You may have heard forced arbitration mentioned in the news in recent months and years. That’s not surprising since these agreements have become more common in many workplaces—affecting more than 60 million workers in the U.S., by the Economic Policy Institute’s estimate—and stirring up intense criticism from some employees and advocates.
It’s also likely that you’ve encountered a forced arbitration clause in your own new hire paperwork—maybe you saw the words “mandatory arbitration,” something about potential disputes, and complicated-sounding stipulations—and weren’t sure what it all meant.
Read on to learn what forced arbitration agreements are, how you may encounter them, and how to navigate them.
Before you keep reading, an important note: While I am a lawyer and interviewed other lawyers for this story, every case is different. So please consider this a general resource to help you get started and, if you need it, seek personalized advice specific to your situation from an actual lawyer!
What Is Forced Arbitration?
Arbitration is a way to settle disputes within the legal system that can be used as an alternative to traditional litigation. When most people think of resolving a legal issue, they think of the court system and the lengthy process wherein a judge and jury decide the outcome of a case. Arbitration is a different process. Like litigation, a third party decides the outcome of a dispute, but it’s not a judge or jury and it doesn’t happen in court.
Instead, a neutral decision maker called an arbitrator holds a hearing, receives testimony and evidence from the parties involved, and makes a decision in a process that’s generally faster and less costly than litigation. Unlike in court where a judge is appointed to a case, arbitration allows the plaintiff and/or the defendant to select a decision maker. It’s also generally less formal and commonly takes place in office conference rooms: Parties to a dispute sit on opposite sides of a table while an arbitrator presides at the head of it. And although they often come from the legal field, arbitrators are not required to be licensed attorneys.
In general, you can decide whether you want to pursue arbitration instead of going to court—unless you've signed a contract that makes it mandatory. Such a provision is known as a “forced arbitration clause.”
When Would a Forced Arbitration Clause Arise at Work?
These days, many employers include a forced arbitration agreement within the broader employment contract they have you sign to accept a job offer. If you don’t sign a formal employment contract, your employer may include a forced arbitration agreement with other new employee paperwork or within your employee handbook.
It’s important to note that you don't have to sign a forced arbitration agreement. But remember that certain employment benefits—and often employment itself—depend on agreeing to such a clause. In many cases, saying “no” to a forced arbitration clause is the equivalent of saying no to a job.
What Are the Pros and Cons of Arbitration and Forced Arbitration?
While arbitration is not inherently bad and is a worthwhile alternative resolution process in many legal disputes, forced arbitration can sometimes be problematic for employees. Here are a few of the potential concerns:
Appeals and Compensation
Like litigation, arbitration can span several days and even weeks. When it’s over, the arbitrator issues a decision. But unlike litigation, arbitration is generally binding and doesn’t allow for appeals. That means you have little recourse if you lose. And even if you win, arbitrators typically issue smaller compensation awards than what’s available through litigation.
Ability to Present Your Case
Dana Pustinger, a former California employment attorney and business owner, emphasizes that signing a mandatory arbitration agreement takes away your ability to fully litigate an issue. Because arbitration doesn’t afford the same time for and amount of discovery—i.e. it limits the evidence you can submit—arbitration can hamper your ability to fully present your case. These narrower rules around evidence contribute to a quicker process but may negatively impact your case if important testimony and documents are excluded.
Confidentiality
Arbitration is also a private process and doesn’t typically result in public decisions the way a trial would. This can be positive or negative depending on the issues and goals of both sides. If, for example, you don’t want a lengthy court process, don’t want any of the circumstances of your case to be made public, and want the matter resolved as quickly as possible, arbitration may be the right path for you.
But that confidentiality can also pose problems when applying forced arbitration in employment discrimination cases, says Lindy Korn, an attorney whose law firm focuses on helping employees dealing with discrimination at work and an early proponent of alternative dispute resolution in Western New York. (Full disclosure: I previously worked as an associate for Korn at The Law Office of Lindy Korn, PLLC for several years and remain affiliated with the firm in an advisory role.)
Since arbitration is a private process, it keeps an employer’s alleged misconduct out of the spotlight and allows the company to avoid damage to its reputation. In other words, the confidentiality required in most arbitration proceedings means you wouldn’t be able to warn other current and future employees about discrimination, harassment, and other serious issues at the company.
Cost
An employer who has a blanket forced arbitration policy will also likely save money on legal costs, but the reverse is not true. Employees are less likely to win in arbitration than in court, and you may find yourself stuck with your employer’s legal costs in addition to your own if you lose.
What Does a Forced Arbitration Clause Look Like?
