One of the most distinctive aspects of employment arbitration has to do with the parties involved: employer and former employee. This relationship facially creates a power dynamic that at times could seem daunting for an employee, particularly when a dispute arises.

When starting a new position, many employers require, as a material condition of employment, that an employee agree to mandatory arbitration in the event of a dispute with that employer. As a general rule, these types of agreements are lawful and enforceable.

There are pros and cons associated with mandatory arbitration provisions for both the employer and employee. For example, many employers are keen to enforce these provisions because they are cost-effective, and concerning claims associated with discrimination or retaliation, the confidentiality of arbitration can protect an employer from unwanted public scrutiny.

The same is not true for employees. The cost-effectiveness of arbitration likely is not as relevant to employees, as their representation is typically based on contingent fee agreements.

While public attention to employment claims can alert other possible plaintiffs of claims that can lead to class and collective arbitration actions, exerting leverage against a large employer, plaintiff’s attorneys can lose the ability to facilitate settlement negotiations for individual plaintiffs. Unlike juries who may feel sympathy for a plaintiff-employee and award large punitive damages, a neutral arbitrator is less likely to feel that same sympathy. Thus, the threat of using a sympathetic jury as leverage to facilitate settlement is not present.

However, there are certain advantages that favor the employee. For example, because of limited discovery rules and issues not always getting narrowed before a hearing, arbitrators are less likely to grant dispositive motions. This is also true because arbitrators inherently lack the incentive that courts have to eliminate cases that lack merit from their lengthy dockets. In this light, many employment disputes go the distance in arbitration, which may pose a risk to an employer and incentivize it to settle.

Even if an employee is subject to a mandatory arbitration provision, some claims can be resolved outside arbitration. For example, during the Biden Administration, Congress amended the Federal Arbitration Act to give employees, who are parties to arbitration agreements, the option of bringing claims of sexual assault or harassment either in arbitration or in court ¹.

Additionally, the Supreme Court in 1991², clarified that arbitration agreements do not preclude an individual’s right to file a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”). In 2002³, the Supreme Court further ruled that the EEOC has the authority to bring a federal lawsuit on behalf of an employee even when there is a binding arbitration agreement in place.

Footnotes

1. See 9 USCS § 402.

2. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 28 (1991).

3. EEOC v. Waffle House, Inc., 534 U.S. 279 (2002).