Published on November 25th, 2011 by Alan Sklover
Question: Arbitration seems to be the norm lately. Wonder if you might address if there are any ways of getting out of an arbitration agreement if you have already signed? What, if anything, can make it null and void?
Answer: Dear Sonia, As someone who is definitely NOT a fan of arbitration of disputes, for many different reasons, I am glad you submitted this question.
1. Understand, first, that the law and the Courts strongly support the use of arbitration of employment disputes. For many years, our legal system has strongly supported resolution of disputes by means outside the traditional court system. This is primarily due to the view that the less taxpayers spend on resolution of disputes – by having to pay Judges, build Courts, and even take taxpayers’ time to be on juries – the better. For this reason, if you have ever “agreed” in some fashion to resolve disputes by means of arbitration, it’s pretty hard to “get out of” that obligation.
2. That said, agreements to arbitrate face the same kinds of scrutiny as do all other agreements. An agreement to arbitrate a dispute is just that: an agreement. So, it must pass the same “tests” as do all other agreements. For example, if you could show that the signature on the agreement is a forgery, the agreement would be “thrown out.” Likewise, if you could show that someone held an actual gun to your head to make you sign it, it would also be “thrown out.” If you feel that you have one or more good reasons not to go forward with your agreed-to arbitration, it is possible that a Court could agree that it should be discarded, ignored or found void.
3. The two primary concerns a Court will consider about an agreement to arbitrate are (a) whether it is mutual, that is, binding on both sides, and (b) whether it sets up a basically fair system of resolution. What a Court will be most concerned about when considering an agreement to arbitrate is whether it provides basic fairness of procedure. For example, if the arbitration agreement said all employees had to arbitrate their claims against their employer, but the employer was not bound to arbitrate its claims against the employees, it would be deemed “unconscionable” for lacking “mutuality of obligation.” As another example, if the arbitration system that you agreed to utilize gave you only five minutes to give your “side of the story,” it would probably be considered “unconscionable” for denying the parties a true chance to express their grievances, and thus would likely be found unacceptable and void.
4. Here are the 10 most common reasons for which I have seen Courts reject agreements to arbitrate, and held those agreements to be either inapplicable, ineffective or void:
i. Lack of Actual Consent: In order for there to be a binding agreement on any subject, the law requires that the parties actually knew they were entering into that agreement, and were not tricked into becoming bound by it. So, for example, if you never actually signed an agreement to arbitrate but, instead, it was hidden on Page 93 of your Company’s Employee Handbook, chances are it would not be enforced. Or, if the agreement to arbitrate was “buried” in Paragraph 61 of an agreement labeled “Confidentiality Understanding,” it might be deemed unenforceable. (This is like finding an agreement to arbitrate disputes with a television manufacturer hidden in a small little booklet in the large cardboard box in which the television was shipped.)
ii. Not a Covered Dispute: If the dispute in question was not one that was meant to be arbitrated, it shouldn’t be. So, for example, if the arbitration agreement says “All disputes arising in the employment relation are to be arbitrated,” but what happened here is that your boss met you at a Saturday baseball game and punched you in the nose, that dispute would likely be found to be outside the intended scope of arbitration agreement.
iii. In violation of a statute (a law passed by Congress or a state legislature): As one example, in most states, injuries sustained by an employee while on the job must be resolved by a separate system of resolution called “Workers Compensation.” An arbitration agreement that required the employee to ignore that law, and instead arbitrate such a dispute would likely have no effect at all.
iv. Lack of Mutuality: If the obligation to arbitrate is not “mutual,” that is, only the employee must arbitrate, while the employer is given the choice to arbitrate or litigate, it will likely be deemed unconscionable, and of no effect.
v. Biased Arbitrator: If the arbitrator or the arbitration company that is required to be used by the arbitration agreement is not truly “neutral” the arbitration agreement would likely be deemed void. So, for example, if the named arbitrator in the arbitration agreement was the brother of your employer, the agreement to arbitrate would likely be thrown out.
vi. Limitation on Remedy: If the arbitration agreement significantly limits possible remedies to an unfair extent, it will likely not be deemed acceptable. So, for example, if the arbitration agreement said, “The most an arbitrator could give the winning employer or employee is $1,” it would be almost surely deemed void.
vii. Unreasonable Costs: If the arbitration agreement required the employee to pay many thousands of dollars to file the claim and/or have the claim resolved, especially if the employee did not make a lot of money, then the arbitration agreement could be considered void.
viii. Unreasonable Location: If the arbitration agreement required all arbitration proceedings to be conducted on an island in the middle of the Pacific Ocean, it would likely have no effect.
ix. Limitations on Discovery Process: Sometimes an arbitration agreement provides something like “Each side can have only one witness, and the parties will share only 10 documents each.” An arbitration agreement like that one would likely be held void.
x. Unreasonably Short Time Periods, Especially to File a Claim: If the law provides that a claim of unpaid wages can be filed for six years, but an arbitration agreement says that such a claim must be filed within six days of non-payment, it would likely be found void.
Sonia, while I am not totally happy with the way Courts operate, I am especially unhappy with the way most arbitration systems work. To the extent an employee can get his or her claim heard in an open, public Court, and not in arbitration, I think it would – in many instances – be wise to do so. I suggest each employee who is faced with an arbitration agreement consider whether the above ten circumstances may be present, and to discuss with legal counsel whether the arbitration should be avoided using these reasons.
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© 2011 Alan L. Sklover, All Rights Reserved.