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Should Executives Accept Mandatory Arbitration as a Condition of Employment? The Pros and Cons of Arbitrating Employment Law Claims

Executives should be leery of signing any employment agreement containing an arbitration clause without advice of counsel.

Everyone learns during middle school that the courts, or judiciary, make up one of the three branches of the U.S. government.  The cornerstone of our court system is having a fair public trial decided by a jury of your peers.  However, there is a growing trend among employers to limit their employees’ access to the courts.  Specifically, employers are increasingly forcing employees as a condition of employment to waive their right to file a lawsuit in court for any future claims, and instead agree to arbitrate any future conflicts.  While arbitration has its advantages under the right circumstances, the Supreme Court has unfortunately ruled that these forced arbitration clauses are enforceable.

Why is forced arbitration bad?

Forced arbitration is problematic for a number of reasons.  For one, arbitration lacks many of the protections of our public judicial system.  Namely, there is no guarantee that a transcript will be made of any arbitration hearing, there is no right to appeal the decision of an arbitratorPortfolio who incorrectly applies the law, and there is a limited right to conduct discovery (i.e., request documents, ask for information, etc.) before any hearing.  Without these basic safeguards, an executive cannot be guaranteed a fair result.

Additionally, because arbitration is a private judicial forum, the parties must pay all costs associated with it.  Filing fees alone may exceed several thousands of dollars, plus the individual arbitrators must also be paid their hourly fees for all work they perform on the case.  An executive who agrees to arbitration as part of an initial employment agreement can likely expect to pay for half of these costs. 

Finally, given the confidential nature of arbitration, employers who force their employees to accept arbitration are unlikely to be concerned about any negative impact to their public image for violating workplace laws.  Without the threat of public scorn (which obviously has the potential to impact profits) an employer may be more apt to push the boundaries or outright ignore its employees’ rights.

Can arbitration be good?

There are several potential benefits to arbitration for executives.  For example, because it is confidential, arbitration is less likely than a lawsuit filed in court to harm an executive job search or standing with any current/future employer.  Additionally, through arbitration the parties are able select a decision-maker that is likely to have more familiarity and knowledge with the laws and issues of the case.  Often times this will result in a more reasoned and appropriate decision.  Arbitration may also be less time consuming, as it is designed to be completed within a matter of months (as opposed to potentially years for a lawsuit filed in court).  As such, arbitration may be a proper avenue for executives to resolve a dispute so long as he or she can make a fully informed and voluntary decision to accept it. 

What should I do if my employer includes an arbitration clause in my agreement?

An executive should not blindly accept arbitration as part of an employment agreement.  Rather, the pros and cons of arbitration should be weighed, and the most favorable terms possible for the executive should be negotiated.

If you have any questions, or need help with an employment agreement, please contact Siegel & Dolan Ltd. at (312) 878-3210.