Mandatory Arbitration Agreements Unfairly Deny Employee Rights

It has become standard practice for employers to require that prospective employees sign a pre-employment agreement as a condition of accepting a job. More often than not, the fine print in these agreements includes a mandatory arbitration clause, which requires the employee to give up any rights to bring a lawsuit against the employer for any wrong, including wrongful termination, discrimination or sexual harassment. Rather than file a lawsuit in court, the employee must agree to bring his or her claim against the employer before an arbitrator.

Limiting Perceived Constitutional Rights

Arbitration is a form of alternative dispute resolution. Each party presents its case and any evidence supporting its claim to an arbitrator or a panel of arbitrators. The arguments in favor of arbitration include the efficiency of the process and its lower costs.

However, unlike voluntary arbitration – in which the parties agree after a dispute has arisen to submit to arbitration rather than the courts – employees are forced to agree to submit any future dispute to arbitration. In many cases, if they don’t sign the agreement, they don’t get the job. The employer has all of the bargaining power and the employee’s only option is to agree to the employer’s terms.

Many times, employees are not even aware they have signed a contract that includes a mandatory arbitration clause. And those who do know what they signed rarely understand the full extent of rights they have forfeited by signing the agreement.

Mandatory arbitration agreements result in a loss of perceived constitutionally protected employee rights, including:

  • The right to a jury trial. Under the Civil Rights Act of 1991, employees are entitled to have a jury hear their discrimination claims. In arbitration, there is no jury. The arbitrator acts in the role of judge and jury in deciding the case.
  • The right to appeal. Arbitration decisions are binding, meaning final, and there are limited opportunities to appeal decisions.
  • The right of access to the courts. Not just employees, but all individuals believe they have the right to have their legal claims heard in court. Mandatory arbitration provisions take this option off the table.
  • Limited right to recover damages. Even in cases where the employee is successful and wins in arbitration, whether he or she can recover the full extent of damages available under the law can be limited by the arbitration agreement.
A Convenient Forum for Employers

There have been arguments made that arbitration is more favorable to employees because it gives them access to a less expensive forum than the courts, thus giving them a greater opportunity to have their grievances heard. But it is highly questionable whether the arbitrators sitting on employment arbitration panels are in fact the neutral decision-makers they are purported to be. The arbitrators and the choice of forum for the arbitration are selected by the employer. Thus, the arbitrators have an incentive to find in favor of the employers rather than the employees in order to ensure repeat business.

There are additional facts that make arbitration an unfair forum for wronged employees, including:

  • Arbitrators do not have to follow the law. In Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009), the Fifth Circuit ruled that courts do not have the authority to vacate an arbitrator’s decision, even if the arbitrator acted in "manifest disregard of the law."
  • Arbitrators do not have to issue written opinions explaining how they interpreted the law and applied it to the employee’s case.
  • There is limited discovery in arbitration, which can fatally damage employees’ cases because they are not given the means to collect the necessary evidence to support their claims.
  • Arbitration is a secretive forum, not open to the public and the arbitration agreement may require that the results be kept confidential.

As part of the arbitration agreement, employees may be required to pay all of the fees and costs of the arbitration if they lose. This can serve as a strong deterrent to employees who may be considering bringing cases against their employers, but are afraid of what will happen should they lose and be forced to pay the costs out of pocket.

Arbitration Fairness Act of 2009

Recognizing the inherent problems with forcing employees to sign mandatory arbitration agreements as a precondition of employment, Congress has put together its latest effort to invalidate these agreements.

On February 12, the Arbitration Fairness Act of 2009 (H.B. 1020) was introduced by Rep. Hank Johnson (D-Ga). The Act seeks to make pre-dispute arbitration agreements illegal in employment contracts as well as certain consumer contracts and franchise agreements. Voluntary arbitration agreements in any of these three areas would remain valid and legal. A sister bill was introduced into the Senate on April 29, 2009 (S. 931) by Sen. Russ Feingold (D-Wis). Both bills are currently in committee.

If passed, the Act would amend the Federal Arbitration Act (FAA), which requires courts to recognize and enforce valid arbitration agreements. Many commentators believe federal courts have given too much deference to the decisions of arbitrators under the FAA.

Should the Arbitration Fairness Act of 2009 become law, it would reverse case law that currently gives arbitrators the authority to determine whether or not a dispute falls within the arbitration agreement and return this authority to the courts. It also would invalidate any mandatory arbitration agreements signed before the Act became law, so long as a dispute had not arisen under the agreement before the Act was passed.

There is hopeful optimism that the Act will be passed and signed into law, but it may be too early to tell at this point. A similar bill that sought to remove mandatory arbitration clauses from nursing home contracts died in committee last year.

There does, however, appear to be public support for passing the law. A study conducted by Lake Research Partners (which was commissioned by The Employee Rights Advocacy Institute For Law & Policy and Public Citizen) found that 59% of Americans are against mandatory arbitration agreements and the same percentage are in favor of the Arbitration Fairness Act.


Many commentators believe that mandatory arbitration in the employment context has become nothing more than a privatized system of justice that has been sheltered from public scrutiny and made unaccountable to the courts.

Without a change in the current laws regarding mandatory arbitration, employers will be allowed to require employees to forfeit perceived constitutionally protected rights as a condition of employment. The Arbitration Fairness Act represents an opportunity to level the playing field and give employees back their bargaining power and ability to pursue valid legal claims against their employers in the court system.