The American Arbitration Association, a nonprofit organization that provides guidance and alternative dispute resolution services to businesses throughout the United States, has some examples of forced arbitration clauses on its website. In an employment setting, you might see something like:
Any controversy or claim arising out of or relating to this [employment application; employment Alternative Dispute Resolution (ADR) program; employment contract] shall be settled by arbitration administered by the American Arbitration Association under its Employment Arbitration Rules and Mediation Procedures and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.
The Society for Human Resources Management (SHRM) also includes a sample forced arbitration agreement among its resources:
As a condition of your employment at ABC, you agree that any controversy or claim arising out of or relating to your employment relationship with ABC Company or the termination of that relationship, [except for . . . (indicate exceptions, if any)] must be submitted for non-binding mediation before a third-party neutral and (if necessary) for final and binding resolution by a private and impartial arbitrator, to be jointly selected by you and ABC Company.
As these examples show, language that refers to claims, controversies, and other disputes with the company is a signal that a forced arbitration clause may follow. While you may not want to sign any arbitration clause, the two above are decent examples in the sense that they don’t seem to be overly burdensome for an employee relative to other clauses.
What Information Should You Pay Attention to When Considering a Forced Arbitration Clause?
Arbitration agreements commonly state when, where, and how prospective arbitrations will occur. Here are some of the most common terms addressed in an arbitration agreement that you should make sure to think about (and potentially try to negotiate):
Fees
It costs money to arbitrate, so pay attention to who will be responsible for these costs.
Look for language stating that arbitration will follow the rules of the American Arbitration Association. In most employment arbitration cases conducted according to these rules, the employer must pay the arbitration fees in full, says Lise Gelernter, a labor arbitrator and member of the teaching faculty at SUNY Buffalo Law School. (Full disclosure: Gelerntner taught a labor arbitration course I took several years ago.)
Don’t sign anything that could make you solely responsible for paying for a potential arbitration. Look out for language that assigns costs of a potential arbitration to the employee, complainant, plaintiff, or “charging party.”
Even if arbitration fees and expenses are split between the parties, it could end up being more expensive for you to arbitrate a case than litigate it in court. Arbitrators typically charge a per diem fee, which can range from $1,000 to $3,000 (or more) depending on the regional variations, the experience and prestige of the arbitrator, and the nature of the conflict being arbitrated.
Location Requirements
In some cases, an agreement could require you to travel thousands of miles or even to a different country for the actual arbitration. Pustinger says that many businesses choose Delaware as an arbitration venue because it’s the “most conducive jurisdiction for corporations, taxes, and larger companies.”
As an employee, paying for travel, lodging, and all other expenses related to an out-of-state or far-away arbitration can quickly add up, even if you’re not responsible for paying the arbitrators themselves.
So when reviewing an arbitration clause, take note of where a potential arbitration would occur and make sure it’s not a burden, financially or otherwise, to get there. Some arbitration agreements state outright where a potential arbitration will happen. For example, it might say something like: "All disputes between the parties will be resolved in ‘the state of X’ or ‘X County, State of X.’”
But if your employer’s clause doesn’t specify, ask if they can modify it to say that a potential arbitration would take place in the county and state where the events underlying the action arose (i.e. where your job is located).
Choice of Arbitrator
Unlike in court, parties can choose the decision maker in arbitration hearings. When reading an arbitration clause, note whether the clause permits you and your employer to mutually select an arbitrator or whether only one side gets a say. Ideally, you and your employer should be able to review a list of potential arbitrators, research who they are, propose your top choices, and come to a mutual agreement on which one to use.
If the clause gives the company sole power to pick an arbitrator, or even just to pick the pool of arbitrators both sides will end up choosing from, the company could select decision makers who are biased in its favor. For example, if the employer is choosing the arbitrator in a sexual harassment case and knows that a specific arbitrator frequently decides against employees who have complained of harassment, then your chances of succeeding are stacked against you from the get-go.
Rights and Remedies
When reviewing an arbitration clause, pay attention to whether the agreement restricts the type or amount of relief you can be awarded compared to what you’d have been able to get through traditional litigation.
You also want to ensure you have the right to an attorney in a potential arbitration, so steer clear of agreements that want you to waive that right.
And pay attention to terms in the clause that mention signing away rights to class or collective actions, which result when a large number of people have experienced the same harm from a corporation. A class action is often the most efficient way to resolve claims of unfair pay or sexual harassment, for example, so be wary of clauses that prevent you from joining one.
Some forced arbitration agreements specifically mention a class action waiver (or a requirement to only bring a claim on an “individual” basis). But even without specific language around class actions, there’s a danger to waiving all claims. Since you’re agreeing to arbitrate all potential claims rather than taking them to court, an employer could argue that this means you can’t participate in a class-action lawsuit.
What Are Your Options When Presented With a Forced Arbitration Clause?
