An arbitration clause is a clause added to some contracts that requires those with complaints to go through arbitration rather than litigating. The clause binds both parties to resolving their dispute through arbitration instead of bringing a lawsuit against the company while also discussing how the payment of arbitration fees will be handled and who will be hired as an arbitrator if one is needed.
Arbitration isn’t always a bad idea. It’s a little like a mini-trial, but it’s less formal.
In arbitration, an arbitrator will hear both sides of a case. The arbitrator has the sole authority to make a decision on the case and to resolve the conflict by issuing a decision.
Arbitration is favorable because it doesn’t take as long as going to court. It may cost less, and the entire process may be kept more private.
Should you sign a contract with an arbitration clause?
In 2019, the state passed California AB 51, which now prohibits employers from requiring that you, an applicant or existing employee, sign an arbitration agreement to avoid lawsuits. It is up to you to decide if you want to sign an arbitration agreement or not.
If you decide not to sign it, your employer is not allowed to take back a job offer or terminate your position. They are not allowed to retaliate based on your decision.
Why wouldn’t you want to sign an arbitration agreement? With arbitration, you don’t maintain the right to sue your employer. If you want to go public with a wage and hour lawsuit or claim of harassment, then arbitration requirements could hinder you from doing so. You would also be limited to working with an arbitrator overseeing the case rather than a judge and jury.
The injunction against AB 51
While this law was temporarily on hold from 2019 through much of 2021, the Ninth Circuit Court of Appeals reversed a previous ruling that prevented the law from being enforced. In September 2021, AB 51 was finally put into place and now does prohibit employees or applicants to enter into any kind of mandatory arbitration agreement as a condition of employment.