Q: When I was hired in at my present job, I was asked to sign a lot of “on-boarding” documents, which included an arbitration agreement. Two years on, I believe I have been the victim of sexual harassment, and want to sue the company, but I’m told I must use the arbitration process, and I have to pay for the arbitrator. What exactly is arbitration, and do I have to follow their process?
A: First, there are two kinds of arbitration agreements, binding, and nonbinding. As you might expect, a binding arbitration agreement means both sides agree to be bound by the arbitration. In nonbinding arbitration, a decision is final only if accepted by the parties. Most employers prefer using binding arbitration. And, as you’ll see, there’s a reason for that.
Binding arbitration agreements can be found everywhere — consumer contracts, housing, even health care in some cases. You’ve probably signed several arbitration agreements without knowing (the fine print on those software agreements, for example). By giving your consent to binding arbitration, you create a contract under which you agree that if there is a dispute you will give up your right to take your claim to court, where it would be decided by a judge or jury, and will instead use a less formal process in which an arbitrator decides the merits of your case and the appropriate award, if any.
An arbitration proceeding is similar to a trial in some respects — lawyers may be present, testimony is taken, and the arbitrator — often a lawyer or retired judge — decides the case on the law and the facts. As in a court, the arbitrator is supposed to be neutral.
There are some advantages to arbitration — it is quicker, and your testimony does not become part of a public court record, so it is more confidential. The downside is that an arbitrator’s award cannot be easily appealed, the “discovery process” — the exchange of information between the parties — is likely much more limited, and arbitration agreements are often written to favor the party demanding the agreement. Employers, for example, use arbitration agreements as a way to keep litigation costs down and too often craft agreements that make it easier for them to win a dispute.
Unfortunately for workers, courts — both state and federal — generally are unwilling to strike down an arbitration agreement, unless the agreement is so patently unfair to the employee that it violates the standards of ethics for arbitration.
What kind of things would make an arbitration agreement unenforceable? Not a lot. However, courts have held that if the employer has unilateral control over the arbitrator, and if the employer chooses an arbitrator who is clearly not affordable (assuming the agreement requires the employee to pay for arbitration), the agreement might be rendered unenforceable. See, for example, McMullen v Meijer, Inc., 337 F.3d 697 (CA 6, 2003).
An agreement also can be held unenforceable if only one of the parties to the agreement is bound to it. In Heurtebise v Reliable Computers, for example, Michigan’s Supreme Court ruled that an arbitration agreement that was contained within an employee handbook was not enforceable as a binding contract where the employer reserved the right to revise the terms of the handbook at any time. Not surprisingly, more employers are now creating the arbitration agreement as a separate document.
What should prospective employees or new hires do when confronted by an arbitration agreement that asks them to submit any claims relating to unfair treatment at work to an arbitrator — often at the employees’ expense, and to an arbitrator of the employer’s choosing?
Unfortunately, unless the employee is a skilled professional whose services are highly valued or unique, there is not much an employee can do. Failure to sign an arbitration agreement can result in an employer’s decision not to offer a job in the first place, or rescinding a job offer that was already made and accepted.
Yet the push to force workers to arbitrate their grievances is relatively new. Until 1991, only about 2 percent of workers were subject to arbitration agreements. That changed with the Supreme Court’s decision in Gilmer v Interstate/Johnson Lane Corp, (1991), which upheld mandatory arbitration agreements, even to claims brought under Civil Rights statutes like the Age Discrimination in Employment Act. According to a 2018 survey by the Economic Policy Institute, arbitration agreements now deny more than 60 million American workers access to the courts. Moreover, according to the same report, these mandatory agreements are more common in low-wage workplaces, and in industries that are “disproportionately composed of women workers and … of African-American workers.”
What can you do about the arbitration agreement you signed? Likely, not much — but you can consult an attorney, who can evaluate whether the agreement in your case is likely to be enforced.
Attorney Daniel A. Gwinn’s Troy practice focuses on employment law, probate, and trusts and estates. Contact him with legal questions at firstname.lastname@example.org or visit gwinnlegal.com. “Ask the Lawyer” is informational only and should not be considered legal advice.