What is a Mandatory Arbitration Agreement in an Employment Contract?
Many employment contracts contain clauses whereby an employee agrees any and all disputes between the employee and the employer will be subject to binding arbitration before it can be taken through the court system.
An example of what the agreement may look like is below:
Any controversy, dispute or claim arising out of or relating to this [contract] or breach thereof shall first be settled through good faith negotiation [OR company employment program] [other]. If the dispute cannot be settled through negotiation [OR company employment program] [other], the parties agree to attempt in good faith to settle the dispute by mediation administered by [arbitration service provider].
Employees confronted by this agreement may have concerns about the scope of these agreements.
Do they limit or prevent employees’ rights to form class action lawsuits?
Does a victim of sexual harassment in the workplace truly maintain substantive Title VII rights as Congress intended under such a clause?
An example of what the agreement may look like is below:
Any controversy, dispute or claim arising out of or relating to this [contract] or breach thereof shall first be settled through good faith negotiation [OR company employment program] [other]. If the dispute cannot be settled through negotiation [OR company employment program] [other], the parties agree to attempt in good faith to settle the dispute by mediation administered by [arbitration service provider].
Employees confronted by this agreement may have concerns about the scope of these agreements.
Do they limit or prevent employees’ rights to form class action lawsuits?
Does a victim of sexual harassment in the workplace truly maintain substantive Title VII rights as Congress intended under such a clause?
Background
The Federal Arbitration Act of 1925 (FAA) ensures that arbitration agreements contained in contracts involving maritime transactions or interstate commerce are “valid, enforceable, and irrevocable, save upon such grounds as exist at law or in equity for the renovation of any contract.”
The FAA thus empowers federal courts to grant a stay of litigation for any issue referable to arbitration under a valid arbitration agreement. Indeed, the Supreme Court has sought to ensure that the FAA’s authority is not usurped, for “[i]n enacting Section 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.”
It is common for employers to draft agreements conditional on the signee’s consent to arbitrate any and all claims arising from their relationship with the employer, often impeding just for sexual assault survivors. More than half of American workers—56%—are subject to mandatory arbitration. 60 million Americans have signed such clauses.
Should a signee refuse to surrender their Seventh Amendment right to trial by jury, she would likely be prohibited from entering the relationship at all. While employers argue these provisions are offered contingent on a consensual agreement to the terms, few employees have the luxury of turning down jobs when confronted with arbitration agreements - particularly given the pervasiveness of the practice.
The FAA thus empowers federal courts to grant a stay of litigation for any issue referable to arbitration under a valid arbitration agreement. Indeed, the Supreme Court has sought to ensure that the FAA’s authority is not usurped, for “[i]n enacting Section 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.”
It is common for employers to draft agreements conditional on the signee’s consent to arbitrate any and all claims arising from their relationship with the employer, often impeding just for sexual assault survivors. More than half of American workers—56%—are subject to mandatory arbitration. 60 million Americans have signed such clauses.
Should a signee refuse to surrender their Seventh Amendment right to trial by jury, she would likely be prohibited from entering the relationship at all. While employers argue these provisions are offered contingent on a consensual agreement to the terms, few employees have the luxury of turning down jobs when confronted with arbitration agreements - particularly given the pervasiveness of the practice.
Benefits of an Arbitration Clause
To be clear, conditional arbitration clauses are not universally criticized and may provide benefits to some employees. Sometimes arbitration does make sense for both parties.
First, the relaxed rules of evidence and the greater control parties hold in the process can make it simpler, and perhaps more rewarding, for employees than litigation. While litigation requires strict compliance with formal procedures and can leave plaintiffs dissatisfied if their primary purpose was to feel heard, the opportunity for a sexual harassment victim to tell her story with less publicity and arguably more attention from the defendant can appeal to these victims.
This benefit has its tradeoff, though, where arbitration has almost none of the protections that fundamental fairness and due process usually require. Although an employee compelled to arbitrate may initially believe she is not giving up much in return for a relaxed setting with more opportunity to have her voice heard, the fact-finders in arbitration operate with almost none of the controls and safeguards of litigation.
First, the relaxed rules of evidence and the greater control parties hold in the process can make it simpler, and perhaps more rewarding, for employees than litigation. While litigation requires strict compliance with formal procedures and can leave plaintiffs dissatisfied if their primary purpose was to feel heard, the opportunity for a sexual harassment victim to tell her story with less publicity and arguably more attention from the defendant can appeal to these victims.
This benefit has its tradeoff, though, where arbitration has almost none of the protections that fundamental fairness and due process usually require. Although an employee compelled to arbitrate may initially believe she is not giving up much in return for a relaxed setting with more opportunity to have her voice heard, the fact-finders in arbitration operate with almost none of the controls and safeguards of litigation.
Second, arbitration garners less, if any, publicity, which may appeal to some harassment victims wishing to keep their accusations private. Oftentimes the conclusion of arbitration is accompanied by a non-disclosure agreement, which makes the outcome contingent upon the silence of the parties.
