left with an alternative way to get comparable relief that could be given by a court. Arbitration requirements that force employees making a claim to pay unreasonable fees or appear before a biased arbiter are likely to be struck down by courts as “unconscionable,” or grossly unfair.

Employees may be able to work with a potential employer in creating a compromise on the terms of their employment contract. For example, an employee can say that he or she have input in selecting the arbiter, or that the arbiter’s information, including personal interests, be made transparent. Employees could also claim that the right to an attorney in arbitration should be in the contract, and that the number of remedies available (money damages, re-employment, lawyer’s fees) should not be reduced. At the very least, employees should understand precisely what is – and is not – in the arbitration clause and whatever limitations they may face if a future claim arises. Loree Varella, Rutgers School of Law Newark candidate for a JD degree in May 2016 collaborated with me on this blog. She is Associate Editor of the Rutgers Computer and Technology Law Journal and Managing Research Editor of that publication.

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