Seeing a forced arbitration clause in your new hire paperwork can put you on the spot, because you're excited and grateful to have a new job and don't want to rock the boat by protesting, even if you're not quite sure it’s a good thing for you. You want to prove that you’re an invested, engaged team player, but you also need to think of your rights as a worker. While you don’t want to imagine the worst-case scenario right after accepting a new job, it’s important to understand what you may be getting yourself into.
If your employer asks you to sign a forced arbitration clause, you have a few options:
- Refuse to sign the agreement. Doing this means you risk not being hired, promoted, or closing whatever deal you are trying to finalize.
- Seek modifications to the agreement. You could try to negotiate the venue for an arbitration, who is responsible for costs, the process for choosing an arbitrator, which types of claims the clause covers (as opposed to using it as a catch-all for any potential lawsuit), and any other terms you don’t like. While success isn’t guaranteed, you can attempt to negotiate your arbitration agreement just as you would other employment terms like salary or benefits.
- Sign the agreement. Arbitration can be a convenient and less costly way to resolve disputes than litigation in court under the right circumstances. And you may not be willing or able to give up the job and decide it’s worth signing the agreement to avoid risking the opportunity. Remember though that you’re signing a binding legal agreement that’s very difficult to get out of. If you were to later attack the agreement in court, you would need to show that terms in the clause were unconscionable or that you were coerced into signing by fraud or duress—generally not an easy task.
When Emily Kearney was hired as an attorney early in her career, her former law firm asked her to sign a forced arbitration clause. “I was so excited to start my career I just signed the mandatory arbitration clause with all my other pre-employment paperwork,” says Kearney, who still works as an attorney for multiple companies and has also since founded Mothergood Co., a virtual platform and podcast that supports women through motherhood. “I knew an arbitration clause probably wasn’t in my best interest. But, since I felt like I had no choice, I signed it.”
Then she found out that others had made different decisions. “Later, I also discovered that a senior associate had refused to sign the arbitration provision since he had already been working at the firm a while” by the time he was asked to agree to it, Kearney says. Although the partners didn’t take any action against him, everyone knew this associate had said no and could tell the partners were slightly annoyed. In some cases, then, you can refuse to sign a forced arbitration agreement without losing a job, but be aware that your decision can still have lasting effects on your relationships at work, depending on the culture of the company and management.
Although she never had to exercise the clause, Kearney realized how many rights she’d given up and concluded that she wouldn’t sign another forced arbitration agreement. “Now that I have more experience and am more picky about my jobs, I would like to think I would refuse to sign such a clause in the future,” she says.
But she concedes that the decision would depend on the job market and her circumstances. “If I was applying in a great economy and could land a different job the next day, I would definitely cross out the arbitration clause and ask not to sign,” she says. “If I needed a job ASAP in a bad economy where jobs were hard to come by, I would probably sign it again,” she adds. “So at the end of the day, my willingness to sign would be dependent on whether or not I was OK walking away from the job offer.”
Understand that refusing to sign a forced arbitration clause could negatively impact your relationship with your employer and even cost you your job. However, signing a forced arbitration clause may also strip you of any legal rights you have against your employer, which could end up being a very costly decision in the long run. You should take time to consider all risk factors when making a decision—and don’t be afraid to seek help during the process.
What Else Should You Do if You’re Not Sure How to Proceed?
If you’re asked to sign any paperwork that includes a forced arbitration clause and you’re still confused about what it means and how to proceed, there are two other things you can do:
Check Your Local Laws
Like most laws, the rules governing forced arbitration in employment are ever changing and different depending on where you are.
Most states continue to allow for mandatory arbitration in employment discrimination and other cases. But with the increased awareness of workplace discrimination and harassment issues in recent years, some jurisdictions are limiting the use of forced arbitration in this context to protect victims and make the workplace safer for all employees.
As of October 2019, for example, “the New York State Human Rights Law was amended to prohibit mandatory arbitration of any discrimination or harassment claim based on any characteristic protected by any law,” Korn says—meaning discrimination or harassment based on gender, race, national origin, age, and more. A separate prohibition on mandatory arbitration in relation to sexual harassment claims went into effect in New York on July 11, 2018.
California passed a similar law in the fall of 2019. However, a California federal judge issued a temporary restraining order on the bill after business groups rose up against it.
Talk to a Lawyer
The decision whether to sign such a forced arbitration agreement is personal and depends on many factors. If you have hesitations about signing an agreement—or any other issues that might come up around your contract or throughout your employment—it’s important to consult with an attorney familiar with your case and jurisdiction.
Most counties have attorney bar associations, many of which offer referral services for attorneys in a variety of practice areas. You can find your local bar association online by searching “X County Bar Association” and then call to inquire about employment attorneys in your area.
Wading through a forced arbitration clause can be scary and confusing. However, understanding the consequences of such an agreement can help you decide how to navigate the situation and move forward in your career.