Arbitration and You: Why You Should Pay Attention If Your Employer Talks About Arbitration

So, one day your employer asks you to sign a piece of paper that talks about a “dispute resolution” program, including “arbitration.”  Perhaps you instead got paperwork talking about arbitration with your onboarding materials when you started a new job.  Or, maybe you just got an email from your employer saying you are now subject to arbitration “as a condition of employment.”  This article takes a basic look at what these things mean and why seeing them ought to—at the very least—cause you to sit up and think about what your next move should be.  

Arbitration is basically a private court.  The parties (including employees and employers) agree beforehand to submit disputes to a private decisionmaker or decisionmakers to reach a final, binding decision.  Some arbitration programs require the parties to select an arbitrator or arbitrators from a list of candidates associated with a large dispute resolution company like the American Arbitration Association, and might apply rules set by that company.  There is no judge or jury, and the ultimate decision may be kept secret.  Appealing an arbitrator’s decision can be almost impossible, and the rules of an arbitration may be quite different than those in a court.  As a result, employees may have less of an ability to get evidence from their employer.

Companies may tout their arbitration programs as being cheaper for everyone and faster than court.  In certain situations, that can be true.  The employer also may bear more of the costs of the arbitration.  However, even though the employee typically has input in picking the eventual arbitrator(s), often arbitration programs result in a situation where the same employer pays arbitrators to resolve large numbers of disputes with different employees.  The employer is a repeat player that is familiar with, and to, the arbitrators; the employees are not.    

That brings us to the first key reason why arbitration ought to matter to you: statistically, employees win less often in arbitration—and when they do win, they are awarded less. A 2011 study found that employees won only 21.4 percent of arbitrations, and those than actually won on average received a little over $100,000 in compensation—both significantly worse outcomes than cases brought in court.  A.J.S. Colvin, An empirical study of employment arbitration: Case outcomes and processes, 8 J. Empirical Legal Stud. 1 (2011), available at  Employers can also use arbitration terms to prevent employees from coming together in a class action suit, making it harder to succeed.   

The other key reason why arbitration ought to matter to you is that you might well be stuck with it whether you wanted it or not.  Though arbitration agreements may be controversial among academics and lawyers, many courts have upheld arbitration agreements even when you might least expect it.  State and federal courts in Texas have allowed employers to mandate arbitration as a condition of employment in many situations.  That means you must agree to arbitration to keep your job.  Even as far back as the 1980s, courts have upheld arbitration agreements even where the employee never signed anything—either electronically or on paper—but was just sent some notice “unequivocally” stating they were bound to arbitration if they kept working.  Even if you never actually saw the notice, courts may put the burden of proving that on you.  

Finally, while whether or not any particular claim is subject to arbitration is too complicated of an issue to be properly covered here, it is safe to say that courts in Texas tend to favor moving disputes to arbitration because of state and federal laws that encourage them to do so.  Depending on the situation, the only surefire way you might have to avoid arbitration is to be willing to lose your job rather than agree to it.  Obviously, more often than not this means employees have no reasonable alternative but to be stuck with arbitration whether they like it or not (“forced arbitration”).  As a result, a larger and larger share of the American workforce is becoming subject to these kinds of arbitration provisions.   

Ultimately, it pays to pay attention when your employer sends you handbooks, paperwork, or things to sign.  If you believe you have a legal claim against your employer and are concerned that an arbitration provision may interfere with your ability to protect your rights, you should consult with an employment attorney. 

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