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FAQ's

What is arbitration?

Arbitration is a method of resolving a dispute between two parties, in this case an employee and their employer. Each party will submit their sides of the dispute to an arbitrator. The arbitrator then decides the outcome of the dispute, which is based on the facts and arguments presented by each party. Arbitration can be voluntary, but is typically a mandatory requirement in an employee agreement.

What is mandatory arbitration?

Mandatory arbitration requires an employee to present any dispute to an arbitrator as a condition of employment. This waives your right to file a lawsuit, participate in a class action lawsuit, or to appeal.

What can’t an employee typically sue for?

Employees cannot sue for discrimination, harassment, abuse, retaliation, or wrongful termination. In mandatory arbitration, the laws that protect us from discrimination based on age, sex, religion, race, disability, and unequal pay for equal work, such as the Civil Rights Act and the Equal Pay Act, become meaningless and unenforceable in court. Employees lose important protections for blowing the whistle on waste or fraud or for fighting retaliation for taking the family medical leave.

Why do companies use mandatory arbitration?

They have the advantage in arbitration vs. a court with a judge and jury. Arbitrators aren’t required to take the law into consideration when making a decision. Additionally, the arbitrator’s decision is binding (you can’t appeal) and the decision is not public. This allows the company to keep any negative news private.

How common is it for an employee agreement to have mandatory arbitration clauses?

This is an extremely common practice at all size companies, but especially the Fortune 500. Most employees aren’t aware they sign their rights away. In fact, 80% of the Fortune 100 has used mandatory arbitration in connection to work-related disputes since 2010!

Source: Employee Rights Advocacy Institute

What are the Pros and Cons of mandatory arbitration?

Pros:

• Since the parties agree to resolve their disputes by arbitration, the parties are indicating their confidence that the arbitrator, the rules governing the proceeding, and the forum in which the arbitration will take place are, and will be, impartial and fair.
• A dispute in arbitration typically gets resolved sooner than litigation in court.
• Arbitration is usually less expensive than litigation in a court.
• Unlike a trial, arbitration is a private procedure. Thus, if the parties want privacy, then the dispute and the resolution can be kept confidential.
• There are limited opportunities for either side to appeal an arbitral award. This gives finality to the resolution of the dispute that is not often present with a judgment after trial.

Cons:

• The agreement to arbitrate is not negotiated. Mandatory arbitration allows one party (typically the business or employer) to force the other party (usually the customer or employee) to use arbitration for dispute resolution. In most instances, the consumer or employee is unaware they have agreed to arbitrate their disputes and are, therefore, unaware of the rights they have given up.
• If arbitration is binding, both sides give up their right to an appeal. That means there is no opportunity to correct an erroneous decision.
• If the matter is complex, but the amount in controversy is modest, then the fees and expenses imposed by the arbitrator and the arbitral forum may make arbitration.
• In addition to losing the right to appeal any unfair judgments, mandatory arbitration clauses also limit other rights. Typically, the complaining party has a more limited access to evidence and witnesses.
• Mandatory arbitration clauses can limit the public’s ability to expose corporate misbehavior — that is, the deterrent effect that litigation can impose on other companies engaging in the same or similar misconduct.
• Mandatory arbitration clauses often include a provision that prohibits claimants from litigating their claims as a class action. In a class action, the claimant brings an action on behalf of a group of similarly situated people with damages that were caused by the alleged wrongdoer. Class action lawsuits provide legal redress for people who, on their own, would likely not bring because their claim is too small to litigate on their own. Class action waiver clauses are used by businesses and employers to reduce the risk of collective or class action litigation.

Source: Freiberger Haber LLP

What types of problems do emoployees face from mandatory arbitration clauses?


