Employees Should Never Agree to Forced Arbitration
In 2019, Governor Phil Murphy signed into law Senate Bill 121 (S121). This employment legislation amended the New Jersey Law Against Discrimination (NJLAD) in two important ways.
First, S121 prohibits confidentiality provisions in any employment contract or settlement agreement that would prevent current or former employees from revealing when there has been an allegation of sexual harassment. Second, the law nullifies any agreement with an employee that forces the employee to use arbitration instead of the court system to bring employment claims. The amendment also provides that no employer can take retaliatory action against any employee for refusing to enter into such a contract.
While S121 carefully avoids using the word “arbitration,” it is clear that it is designed to prevent employers from requiring employees to sign arbitration agreements. To the extent that the law does intend to bar or prevent enforcement of arbitration agreements, it likely is preempted by the Federal Arbitration Act (FAA).
Arbitration is an alternative method of dispute resolution where both parties submit their dispute to an arbitrator or panel of arbitrators as opposed to going to court. The arbitrator decides what the rules will be, considers the facts and arguments of both parties, and then makes a decision as to the outcome of the dispute.
When arbitration is voluntary, both sides in a dispute agree to submit their disagreement to arbitration. However, in mandatory or forced arbitration, a company requires an employee to submit any dispute that may arise to binding arbitration as a condition of employment. The FAA established mandatory arbitration on a national level in 1925, largely as an efficient way for businesses to resolve conflicts with other businesses. Since the 1980s, the courts have greatly expanded the ability of businesses to force arbitration in employment and other consumer disputes.
In binding arbitration, an employee is legally bound to the decision the arbitrator makes, and is required to waive their right to sue, to participate in a class action lawsuit, or to appeal. Should an employee or prospective employee refuse to sign an agreement that includes forced arbitration, and he or she is fired or denied employment because of the refusal, the FAA does not apply and that person can still resort to the courts to file their claim.
It is important that employees and prospective employees educate themselves about the problems and dangers of engaging in arbitration. These include:
Forced arbitration severely limits employee options for resolving a dispute. Employees are locked into a single option for resolving all future disputes or problems. Contracts or agreements may also stipulate the arbitration company that must be used.
Arbitration is a private system without a judge, jury, or the right to an appeal. There is no appeal or public review to ensure the arbitrator made a reasonable decision. In addition, arbitration decisions are private and not subject to public disclosure (unlike a jury or judge verdict after a trial).
Arbitration is not necessarily less expensive than traditional legal avenues. One of the alleged benefits of arbitration is that it costs less than litigation, but forced arbitration frequently costs employees more than taking a case to court.
The arbitration process may not always be fair and equal. Many of the safeguards built into the court system, such as the right to conduct “discovery” to establish basic facts, are severely limited in arbitration. In addition, because arbitrators are chosen and paid for by companies, their decisions may not always be objective. Many consumer advocates believe companies prefer mandatory arbitration because it benefits them and not the employee.
Employees and prospective employees should never sign anything – on paper or online – agreeing to surrender the right to court action in the future if arbitration does not work. Unfortunately, people are often unaware that forced arbitration has been included in a contract or agreement they have signed. If you believe you have agreed to arbitration in error or would like legal advice on how to negotiate this term of a contract, please contact us at 973-509-8500 x213 or LFarber@LFarberLaw.com.
The contents of this writing are intended for general information purposes only and should not be construed as legal advice or opinion in any specific facts or circumstances.