Non-disclosure agreements are contracts whereby parties agree to limit what they say about a dispute in the future, and in sexual harassment cases, may become part of the deal to get employees to take a form of compensation in exchange for keeping the terms of the arbitration private.
However, these agreements, much like the aforementioned arbitration agreements, are mandatory agreements that give employees very little, if any, bargaining power to negotiate the terms. A desire for privacy and a gag-order are hardly interchangeable, though.
The inability to make grievances public may be a drawback for those who want to hold their employer liable in the eyes of the public or form class actions with similarly situated employees. It is hard to deny the power public scorn holds, as evidenced by the demise of many powerful men in entertainment and politics who have been forced to resign or were otherwise terminated from their positions after accusations of sexual misconduct came to light.
Non-disclosure agreements are contracts whereby parties agree to limit what they say about a dispute in the future, and in sexual harassment cases, may become part of the deal to get employees to take a form of compensation in exchange for keeping the terms of the arbitration private.
However, these agreements, much like the aforementioned arbitration agreements, are mandatory agreements that give employees very little, if any, bargaining power to negotiate the terms. A desire for privacy and a gag-order are hardly interchangeable, though.
The inability to make grievances public may be a drawback for those who want to hold their employer liable in the eyes of the public or form class actions with similarly situated employees. It is hard to deny the power public scorn holds, as evidenced by the demise of many powerful men in entertainment and politics who have been forced to resign or were otherwise terminated from their positions after accusations of sexual misconduct came to light.
Downsides for Employees Subject to Arbitration Agreements
There are other reasons why the arbitration process may harm employees as well.
First, employers often have arbitrators on retainer to rely on for many arbitration proceedings. It goes without saying that arbitrators on an employer’s payroll may be inclined to skew findings in the employer’s favor.
Second, there is less transparency to evaluate awards, so even prevailing employees may receive less in damages than they would have had they not been bound by the arbitration agreement.
Third, plaintiffs are prevented from joining in class actions, which is often the surest way to thrust employer misconduct into the public eye and compel employers to conform their behavior to the law. Without the ability to form class actions, individuals will likely not know the scope of employer misconduct and the extent to which the company may truly be liable, resulting in less actual change in company practices.
Lastly, arbitration can be incredibly costly despite the popular belief that arbitration avoids the costly expenses of litigation.
Thus, arbitration is not always in the best interests of an employee, which is why mandatory arbitration agreements are particularly troubling.
While seeking redress in the courtroom may pose its own challenges to an employee, the choice of forum for a particular grievance should be a consensual decision made by both parties and should not be the exclusive decision of an employer with more leverage. Not only do employers have the benefit of unequal bargaining power when entering into contractual relationships with employees, but courts today construe arbitration clauses incredibly liberally.
Broadly written arbitration clauses can include virtually all disputes with any connection to the initial infraction and their broad drafting can create a presumption that any dispute is subject to arbitration. Moreover, once a court has found an arbitration clause is valid, it will resolve any doubts as to the agreement’s scope in favor of arbitration.
First, employers often have arbitrators on retainer to rely on for many arbitration proceedings. It goes without saying that arbitrators on an employer’s payroll may be inclined to skew findings in the employer’s favor.
Second, there is less transparency to evaluate awards, so even prevailing employees may receive less in damages than they would have had they not been bound by the arbitration agreement.
Third, plaintiffs are prevented from joining in class actions, which is often the surest way to thrust employer misconduct into the public eye and compel employers to conform their behavior to the law. Without the ability to form class actions, individuals will likely not know the scope of employer misconduct and the extent to which the company may truly be liable, resulting in less actual change in company practices.
Lastly, arbitration can be incredibly costly despite the popular belief that arbitration avoids the costly expenses of litigation.
Thus, arbitration is not always in the best interests of an employee, which is why mandatory arbitration agreements are particularly troubling.
While seeking redress in the courtroom may pose its own challenges to an employee, the choice of forum for a particular grievance should be a consensual decision made by both parties and should not be the exclusive decision of an employer with more leverage. Not only do employers have the benefit of unequal bargaining power when entering into contractual relationships with employees, but courts today construe arbitration clauses incredibly liberally.
Broadly written arbitration clauses can include virtually all disputes with any connection to the initial infraction and their broad drafting can create a presumption that any dispute is subject to arbitration. Moreover, once a court has found an arbitration clause is valid, it will resolve any doubts as to the agreement’s scope in favor of arbitration.
Do Claims of Sexual Harassment in the Workplace Have To Be Arbitrated Under These Mandatory Arbitration Agreements?
Until Congress amends the FAA to prohibit forced arbitration of such claims, most sexual harassment claims subject to a valid and enforceable arbitration agreement will need to be arbitrated according to the terms of the employment contract.
Employees should always seek guidance from a licensed employment attorney experienced in sexual harassment actions to understand their rights and obligations.
Employees should always seek guidance from a licensed employment attorney experienced in sexual harassment actions to understand their rights and obligations.
Are you facing sexual harassment in the workplace?
Do you have questions about your circumstance or the arbitration agreement in your employment contract?
Do you have questions about your circumstance or the arbitration agreement in your employment contract?
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