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What is Employment Arbitration?

Employment agreements and contracts can be very useful tools for both employers and employees. They can define compensation, specify certain workplace policies and identify pieces of information that is considered confidential and protected.

If either party fails to comply with the terms set in an employment contract, there may be grounds to take action. It may be easy to assume that filing a lawsuit and going to court is the most appropriate course of action because that is what we often read about in the news. However, many employers take steps to protect themselves from lawsuits by including an arbitration agreement in an employment contract. Any person who has signed or will be signing an employment contract should be aware of what this clause means.

An arbitration clause in a contract is one that specifies that any employment dispute will be resolved through arbitration, rather than litigation. This means that an employee will not be able to seek a trial in front of a judge or jury; rather, the dispute will be heard and resolved by a third-party called an arbitrator. 

Arbitration can benefit employers in a number of ways: it may cost less, take less time and complaints are heard by arbitrators rather than juries that tend to be more sympathetic toward employees.

There are downsides to these clauses, however. They could prevent a highly-desirable job candidate from agreeing to an employment contract, and an unfavorable result from the arbitrator may not be able to be appealed. These downsides should be seriously considered when employers are debating whether to include an arbitration agreement in a contract.

Many employers utilize an arbitration clause as a protection from costly lawsuits by employees. However, they cannot protect an employer from all lawsuits. In some cases, a suit may be filed by a third party on behalf of an employee, which is not uncommon.

Understanding how these clauses work and knowing more about what they can and cannot do can be crucial for both the employers drawing up contracts and the employees who are asked to sign them. 

Source:, "Employment Arbitration Agreements