Arbitration at Work

An increasing number of workers have recently been asked to sign “arbitration” agreements in order to get or keep their jobs. These agreements are not always easy to understand, but they can have a big effect on workers and any potential claims they have against their employers.

    What is arbitration?

    Arbitration is an out-of-court method for resolving a dispute between a worker and an employer.  Arbitration takes place in front of a neutral decision-maker called an “arbitrator” (or in some cases, a group or “panel” of arbitrators) who will listen to each side and make a decision about the case.

    What happens in arbitration?

    Before arbitration, the employer and the employee (together known as the “parties”) select an arbitrator to hear their dispute. Once the arbitrator is selected, the parties will work with the arbitrator to set a date to “hear” their case. During an arbitration “hearing,” the arbitrator will listen as the parties present evidence, may ask questions of the parties and their witnesses, and may schedule more time for a party to submit evidence that the arbitrator thinks is necessary to prove or disprove a claim. Sometime after arbitration, the arbitrator will decide who won. This decision must be in writing. The decision is final and binding so the parties are expected to obey the arbitrator’s decision.  If they don’t, they can be sued.  In very limited cases, a party that is unhappy with the decision may “appeal” the decision to a court, but an arbitrator’s decision is quite difficult to overturn.

    Who is the arbitrator, and who chooses her/him?

    Arbitrators are qualified professionals who act as neutral decision-makers during arbitration. Arbitrators may be former judges, current or former attorneys, non-lawyers, and may specialize in certain areas such as employment law. Typically, the arbitrator is mutually chosen by the worker and the employer. However, if the worker and employer cannot agree, an arbitrator may be appointed by a court or suggested by a third-party provider (an organization or service that keeps a list of approved arbitrators). Both parties have the right to an arbitrator that is independent and unbiased. By law, an arbitrator must tell the parties if there is reason to believe that the arbitrator will be biased. An arbitrator will usually only be considered biased if the arbitrator has or had a relationship with one of the parties, such as being a family member of the employee or being a customer or supplier of the employer. For information about arbitrators, or for more information about private arbitration agencies, see the American Arbitration Association (www.adr.org), JAMS (www.jamsadr.com), or the National Arbitration Forum (www.arb-forum.com).

    Is arbitration the same as mediation or a grievance procedure?

    No. Arbitration is different from “mediation” and “grievance procedures.” In mediation, the neutral “mediator” does not make a final decision. Instead, the mediator will meet with the parties to help them discuss and brainstorm solutions. A mediator can share her/his opinion, suggest solutions, and even draft settlement proposals, but it is still up to the parties to negotiate how to end their dispute. In contrast, an arbitrator’s decision is “binding,” and is expected to be followed by the parties. A grievance procedure is a process designed by the employer (or the employer together with the worker’s union) for the worker to use to resolve her/his dispute. Grievance procedures are usually unique to each employer, but often involve any of the following: speaking with the employer’s Human Resources department, submitting a written account of the problem, confronting the people causing the problem, discussing strategies such as changing work locations or work schedules, or having an internal investigation. The final step in some grievance procedures is arbitration.

    How do I know if I have to go through arbitration?

    You will likely have to take your workplace dispute to arbitration if, in your employment agreement or application for employment, you signed an “arbitration clause.” An arbitration clause is typically found in an employment agreement, application, or employee handbook. An arbitration clause requires workers to go to arbitration, rather than file a lawsuit, for some or all kinds of employment-related claims.[1] See below some examples of arbitration clauses. Example 1: Any controversy, dispute or claim arising out of or relating to this contract or breach thereof shall first be settled through good faith negotiation. If the dispute cannot be settled through negotiation, the parties agree to arbitration administered by [an arbitration service provider] pursuant to [the service provider’s] rules and procedures for arbitration. Judgment on the Award may be entered in any court having jurisdiction.[2] Example 2: Should any dispute between Employee and Employer arise at any time out of any aspect of the employment relationship, including, but not limited to, the hiring, performance, or termination of employment and/or cessation of employment with the Employer and/or against any employee, officer, alleged agent, director, affiliate, subsidiary or sister company relationship, or relating to an application or candidacy for employment, Employee and Employer will confer in good faith to resolve promptly such dispute. In the event that Employer and Employee are unable to resolve their dispute, and should either desire to pursue a claim against the other party, both Employer and Employee agree to have the dispute resolved by final and binding Arbitration. The Employee and Employer agree that the Arbitration shall be held in the county and state where Employee currently works for Employer or most recently worked for Employer.[3]
    [1] The Federal Arbitration Act (FAA) is the law that allows an employer and a worker to agree, through contract, to arbitration rather than litigation.
    [2] JAMS Guide to Dispute Resolution for Employment Programs and Sample Clause Language (October 2014), JAMS.
    [3] Sample Dispute Resolution Contract Provision (Employment), National Arbitration and Mediation (NAM).

    I signed an arbitration clause, but do I always have to go to arbitration?

