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What Employees Need to Know About Arbitration Agreements

What Employees Need to Know About Arbitration Agreements

One of the questions most plaintiff-side employment attorneys will ask during the intake process is, “Did you sign an arbitration clause?” But while lawyers are quick to ask about arbitration agreements, many employees do not understand what an arbitration agreements mean and how they might affect your rights. Here's what you need to know. 

What is Arbitration?

Employers often to require employees to sign arbitration agreements as a condition of employment, usually in connection with an employee handbook or filling out other onboarding documents. The National Employment Law Project estimates that 55% of all private-sector non-union employees are subject to forced arbitration, including nearly 65% of all workers who earn less than $13 a year. 

So forced arbitration is common - but what is it? 

Arbitration is a private forum where an arbitrator (or multiple arbitrators) issue binding final decisions. In employment arbitrations, the arbitrator is typically a retired judge or formerly practicing attorney with experience in employment law. The rules will vary based on the language of your particular arbitration agreement. For example, some arbitration agreements provide that you are entitled to the same discovery from the other side as you would be in court, while other agreements limit the amount of discovery you can take from the other side. 

In California, an arbitration agreement cannot require you to pay more than would be required in court in order to initiate arbitration. In California, this means that employers generally are required to shoulder the costs of paying the arbitrator. The arbitration agreement also cannot require you to give up your right to remedies that are allowed in court, such as emotional distress damages, punitive damages, and attorneys fees. You can learn more about employment law damages here.

What is the Difference Between Court and Arbitration?

When your case is in court, a judge will typically decide “issues of law” and a jury of your peers ultimately will decide “issues of fact,” including whether the defendant is liable and how much you’ve suffered in damages. In arbitration, the arbitrator decides both issues of law and issues of fact. The arbitrator acts as both judge and jury in your case. They have the power to decide evidentiary issues as well as to rule on the outcome of your claims.

In general, arbitration is a faster and more streamlined proceeding than in court. However, this is not always true, and major arbitration providers are increasingly backlogged.

Another major difference between arbitration and court is that arbitrators are much less likely to award large damages amounts than a jury is. For example, while punitive damages are rare in court cases, they are almost unheard of in arbitration. While there are many reasons for this, the fact that arbitrators are paid by employers and employers’ law firms is one reason why arbitrators rarely award punitive damages, even when the employer’s conduct warrants it. As one analyst told the Washington Post: 

“If the arbitrator rules too often in favor of employees, they’re not going to get picked” for repeat business, Baran said. “The structural incentives are entirely on the employer side.”

Because of this, most plaintiff-side employment attorneys strongly prefer to keep cases in court, rather than arbitration. However, many employment attorneys will take a strong case even if it is in arbitration; while it may be unfair that you were forced to sign an arbitration clause, an arbitration clause does not mean you cannot prevail in your claims. 

Another problem with arbitration clauses is that they usually prevent you from bringing a class action lawsuit against your employer. This is troubling because class action lawsuits can be effective where the employer engages in conduct, like wage theft, that saves it significant money, but any individual employee's losses may not be significant enough to be worth suing over. An employment attorney should be able to help you evaluate these tradeoffs.

Do I Have to Sign an Arbitration Clause?

Unfortunately, your employer generally can require you to sign an arbitration clause as a condition of employment because of the Federal Arbitration Act (FAA), which expresses a “strong public policy” favoring arbitration. (A federal court prevented California from enforcing a state-level law that prohibited employers from requiring workers to sign arbitration agreements, relying on the FAA.)

However, in some situations, your employer’s demand that you sign an arbitration clause may be retaliatory. For instance, if you have complained about illegal conduct and your employer then forces an arbitration clause upon you, under threat of termination, this is arguably retaliatory. This is especially true if some employees are not required to sign arbitration clauses or are not threatened with termination.

If you have very good claims, it may be advisable to resign rather than signing an arbitration clause. This is a fact-specific judgment and, given the very high stakes (your job), you should consult with a well-qualified employment attorney before making a decision about what to do.

Our Employment Lawyers Fight for California Workers

At King & Siegel LLP, we have helped hundreds of workers hold employers accountable through legal actions. If your employer has stolen wages, wrongfully terminated you, or violated other anti-discrimination laws, our attorneys are here to help.

Need legal help? We provide free, confidential consultations to California workers. You should contact us as soon as possible to make sure your claim is still within the time limits set by law. If you have experienced discrimination or wage theft, contact us today through our website or give us a call at (213) 214-3757 to schedule a free consultation.

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