Should You Sign an Arbitration Agreement With Your Employer?

When you start a new job, reviewing the employment contract carefully is important. Your employer may present you with an arbitration agreement, and understanding what this contract means and how it could affect your rights is crucial to avoiding serious consequences. 

Should you sign an arbitration agreement with your employer? You should generally avoid signing these agreements unless you have negotiated favorable terms. Either way, always have employment lawyers in California review the contract with you before signing it, so you know exactly what you are agreeing to. 

What Is an Arbitration Agreement? 

An arbitration agreement is a contract in which you agree to resolve any legal disputes with your employer through a third-party arbitrator rather than through the typical court process. This means that you generally would be prohibited from pursuing a lawsuit against your employer if they violated your legal rights, except in specific scenarios. 

Instead of presenting your case before a judge and/or jury, you would present it to a neutral, third-party arbitrator, who is often a retired judge. They would hear the evidence and render a binding decision. Errors made by the arbitrator are rarely overturnable, meaning you generally cannot appeal the decision, even if it was unfair. 

Arbitration agreements keep disputes out of the civil court system and the public eye, which is valuable for your employer. However, these contracts pose several downsides for you as an employee:

• Your employer is often the one who pays for arbitration, which means the arbitrator may be biased in their favor.
• Arbitration agreements often include class action waivers, which would waive your rights to a lawsuit after an illegal action that affects you and a large group of your coworkers. 
• Arbitration has limitations regarding evidence and key information. The arbitrator determines what information they will consider and what evidence is permissible in the case. This means that certain evidence that would be allowed in a traditional lawsuit may not be permissible in arbitration. 
• Arbitration does not normally produce a public record the same way a court lawsuit does, so there may be no public evidence of your employer’s wrongdoings.

Arbitration agreements are one of the many types of employment contracts, and reviewing any contract presented to you closely with an attorney is important to understanding its implications. 

Times When Signing an Arbitration Agreement May Make Sense 

Should you sign an arbitration agreement with your employer? Employment attorneys will typically advise against signing these contracts without closely reviewing them and ensuring that you understand their terms.

However, not signing an arbitration agreement could give your employer the right to fire you or pass you over for a position. These agreements are worth considering, and signing one may make sense in certain scenarios:

• You prefer to keep workplace disputes private: Arbitration keeps the dispute resolution process out of the public eye, which may be preferable for some workers.
• Your employer has agreed to cover all arbitration costs: Under California law, employers are required to pay the costs associated with arbitration. If your arbitration agreement has a clause stating that the employer will cover all of the costs, you could avoid having to pay any filing fees or related costs out of pocket, which may make bringing a case against your employer more feasible. 
• The agreement includes an “opt-out” window: Some arbitration agreements give you the right to opt out within a certain period, such as your first 30 days of employment. You may decide to sign the agreement so that you can start the new position, then take the time to review it more closely within the opt-out window. 

Can You Be Fired or Not Hired for Refusing To Sign an Arbitration Agreement? 

Many employers present arbitration agreements as “take it or leave it” conditions of starting a new job or maintaining employment. Your employer may threaten to fire you or refuse to hire you if you do not sign this agreement. Is doing so legal in California?

Unfortunately, yes. While California Assembly Bill 51 sought to ban mandatory arbitration as a condition of employment, federal courts ultimately ruled that the Federal Arbitration Act (FAA) overrides this bill. 

California is an at-will employment state, as are the majority of states across the U.S. This means employers can generally fire or choose not to hire someone for any reason or for no reason, as long as that reason is not discriminatory or otherwise illegal. Refusal to sign an arbitration agreement is not considered an illegal reason for termination. 

However, while you may be required to sign an arbitration agreement to maintain your employment, the courts could overrule it if its terms are “unconscionable” or highly one-sided. 

Does Signing an Arbitration Agreement Waive Your Employment Rights in California? 

Signing an arbitration agreement does not mean signing over your rights. You still have certain rights as a California employee, such as the right to a discrimination-free workplace, minimum wage, and overtime pay, that your employer cannot legally take away.

However, an arbitration agreement changes where and how disputes involving these rights are resolved. You may waive your right to a class-action lawsuit and  ability to file an individual lawsuit in court, but you may still have the right to:

• Pursue representative lawsuits under the Private Attorney General’s Act (PAGA)
• File administrative complaints with the California Civil Rights Department (CRD) or the Equal Employment Opportunity Commission (EEOC) 
• Pursue legal action for sexual harassment and assault. The federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) protects this right. 

Speaking with an employment attorney can help you understand the enforceability of an arbitration agreement in your employment contract and how to protect your rights as a California worker. 

Consult a California Employment Law Firm Today 

Should you sign an arbitration agreement with your employer? An employment law firm can help you make a more informed decision about signing. 

Our attorneys at D.Law would be happy to review this contract with you and answer any questions you may have about its terms and the potential penalties for breaching an employment contract. Contact us today at 818-275-5799 to request a free consultation.