Mandatory Arbitration Clause in Employment Contracts: Pros and Cons
What This Clause Does
An arbitration clause means that if you have a dispute with the company (over wages, wrongful termination, discrimination, or anything else), you give up your right to sue in court. Instead, the case goes to a private arbitrator, whose decision is usually final and difficult to appeal.
Arbitration is often faster and cheaper than litigation, but it tends to favor repeat players (like large companies) over one-time participants (like individual employees). Many arbitration agreements also include a class action waiver, meaning you can't join a group lawsuit even if many employees were harmed in the same way.
Example Clause Pattern
"Any dispute arising out of or relating to this Agreement or Employee's employment shall be resolved by final and binding arbitration administered by [AAA/JAMS] under its then-current Employment Arbitration Rules. Each party waives any right to a jury trial."
What to Watch
- Class action waiver included: you can't join group lawsuits
- Company chooses the arbitration provider
- You're required to pay arbitration fees, which can be expensive
- No exception for small claims court or injunctive relief
What to Negotiate
- Request that the company cover all arbitration costs and fees — many agreements shift costs to employees, making claims impractical
- Negotiate a carve-out for statutory claims (wage and hour, discrimination, retaliation) to remain in court
- Resist the class action waiver — it's often bundled quietly and removes your ability to join group lawsuits
- Ask for a neutral arbitrator selection process: both parties agree on the arbitrator rather than the company having control
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Found in These Contracts
This clause commonly appears in the following contract types:
Frequently Argued Questions
What is a mandatory arbitration clause?
A mandatory arbitration clause requires you to resolve all disputes with the company through a private arbitration process instead of going to court. An arbitrator (a private decision-maker, often a retired judge or lawyer) hears both sides and issues a final decision. That decision is usually binding and difficult to appeal, unlike a court verdict.
Is mandatory arbitration bad for employees?
It creates real disadvantages. Arbitration tends to favor repeat players (large companies who use the same arbitration service frequently) over one-time participants. The process is private, which limits accountability. Many arbitration agreements also include a class action waiver, preventing employees from joining group lawsuits even when many people were harmed the same way — wage theft cases being a common example.
Can I refuse to sign a mandatory arbitration clause?
You can try to negotiate its removal or narrow its scope, but many employers treat it as a standard, non-negotiable term. In California and some other states, certain arbitration clauses in employment contracts are limited by law. The Federal Arbitration Act generally enforces arbitration agreements broadly, but state laws create important exceptions depending on your location and the nature of the claim.
Negotiation Strategies
Request that the company pay all arbitration filing and hearing fees
Carve out statutory claims (wage/hour, discrimination) from mandatory arbitration
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