Do you know the implications of the "arbitration clause" in your contract?

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During the onboarding process, employees are often presented with a myriad of documents, including a company handbook, employment and confidentiality agreements, policy documents, and more.

Hidden in these agreements is usually a clause which will limit an employee’s right to seek redress from the courts – an “arbitration clause.”

Arbitration is a form of dispute resolution in which a third party (the arbitrator) acts as a judge to resolve a disagreement. The process is much more informal than court and is generally quicker.

Employers prefer to resolve disputes through arbitration for a number of reasons. For one, arbitration is confidential, whereas court proceedings are public, which means the decision cannot be used as precedent. Moreover, arbitration is almost always binding, leaving limited options for either side to appeal. The rules of evidence are also more relaxed, often resulting in less time devoted to evidence gathering and examination—although more kinds of evidence may be presented. Lastly, statistics show that arbitration outcomes are generally more favorable to employers.

Most employees unknowingly agree to arbitration because these clauses are often buried in the multitude of new hire paperwork agreements and simply appear to constitute boilerplate language. Further, few employees dare to negotiate terms other than salary or vacation when they are starting a new position, a tacit acknowledgment of the control employers generally wield over the hiring process. Despite this imbalance of power, courts have upheld these clauses as valid and enforceable.

Recently, the United States Supreme Court issued a decision making it even harder for employees to overcome arbitration clauses. In Epic Systems Corp. v. Lewis, the Supreme Court held that employers could enforce arbitration clauses restricting employees from banding together to address claims, and requiring the exclusive use of arbitration. This ruling makes it more difficult for employees to pursue small claims that affect many workers.

To best protect yourself, make sure you are aware of exactly what you are signing when you start a new job. Usually you can negotiate these clauses up front, but at a minimum, you will know your options should you need to exercise your rights.