I Signed What? What Happens When Your Employment Lawsuit is Subject to an Arbitration Clause

Last updated April 21, 2018.

I have been representing employees in discrimination, retaliation, and whistle-blower claims against employers for two decades now. On several occasions, clients who steeled themselves to take the fight to court were astonished to learn that they had no lawsuit because they had unwittingly waived their right to trial. In other words, they had signed an employee handbook or collective bargaining agreement that contained a mandatory arbitration provision.

Arbitration is a type of Alternate Dispute Resolution, or “ADR.”As I’ll explain below, there are advantages and disadvantages to arbitrating an employment claim. If you’re a prospective plaintiff, however, the most important thing for you to know is that signing a mandatory arbitration clause means you waive your right to file your claim in court to be tried by a judge and/or jury. Instead, you agree to submit your claim to a paid arbitrator who, after an informal hearing, will issue a decision.

That being said, here’s a few things to keep in mind at every stage of the game.

Review Your Arbitration Agreement

Before foregoing a lawsuit, have your attorney examine your arbitration agreement to make sure that it’s legally enforceable.

Mandatory arbitration provisions are becoming increasingly common as employers seek to shield themselves from liability under the anti-discrimination and whistleblower laws. Courts usually defer to arbitration provisions and hold them as binding, as long as (1) the provision clearly and unambiguously explains that the employee is agreeing to waive his or her right to trial; and (2) there is evidence the employee clearly and unambiguously agrees to this.  

What qualifies as solid evidence an employee agrees to arbitrate? A New Jersey Appellate Court answered that question in C.M. v. Maiden Re Insurance Services, LLC. There, the arbitration clause in question was found in the back of an employee handbook under a section titled “Company Guidelines.” The same handbook also contained a disclaimer stating that nothing in the handbook was intended to create a legally binding employment contract (how’s that for confusing?). To add to the mess, the employee was never required to sign the handbook, but only to send an email confirming it was received.

Not surprisingly, the Court ruled that this was insufficient evidence of the employee’s intent to waive the right to trial. At a minimum, the Court found that a binding waiver should be indicated by an employee signature that is specific to the arbitration provision — not just a general signature acknowledging the employee’s receipt of a handbook with an arbitration clause tucked somewhere inside.

Filing a Separate EEOC/Wage and Hour Claim

Talk to your attorney about this option, even if your arbitration agreement is binding.

Your employer can require you to waive the right to file an employment lawsuit in court as a condition of employment. However, you still retain the right to file a charge with the Equal Employment Opportunity Commission (the “EEOC”) if you have a claim that you were discriminated against due to race, age, gender, or other protected category.  

Even if the EEOC finds in your favor and issues you a “right to sue” letter, the arbitration clause means you won’t get your day in court. However, the EEOC will conduct an investigation that may bear pressure upon your employer, and a right to sue letter may be used as evidence in your favor in arbitration proceedings.

Pros and Cons of Arbitration

Your attorney, of course, will be the one to discuss the advantages and disadvantages of ADR with you in depth. Here’s a very brief summary for your general reference.

Arbitration Advantage: Speed

This is the foremost advantage of arbitration. As I’ve stated before on this blog, litigation is a slow grind that can take years before a settlement or verdict is reached. With arbitration, in contrast, the parties select and schedule an arbitrator, usually through an organization like the American Arbitration Association. The dispute is heard and decided in a matter of weeks or months.

Arbitration Advantage/Disadvantage: Informality of the Process

In arbitration, there is no formal discovery process like there is in a court case. Discovery rules and rules of evidence that are codified in New Jersey and federal law don’t apply; rather, the arbitrator and the parties agree upon what information is relevant and discoverable and how to obtain it.

This is a “double-edged” sword, depending upon your claim. It’s a “pro” if you have a claim that is strongly supported by documents that are already in your possession or easily produced by your employer. For example, you might have copies of years of positive performance reviews, followed by the negative performance review and termination letter you received after you announced your pregnancy. These can be exchanged between the parties informally as part of your arbitration claim, without the hassle and delay of the “Document Requests” characteristic of a court claim.

It’s a “con,” however, if your claim requires your attorney to obtain documents outside your knowledge and possession, or testimony from reluctant or hostile witnesses. In these instances, your attorney cannot rely upon court rules to compel employers to produce relevant emails, or important co-workers to be deposed. These discovery rules have serious legal consequences should employers flout them; in their absence, you have less leverage for obtaining all the evidence in your favor.

Arbitration Advantage: Cost

Arbitration is usually advantageous in that it’s less costly than litigation. However, there will still be filing fees and the expense of an arbitrator’s daily fee.

An Arbitrator as Decision-Maker v. A Jury

Again, this one’s a double-edged sword. Juries can be notoriously unpredictable, which plaintiff’s employment attorneys rely upon as leverage in obtaining their clients settlements for court cases. Moreover, juries can be strongly sympathetic and enter larger verdicts for plaintiffs with particularly egregious cases of discrimination, such as those involving unwanted sexual touching and the use of racial slurs (remember that juries often award emotional damages for these offenses, when supported by the evidence).

In contrast, an arbitrator may be more concerned with “splitting the difference” between employer and employee in the interest of getting the claim resolved quickly.

Very generally speaking, then, the more severe the claim of discrimination or retaliation, the less advantageous it is to arbitrate. More problematic claims — like ones that involve “he-said, she-said” competing evidence, or plaintiffs with a less-than-pristine employment history — may fare better.

The Binding Nature of Arbitration

This is potentially the largest drawback to arbitration. While court judgments are most often appealable, it is very difficult to overturn an arbitrator’s decision absent some egregious error or impropriety.

If you have questions regarding an arbitration agreement, or the arbitration of your employment law claim, call our offices today for a free consultation.