Arbitration Agreement Law: What You Need to Know

Arbitration is a form of alternate dispute resolution where two parties submit their case to a neutral third party, called an arbitrator, who makes a binding decision. Arbitration is often used in commercial and employment contracts as a way to avoid costly and time-consuming litigation.

However, there has been ongoing debate over the use of arbitration agreements in employment contracts and whether they are fair and just for all parties involved. As a result, there have been several changes to arbitration agreement law in recent years.

The Federal Arbitration Act

The Federal Arbitration Act (FAA) was established in 1925 to provide a framework for the enforcement of arbitration agreements in commercial contracts. The FAA provides that arbitration agreements are a binding contract and are enforceable in court.

In recent years, however, the Supreme Court has issued several decisions upholding the use of arbitration agreements in employment contracts. These decisions have led to concerns that employees may be forced to give up their right to bring a lawsuit in court and instead go through mandatory arbitration.

The National Labor Relations Board (NLRB) has taken the position that mandatory arbitration agreements in employment contracts violate employees` rights to engage in collective action under the National Labor Relations Act (NLRA). The NLRB has held that agreements that prohibit employees from collectively prosecuting claims in any forum are illegal.

State Laws on Arbitration Agreements

Several states have also passed laws limiting the use of arbitration agreements in employment contracts. For example, California has a law that prohibits employers from requiring any employee to waive their right to bring a lawsuit in court as a condition of employment.

New York has a similar law that prohibits employers from requiring employees to agree to mandatory arbitration of discrimination claims. Employees in New York must be given a written notice of their right to file a complaint with the appropriate state agency and to file a lawsuit in court.

The Bottom Line

Arbitration agreements can be a useful tool for resolving disputes efficiently and cost-effectively. However, the use of arbitration agreements in employment contracts has been a controversial issue in recent years.

Employers should be aware of the changing laws regarding arbitration agreements and ensure that any agreements they use are fair and comply with applicable state and federal laws. Employees should also be aware of their rights and consult with an attorney before signing any arbitration agreements.