• Substantial up-front costs
  • For many consumer and employment disputes, the fees imposed by mandatory arbitration may make it economically impossible for consumers and employees to vindicate their rights. Many arbitrators require hundreds of dollars in filing fees and hundreds or thousands more in hearing fees. Some consumers, particularly those who have just suffered a financial loss, are unable to pay these fees and are therefore precluded from any remedy. Similarly, high fees may preclude employees whose financial future may already be endangered because of their employment dispute from pursuing their anti-discrimination claims. In other consumer claims, the small amount in dispute may be less than the arbitration fees, making any arbitration a losing proposition economically. In contrast, most jurisdictions provide consumer access to small claims courts with minimal fees and costs.
• Prohibition of class actions
  • Certain harms inflicted on consumers are small yet widespread so that they would be impractical to pursue unless brought as a class action. Companies are using mandatory arbitration clauses to avoid class actions, making it impossible for plaintiffs with small claims to pursue their cases or afford any legal advice. The prohibition on class actions thereby provides legal immunity for corporations who may have gained a substantial benefit through small injuries to a large number of people.
• Choice of venue
  • Arbitration clauses often select a venue that favors the corporation, such as requiring arbitration in a location inconvenient to the consumer. Thus, consumers may find themselves having to bear the cost of long-distance travel to make their claims heard. For example, the Internet auction site e-Bay requires its customers to travel to its home turf of San Jose, California, to arbitrate any dispute. This requirement is obviously an impediment to justice for modest disputes of a couple of thousand dollars or less.
• One-way agreements
  • Many mandatory arbitration clauses require only one side (the consumer or employee) to resort to arbitration on a particular claim, while allowing the other side (the corporation) to sue in court on the same claim. In addition, sometimes only one side (the consumer or employee) is bound by the outcome of the arbitration while the other (the corporation) is not. Arbitration clauses also may provide certain remedies for one side but not the other — for example, allowing the corporation to be awarded attorney fees, but not the consumer on whom arbitration has been imposed.
• Choice of arbitrator
  • Many mandatory arbitration clauses give the company the right to pick the arbitrator, formulate the list of possible arbitrators from which the consumer or employee must select, or select the arbitration organization. When companies establish long-term relationships with arbitration organizations to handle their continuing business, arbitrators have a self-interest in favoring the company in their decisions in order to attract repeat business. Moreover, neither arbitrators, nor those that impose arbitration, are required to keep a public archive of decisions. Therefore, consumers and employees suffer from the disadvantage of not being able to check for biases in prospective arbitrators, even when they have some role in choosing them.
• Lack of public record
  • Because in many cases no written decisions are made available and most arbitration clauses require that all facts relating to a dispute be kept confidential, public discussion on the validity and fairness of a given arbitration finding is discouraged, no legal precedents or rules for future conduct are set and individuals cannot cite previous decisions for precedential effect. Since businesses that impose arbitration are likely to keep an archive of decisions, they enjoy the advantage of being able to choose those arbitrators that have ruled for them. And with no public record, the companies can present to the arbitrator favorable cases from their own files while not disclosing cases favoring the employee or consumer.
• Lack of discovery requirements
  • Many arbitration schemes greatly restrict discovery, the process by which parties obtain information from one another, even though in-court claims cannot be litigated effectively without it. The lack of discovery and adherence to rules of evidence and procedure in arbitration amounts to the wholesale denial of one of the most basic rights in our civil justice system. Lack of discovery may make creditors’ and employers’ discriminatory behavior impossible to prove. Consumers and employees are prevented from discovering patterns of abuse that would reveal the corporation’s culpability; this immunizes companies from sanctions, including injunctions, sufficient to deter continued wrongdoing.
• Limited judicial review
  • Under the Federal Arbitration Act, parties are allowed only limited judicial review of an arbitration award and virtually no review of the substantive merits of the award. The courts can review for bias in the process, partiality by the arbitrators, and whether the arbitrators exceeded their powers. But to overturn a decision on substantive legal grounds, the appellant must show “manifest disregard of the law,” an extraordinarily difficult standard to prove. The true scope of review is even more limited because often there is no requirement for any written opinion and no requirement that any voluntarily prepared written opinion include a statement of what law the arbitrators applied or what facts were deemed proven. Any consumer wishing to show bias or partiality or error in applying law or finding fact has an extraordinary burden to meet, particularly where no records of the company’s dealings with the arbitrator are made public and no discovery rules provide for their disclosure.
• Arbitration is ill-suited to decide causes of action
  • based on statutes involving preferred public policies such as civil rights protections. Statutory rights and remedies are not fully vindicated in the arbitration process. The use of unilaterally imposed mandatory arbitration clauses in employment contracts as a condition of employment harms both the individual employee and the public interest in eradicating civil rights violations. Those whom the law seeks to regulate should not be allowed to exempt themselves from the enforcement of civil rights laws. Nor should they be allowed to deprive civil rights claimants of the ability to vindicate their rights in a court of law by a jury of peers.

Source: Public Citizen