If you have ever signed a contract, you have probably asked, “Should I sign an arbitration agreement?” The most common place people may see an arbitration agreement that gives them pause is an employment agreement. Many companies have begun to include arbitration agreements in their contracts with employees because it may make dispute resolution cheaper and faster; however, some employees question the efficacy and the fairness of requiring an agreement as part of the employment.
This article will quickly discuss what an arbitration agreement is and then discuss the benefits and drawbacks of signing an arbitration agreement with an employer. Finally, this article will discuss the considerations that an employee should make when choosing whether to sign an arbitration agreement.
What Does Signing an Arbitration Agreement Do?
Before other discussions, it is crucial to understand what an arbitration agreement is and what signing it will do. In short, an arbitration agreement is an agreement between the parties that any disputes that may arise between the parties will be submitted to arbitration rather than litigation. Typically, when a party signs an arbitration agreement, they will have to bring a dispute that deals with the contract that the agreement is in arbitration.
So, for example, if an employee signs an arbitration agreement as a part of an employment contract, if there is an employment dispute between the employee and employer, it must go to arbitration. However, if a dispute arises between an employee and an employer based on a car accident offsite and outside of work, the dispute could be submitted to litigation.
Types of Arbitration Agreements
In general, most arbitration agreements will be mandatory between the parties, meaning that the agreement binds them and cannot choose litigation over arbitration, except in a few instances where there was no bargaining power and the contract is unconscionable. However, a few other classifications for arbitration agreements may change the impact of an arbitration agreement. These classifications include:
- Mandatory: As mentioned above, a mandatory arbitration agreement requires the parties to submit a dispute that arises to arbitration.
- Voluntary: A voluntary arbitration agreement usually arises after a dispute has already arisen. It means that the parties choose to submit this specific dispute to arbitration. It could also be included in a contract as a preference for arbitration; however, it would not have the power to enforce.
- Binding: This is more about the type of arbitration. An agreement may submit a dispute to binding arbitration, which means that the parties must follow the arbitrator’s decision.
- Nonbinding: Conversely, an agreement for a nonbinding arbitration agreement means that a dispute will be submitted to arbitration, but the arbitrator’s decision is a suggestion to the parties as a way of fairly dealing with the dispute. The parties may decide to follow the award or devise their solution.
Benefits of an Arbitration Agreement
Regardless of the type of arbitration agreement, signing any arbitration agreement will provide specific benefits and drawbacks for the parties. Some benefits for one party will be drawbacks for the other, and vice versa. Because this article is aimed at helping employees decide if signing an arbitration agreement is the best practice, the benefits and drawbacks will be discussed from the employee’s point of view. However, the effect on the employer will be noted when dramatically different.
Some benefits of signing an arbitration agreement include:
Speed:
Litigation can take a long time, especially when the courts are very backed up. A trial may be set months or years from when a claim arises. Employment disputes also often involve regulatory agencies with incredibly slow-moving dockets. Arbitration, on the other hand, maybe completed relatively quickly. Arbitration may be completed in a few months, depending on the issue’s complexity.
Experts:
Suppose a dispute involves a particular type of issue that requires some specialized knowledge. In that case, the parties may choose an arbitrator with knowledge of the subject matter and avoid costly expert witness before a judge with little to no knowledge or experience with the subject matter.
Expense:
This is usually a benefit for both parties. As mentioned in the previous two points, there are many places where the parties may save money in arbitration over litigation. Litigation requires court costs, and the parties must pay their lawyers for all the time and discovery costs. Expert witnesses are often very expensive as well.
Privacy:
Employment disputes may involve sensitive topics, and the parties may not want their dispute heard in a public court. Arbitration offers a confidential venue for these disputes. However, it is important to note that privacy may also be used to disadvantage an employee.
If an employer consistently takes certain disputes to arbitration and the employees are not able to discuss the outcome, many employees may be facing similar issues with their employer yet not addressing the root cause. Watching for this in the workplace is important and should be noted.
Informality:
Arbitration is not as formal as litigation. The parties are often seated around a table and participate in a more conversational discussion. The rules of evidence and other rules are not as strict or do not apply, making it easier to present a case. This can be beneficial for parties without resources and who cannot afford lawyers.
Finality:
Arbitration awards are usually final and binding, and the possibility of an appeal is very limited. Therefore, it is unlikely that it will drag out.
Drawbacks of Arbitration Agreement
There are also some drawbacks to having a signed arbitration agreement. These drawbacks include:
Finality:
While finality can be a benefit, it can also be a drawback, especially for the party that the arbitrator does not side with. This can be particularly problematic when a person signs arbitration agreements without much bargaining power, so the agreement must be evaluated, as discussed below.
Discovery:
Discovery is limited in arbitration and often faster, leaving less time to investigate the situation thoroughly. This can be particularly problematic if a company dumps a lot of documents on discovery requests to an employee who cannot review them.
Injunctions:
Litigation allows parties to request relief in the interim between the beginning of the dispute and the decision by the judge or jury. This can benefit parties who need the other to stop or continue doing something until the decision is made. This is not usually available in arbitration. An arbitrator may make an emergency decision to control the parties’ actions in the interim. Still, usually, the parties would have to agree to give the arbitrator that power and that is often unlikely.
Splitting:
There is a chance that an arbitrator may make a decision that holds both parties responsible to the other and can result in a “win” that limits recovery for employees. This can often result in minimal recoveries for employees that are very unlikely in litigation, which tends to decide for one party.
Considerations When Signing an Agreement
So now, understanding the benefits that signing an arbitration agreement can provide and considering the possible drawbacks; there are a few important considerations when deciding whether to sign an arbitration agreement. These include:
How much choice does the agreement provide?
Some agreements allow the parties to choose an arbitrator together or have one appointed by an organization. However, parties should be wary of an agreement that gives the other party control of the arbitration choices.
What does the balance of power look like?
If arbitration would place a big company with many lawyers on retainer against an employee with few resources, it may be best to discuss the agreement’s implications before signing it.
Can the employee oppose the agreement and still have a job?
If the employee can’t refuse to sign the arbitration agreement if they have reservations about the agreement and still have the job, they should record that they object to the agreement and sign the contract to start their job. This may provide a way for the employee to object later on.
Would arbitration be beneficial for the party?
If arbitration would benefit the employee, which it can be in situations where the balance of power is more even, it may be the best option, and an employee should sign it.
Conclusion
Signing an arbitration agreement as part of a larger agreement is an important consideration that cannot be taken lightly. Such an agreement will likely bar the party from bringing a suit in court and binding them to an arbitration decision, so certain rights and wishes must be considered. Arbitration has many advantages that may benefit employees more than litigation would, but it also has some drawbacks that need to be considered.
While arbitration may seem scary and restricting, understanding the basics of arbitration and using the advantages provided by arbitration to an employee’s advantage may allow the employee to overcome even the most imbalanced of arbitration agreements. Arbitration agreements can save everyone time and money, but they must be entered into with caution and understanding to achieve the promised benefits.
To learn more about when you should sign an arbitration agreement, arbitration, mediation, and more, contact ADR Times today!
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