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Arbitration Clauses in Employment Contracts

by | Nov 29, 2021 | Employment Law |

On November 16, 2021, female employees of several large companies testified before the House Judiciary Committee in support of banning forced arbitration agreements contained in employment contracts.

To be clear, the sole purpose of an arbitration clause is to keep the fact pattern out of the media to protect the company and by extension, the harasser. A public hearing on the issues is the greatest leverage an employee has against their employer, and the arbitration clause completely negates that leverage.

Until the law changes or the legislature acts, arbitration agreements are widely and broadly enforced by our courts, mostly because they remove the case from the dockets of an already overburdened judiciary. Courts happily enforce arbitration clauses that come close to meeting the criteria for a valid arbitration agreement, even if not perfectly compliant.

Arbitration in Employment Law

Typically, arbitrators are not as neutral as the courts. There are several private arbitration services, such as the American Arbitration Association or JAMS, that manage the arbitration process and provide a list of pre-approved arbitrators for the parties to select from. By and large, most of the arbitrators on the list came from large firms and spent their careers representing companies, not employees.

While the arbitrators are not likely to do anything overtly prejudicial to the employees, prejudice occurs in small ways, such as restricting the scope of discovery as defined by the company’s scope of what is relevant, excluding evidence the employee believes to be relevant, sustaining company objections to testimony, etc. Arbitrators’ bias against employees shows in these small actions, which will not rise to the level of abuse of discretion necessary to overturn the arbitrator’s ultimate decision. This decision is binding on the parties.

How Arbitrations Can Work in the Employee’s Favor

An interesting twist in arbitration agreements that may work in the employee’s favor is an arbitration clause that requires the company to cover the costs of arbitration. This is likely to promote settlement of lower value cases since arbitrators typically charge between $400-$700 per hour, and the arbitration administrator typically takes a bulk of those fees up front.

While defense counsel are often happy to litigate the matter, being paid by the hour to do so, the client may not wish to continue litigation—both counsel and arbitrator fees are racking up fast and will quickly surpass the total value of the plaintiff’s demand.

The Bottom Line
Know what you are signing. Make sure you read your employment contracts, stock grant agreements, and other employment-related documents to understand whether you have an arbitration clause and what its parameters are.

If you are an employer struggling with an arbitration clause and your rights according to employment law, you’ll benefit from seeking the experienced counsel of an employment lawyer in New Jersey.

Reach out to Hamilton Law Firm to schedule a consultation.

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