At Pelton Graham, we have seen many instances where workers are required to sign pages and pages of paperwork full of dense legal language without any explanation of what they are signing and what rights they may be giving up. In the United States, employment contracts that spell out an employee’s wages and benefits, responsibilities, and protections from arbitrary discipline and termination are relatively rare. In certain industries, non-compete and confidentiality agreements are common and, in theory, are put in place to protect companies’ trade secrets and intellectual property.
However, what we encounter most frequently are forced arbitration provisions. Workers are frequently presented with these papers when they start working at a new job, but they may also be required to sign these agreements during their employment. Often workers do not understand what they have signed until they try to enforce their rights and discover that they have signed away their right to bring a case to court.
As more and more workers learn about minimum wage and overtime protections and file cases in court to recover unpaid wages, companies are taking steps to prevent workers from bringing these cases—including requiring workers to sign arbitration agreements. We have seen this phenomenon across industries in all types of work, for both hourly and salaried workers of all income levels. Often times these arbitration agreements are coupled with agreements that purport to designate workers as “independent contractors” regardless of whether workers should legally be classified as employees or contractors.
What Is Arbitration?
Arbitration is one process for addressing and resolving disputes outside the court system. Instead of a judge or jury, disputes in arbitration are settled by one or more arbitrators. Arbitrators may be attorneys, retired judges, experienced in a specific industry or type of dispute—but there are no legal standards, requirements or qualifications for a person to serve as an arbitrator.
Unlike judges and juries in court, one or both sides to the dispute must pay the arbitrator for their time. Since many arbitrations are conducted by arbitration associations or organizations, parties to an arbitration must also pay fees to the arbitration association. Depending on the amount of a claim and the duration of the arbitration, these costs can easily run into the tens of thousands of dollars.
Arbitration is often touted as being faster and less formal than filing a case in court. The rules of evidence are less strict, but the parties’ opportunity to obtain information from the other side or third parties is usually more limited. Unlike court orders, the decisions and proceedings of arbitration are secret. Since employers typically draft these arbitration agreements, they are able to set the parameters of the arbitration in ways that favor them.
Are Forced Arbitration Agreements Legal?
Federal law typically favors enforcement of arbitration agreements. State laws typically treat arbitration agreements the same way they treat any other contract and determine whether they are valid by examining the content of the contract and the circumstances under which it was signed.
In certain instances where the circumstances of an employee signing an arbitration agreement are extremely unfair and coercive and the agreement itself is highly favorable to the company and detrimental to the employee, courts sometimes find arbitration agreements unenforceable. However, the standards for declaring an arbitration agreement invalid are typically quite demanding and are only met in the most egregious cases.
Most employment claims can be subject to arbitration, depending upon the wording of the agreement. This includes discrimination based on race, gender, religion, age, and disability; unpaid wages; and FMLA leave. Forced arbitration is also common in other contexts, especially consumer transactions. These clauses also often prohibit individuals from seeking to pursue claims on behalf of a class or collective. This is particularly dangerous because employment and consumer claims can be relatively small as to each individual. In these instances, there is little incentive to pursue individual claims even though there are many individuals affected by the same issue.
What is the Future of Forced Arbitration?
In light of the abuses of forced arbitration, employee advocate organizations are fighting back. A 2014 executive order prohibited federal contractors from requiring employees or independent contractors to sign arbitration agreements on certain federal contracts.
In 2017, members of Congress introduced several bills that seek to prohibit or limit employers from requiring employees and job candidates to sign arbitration agreements as a condition of getting or keeping their jobs.
In 2018, the Employee Rights Advocacy Institute for Law & Policy published a study finding that many of the biggest employers in the United States use forced arbitration clauses and class action waivers to prohibit employees from vindicating their rights in court. The study called for legislators and others to re-examine the federal law governing arbitration to better protect vulnerable workers.
What Are My Rights?
Each arbitration agreement is different and may provide different rules for which disputes must be arbitrated and how the arbitration must be conducted. If you are concerned about an arbitration agreement you signed, or if you have discrimination or unpaid wage claims and have questions about how an arbitration agreement may affect those claims, you should contact a knowledgeable, experienced attorney to talk you through your rights. At Pelton Graham we have experience advocating for employees in both the courts and arbitration and are happy to talk with you about any concerns you may have.