Many employees are asked to sign arbitration agreements when they are hired as a part of their onboarding paperwork. This type of agreement waives an employee’s right to pursue legal remedies through the court process if employment disputes arise. If an employee signs an arbitration agreement, they will be forced to arbitrate their dispute instead of filing a lawsuit under its terms. In most cases, employers will withdraw their employment offers when an employee refuses to sign this waiver. This presents a dilemma for some workers who might hesitate to waive their legal rights. Here’s some information from Swartz Swidler about the pros and cons of arbitration agreements for employees.
What Is an Arbitration Agreement?
An arbitration agreement is a common type of waiver many private employers ask employees to sign during the onboarding process. This type of agreement purports to waive the employee’s right to pursue litigation through the courts if an employment dispute between the employee and employer later arises. In that situation, the existence of an executed arbitration agreement would be presented to the court by the employer if the employee files a legal claim, and the court might then dismiss the lawsuit and send the case to arbitration instead.
The use of arbitration agreements has significantly increased since a few decisions by the U.S. Supreme Court during the early 1990s that favored arbitration procedures. While only 2% of employees working for private employers in 1992 were subject to arbitration agreements, the percentage has substantially increased to now cover 55% of private employees. Employers tend to favor arbitration for the following reasons:
- Privacy
- Cost savings
- Faster
However, employers also might prefer arbitration because of additional reasons, including having a greater chance of obtaining a favorable outcome through arbitration vs. court litigation. Below are some of the pros and cons of mandatory arbitration of employment disputes for employees.
Understanding Arbitration
Arbitration is an alternative dispute resolution procedure that is held outside of court. Parties involved in a dispute can have their cases heard by an arbitrator, who is typically a former judge or attorney. An arbitration hearing is more streamlined than a court trial and involves simpler rules. Some of the discovery and evidentiary rules that would be required during the court process don’t apply in arbitration.
An arbitration hearing is not as formal as a trial and isn’t heard in front of a jury. Instead, both sides will present evidence and arguments in front of the arbitrator. The arbitrator will make a decision and issue a judgment to resolve the dispute. Once a judgment is issued in arbitration, it is considered final and is difficult for either side to appeal.
Pros of Arbitration Agreements for Employees
Mandatory arbitration is generally viewed as less favorable to employees than pursuing actions in court. However, there are a few potential advantages of arbitrating employment disputes for employees.
1. Faster Process
Lawsuits filed in court can drag on for months or years, depending on the court’s calendar and the length of the litigation process. When an employee is dealing with a dispute with their current or former employer, the length of a potential court process might seem formidable.
Arbitration typically moves much faster than formal lawsuits. In most cases, a case can be resolved through arbitration in a matter of a few months instead of several years.
2. Opportunity to be Heard
One potential benefit for employees going through arbitration is the opportunity to be heard. When an employment dispute goes to arbitration, the employee can testify and present evidence about what happened. A majority of litigated cases are settled outside of court, which might mean that an employee will not have the chance to testify about their grievances.
Cons of Arbitration for Employees
Mandatory arbitration agreements are generally considered to be less favorable to employees vs. employers for several reasons as explained below.
1. Relationship Between an Arbitrator and Employer
Many arbitration agreements call for the employer to bear the costs of arbitration. While this might initially seem to be a benefit for an employee, it could mean that the arbitrator is beholden to the employer as the party that pays the arbitrator’s bill. In some cases, arbitrators will build relationships with certain employers after hearing multiple cases sent by them to arbitration. This dynamic might result in arbitrators who tend to view employers more favorably than employees.
2. Confidentiality Could Prevent Changes in Workplace Culture
Since arbitration hearings are held outside of court, they are non-public. Many arbitration agreements also include provisions that make arbitration hearings confidential and prevent the parties from talking about what happened. In the context of employment discrimination, the secrecy of arbitration hearings could allow a company’s discriminatory practices to continue.
In 2019, Gov. Phil Murphey signed S.B. 121. This law amended the New Jersey Law Against Discrimination (NJLAD) by adding Sect. 12.7, which precluded employers from using agreements to waive employee rights to pursue discrimination claims against their employers. However, an appellate court in New Jersey held that Sect. 12.7 was preempted by the Federal Arbitration Act (FAA) in Antonucci v. Curvature Newco, Inc., et. al., 270 N.J. Super. 553 (App. Div. 2022).
President Joseph R. Biden signed H.R. 4445 into law in March 2022. This law prohibits the application of mandatory arbitration clauses to sexual harassment claims. However, the law is not retroactive, meaning that it applies to claims arising after March 3, 2022.
Consult an Employment Lawyer
If you are involved in a dispute with your employer and have an arbitration agreement, you should consult a lawyer at Swartz Swidler to learn about your legal rights and options. Your agreement might be unenforceable, depending on how it is written and the situation with which you are dealing. Contact us today to schedule a free consultation at (856) 685-7420.
