What is an Arbitration Agreement?

During your time as an employee, you might come across the term “arbitration agreement.” While these legal documents do not necessarily have to exist within the scope of employment, it is one of the most common places you’ll encounter them. Arbitration agreements are generally provisions of larger contracts, such as employment agreements. It is up to you to either agree to sign an arbitration agreement as a condition of employment or to refuse and (most likely) forfeit the job. Learn what an arbitration agreement is to help inform your decision with help from one of our Los Angeles employee attorneys.

Breaking Down an Arbitration Agreement

Arbitration is a type of alternative dispute resolution (ADR). This means it is an alternative to going to trial and happens outside of the courtroom. During arbitration, two parties will meet before an impartial third-party judge, or arbitrator, to resolve a dispute. Arbitration hearings are most common in commercial settings and in employment-related disputes. Arbitration has advantages over a trial, such as a lower cost and faster legal process. Employment arbitration generally has two types: Rights Arbitration or Interest Arbitration.

Rights Arbitration is a case involving a violation of an employee’s rights, such as labor or wage rights, or the right to be free from discrimination in the workplace. Interest Arbitration deals with hammering out the details of the terms and conditions of employment. For example, a prospective employee could use collective bargaining to argue for better terms of a job offer during Interest Arbitration. Most employers must pay for arbitrations their employees bring, either upfront or through eventual settlements.

In general, an arbitration agreement decides when an employee can and cannot engage in arbitration against the company. It is the business owner’s prerogative to decide whether to include an arbitration clause in an employment agreement. If an employer does have one, it is generally a term of employment. This means the employee must agree to and sign the arbitration agreement if he or she wants the job.

With arbitration agreements, employers can successfully manage to restrict employees’ rights to join lawsuits against the company. These restrictions can take the form of arbitration guidelines, such as how long the employee has to file a claim. As long as the contract states reasonable expectations that protect a genuine company interest, the courts will generally uphold the terms of an arbitration clause.

Do You Have to Sign an Arbitration Agreement?

Some, but not all, companies have employment agreements with arbitration clauses that describe the parameters when an employee can enter into arbitration against the company. Many agreements prohibit employees from joining class actions or other arbitrations against the company entirely. These agreements will use language that forbids the employee to take the employer to court over job-related injustices such as discrimination, harassment, breach of contract, and wrongful termination.

Always read an employment agreement in its entirety before agreeing to work with a company. Use help from a lawyer if you can’t understand the legalese of the contract on your own. Otherwise, you could sign away your rights without realizing what you’re doing. Once you sign an arbitration agreement and start working for a company, it’s often impossible to regain your right to arbitration – unless for some reason the contract isn’t valid. Most companies hire lawyers to draw up their employment and arbitration contracts, so this is unlikely.

While no one is going to force you to sign an arbitration agreement clause, you will most likely have no choice if you want the job. It can be easy to assume you’ll never need to enter into arbitration with your employer when you’re just starting a new job. Before you give up your right to ever file a claim, however, think about the consequences of doing so. Ask yourself if what you’re forfeiting is worth the reward. Make sure you fully understand what you’re doing before signing on the dotted line.