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The use of arbitration clauses in employment contracts

On Behalf of | Jul 19, 2021 | Mediation & Arbitration

Litigation can be costly, and a public trial can potentially drag on for a long time. Arbitration, on the other hand, can save both time and money. This alternative method of dispute resolution has been popular with unions but is increasingly common in individual employment contracts.

Arbitration requires that both parties agree to the process or have signed a contract with an arbitration clause. Depending on the agreement, arbitration can be either binding or non-binding.

Binding vs. non-binding

Binding arbitration means that the arbitrator’s decision is final, and both sides have to agree to the outcome. With non-binding arbitration, the arbitrator provides guidance that serves as the basis for further discussion and is useful for less complicated disputes.

Employer benefits

Though arbitration is a formalized process, decisions are not typically made public as with courtroom litigation. It can also return a definitive decision much more quickly than a public trial.

Employee benefits

Arbitration is less expensive for employees as well. However, the limited right to appeal combined with the binding aspect makes arbitration more beneficial for employers than employees. In California, an employer has the right not to hire or to fire you if you refuse to agree to arbitration for any employment disputes.

A mandatory arbitration clause in an employment contract removes the employee’s right to a court trial and may also waive the right to file a class action. While not signing the employment contract or separate arbitration agreement is always an option, the employer may rescind the offer. As with any legal document, reading it all the way through before signing is essential.