    There are some situations where an arbitration clause will not apply to your claim or where a court will not enforce the arbitration clause. Below is a list of some of those situations.
    • The clause is not in writing: to be valid, an initial arbitration agreement must be in writing. However, California law states that parties can agree to extend or renew an existing arbitration agreement without putting anything into writing.
    • Administrative charges: even if an arbitration agreement prevents you from filing a lawsuit in court, it may not prevent you from filing a claim with a government agency such as the Equal Employment Opportunity Commission (EEOC), the Department of Fair Employment and Housing (DFEH), or the Employment Development Agency (EDD). Those claims, also known as “administrative charges,” are typically filed when a worker has faced discrimination, retaliation, or is applying for unemployment insurance, workers’ compensation, or disability benefits.
    • Unconscionability: If an arbitration agreement is so unfair or takes place in unfair conditions, it may be unenforceable because it is “unconscionable.” If a worker believes that an arbitration clause is especially favorable to the employer, the employee may ask a court (or possibly a state agency) to not enforce it. An arbitration agreement may be unconscionable if the agreement:
      • requires the employee, but not the employer, to arbitrate claims;
      • only gives the employer the right to select the arbitrator;
      • requires arbitration in a location that would cause a large financial burden on the worker;
      • limits the worker’s ability to get evidence (documents, testimony or witnesses), but doesn’t limit the employer’s ability to get evidence;
      • limits the amount of money that the worker can win at arbitration (example: an arbitration clause may be unconscionable if it limits the worker to 1-year recovery for unpaid minimum wages).
      • limits the amount of time (known as the “statute of limitations”) that a worker has to file a claim (example: by law, a worker who has faced retaliation by the employer can normally file a lawsuit within two years, but the arbitration clause may be unconscionable if it says the worker must file the retaliation claim in 2 months);
      • states that the worker must pay an unreasonable amount of the costs of arbitration;
      • is signed by the worker after the employer threatens to fire or take a negative action against the worker in the workplace;
      • is provided in a language that the worker cannot read.

    Are there advantages and disadvantages of arbitration?

    Employers often believe that arbitration will be less expensive and quicker than going to court. For that reason, they often require workers to agree to arbitrate disputes before they can begin a job. For employees, however, writings have indicated that arbitration can be less favorable than going to court.  According to the New York Times, since 2010, courts have been more likely to grant an employer’s request to force workers into private arbitration hearings.[1]  Other writings indicate that employers may be more likely to win in arbitration hearings and that, when workers do win, they may win less money than they would in court.[2] Some believe that arbitrators may have an incentive to side with employers, which are more likely to need to hire the arbitrator again for future disputes with other employees, rather than with an employee who is not likely to be a “repeat player.”[3] Nonetheless, a worker may find that there are advantages to arbitration. Listed below are some of the specific advantages and disadvantages to arbitration.
    [1] Robert Gebeloff and Karl Russell, Removing the Ability to Sue, New York Times (October 31, 2015), http:///isadvantagese worker may find that there are advnatages to arbitration.ation hearings; furthermore, when workers do win, they wwww.nytimes.com/interactive/2015/10/30/business/dealbook/arbitration-trends.html.
    [2] Hunter Pyle, The Profoundly Negative Impact of Arbitration on Workers’ Rights (March 6, 2014), http://www.workersrightsblog.com/2014/03/06/profoundly-negative-impact-arbitration-workers-rights.
    [3] Jessica Silver-Greenberg and Michael Corkery, In Arbitration, a ‘Privatization of the Justice System’ (November 1, 2015), http://www.nytimes.com/2015/11/02/business/dealbook/in-arbitration-a-privatization-of-the-justice-sy....

    Can I appeal the arbitrator’s decision?

    An arbitrator’s decision is generally considered to be final and “binding.” Both parties are expected to follow the decision of the arbitrator—if they do not, they may be taken to court. Nonetheless, arbitration decisions can occasionally be appealed. This means that either party can submit a complaint to a state court asking the court to “reverse” the arbitrator’s decision, making the decision invalid. It is very difficult to overturn an arbitrator’s decision. However, arbitration awards may be reversed for the following reasons:
    • The arbitrator was “biased” against a party, or violated the rights of a party;
    • A party won because of corruption or fraud;
    • The arbitrator exceeded her/his powers (typically, when the arbitrator’s reasoning is vague or the award is excessive);
    • The arbitrator failed to tell the parties about a reason that the arbitrator should have been disqualified (due to bias or a relationship with a party).

    I won my arbitration, but the employer hasn’t paid me; what should I do?

    An arbitrator’s award is supposed to be treated just like a court judgment. If your employer has not followed the arbitrator’s decision, you may petition a state court to “enforce the judgment,” meaning that you can ask the court to confirm the award and force the employer to pay. If the award owed to you is less than $10,000, you may submit a claim to small claims court.  If the award owed to you is more than $10,000, you should submit a claim to the Superior Court.  Your claim should be filed in the court of the county where you worked.

DISCLAIMER

This Fact Sheet is intended to provide accurate, general information regarding legal rights relating to employment in California. Yet because laws and legal procedures are subject to frequent change and differing interpretations, Legal Aid at Work cannot ensure the information in this Fact Sheet is current nor be responsible for any use to which it is put. Do not rely on this information without consulting an attorney or the appropriate agency about your rights in your particular situation.