If you’ve ever started a new job and been handed an employment contract, chances are it included an arbitration agreement. Maybe you signed it without a second thought. But what did you actually agree to? And more importantly, can you opt out of forced arbitration in employment contracts?
These questions aren’t just theoretical. For millions of workers, agreeing to an arbitration provision means giving up the right to take disputes to court, to a jury trial, or even to join a class action lawsuit. It means resolving disputes with a private arbitrator, often under rules favoring the employer.
Let’s break down what forced arbitration really is, what federal law says about it, and when, if ever, you can refuse or escape it.
Forced Arbitration in Employment Contracts: The Basics
Forced arbitration (also called mandatory arbitration) refers to contract clauses that require employees to settle disputes through arbitration, rather than in court. These arbitration clauses are often buried in the fine print of employment agreements, offer letters, or even employee handbooks.
Many workers don’t realize they’ve agreed to arbitration until employment disputes arise—like employment discrimination claims, sexual harassment, or wage theft under the Fair Labor Standards Act or California Labor Code.
Unlike court, arbitration typically happens in private. There’s no jury. Judicial review is very limited. And the arbitration process can impose high arbitration fees that deter employees from even filing claims.
The Federal Arbitration Act and Supreme Court Decisions
The Federal Arbitration Act (FAA) is the primary federal law governing arbitration in the U.S. Passed in 1925 to encourage commercial disputes to be resolved outside court, it has since been interpreted by the Supreme Court to cover employment contracts.
In cases like Circuit City Stores v. Adams, the Supreme Court held that the FAA applies broadly to employment agreements in interstate commerce, with narrow exceptions (e.g., railroad workers and seamen).
More recently, the Supreme Court expanded enforcement of these clauses, repeatedly ruling that courts must compel arbitration if there’s a valid arbitration provision, even for employment discrimination or statutory claims.
For example:
- In Rent-A-Center West v. Jackson, the Court held that if an arbitration agreement delegates questions of its own validity to the arbitrator, courts often must enforce that.
- In Hall Street Associates v. Mattel, the Court limited judicial review of arbitration awards, reinforcing the finality of arbitration.
That said, arbitration vs. court cases both have their pros and cons, and it is crucial to consider these differences before deciding on the problem at hand.
These decisions cemented the so-called arbitration epidemic, where employers use mandatory clauses to keep disputes out of court. This may vary for a particular arbitration agreement, but is generally the same across scenarios.
Mandatory Arbitration Clauses: Why Employers Use Them
Employers argue that arbitration is faster, cheaper, and more efficient. But critics say mandatory arbitration deprives workers of their rights under state laws and federal statutes.
Key concerns include:
- The expense involved in paying arbitration fees up front.
- Private forums favoring repeat-player employers over individual workers.
- No jury, limited discovery, and little judicial review.
- Waivers of class action or class arbitration, blocking workers from pooling small claims.
Some employment contracts even make continued employment conditional on agreeing to arbitration. That leaves workers with a stark choice: sign or lose the job. Such contractual disputes are a common reason for employment lawsuits in the U.S., and their effectiveness also varies.
Can You Opt Out of Forced Arbitration in Employment Contracts?
Here’s the critical question: Can you avoid arbitration? Or, can you be fired for not signing an arbitration agreement? The answer is nuanced.
First, some employers offer an opt-out window—often 30 or 60 days after signing. But they don’t always advertise this clearly. Employees who read the fine print can send a written notice declining the arbitration agreement. Once opted out, they preserve their right to go to court if employment claims arise.
But not all employment agreements have such opt-out options. In many cases, arbitration is simply mandatory, with no escape once signed.
Even then, courts sometimes invalidate arbitration clauses on grounds of procedural and substantive unconscionability under contract law:
- Procedural unconscionability focuses on unfair surprise, lack of bargaining power, or hidden terms.
- Substantive unconscionability looks at whether the terms themselves are unreasonably harsh, like paying exorbitant arbitration fees or limiting statutory remedies.
In California, for instance, courts examine both prongs carefully. The California Supreme Court has invalidated some one-sided employer arbitration terms as unconscionable. California has also enacted laws limiting certain mandatory arbitration practices, though these face federal preemption challenges.
The Role of Federal and State Courts
Enforcing arbitration clauses typically falls to federal court or district court judges applying the FAA. The FAA says courts must compel arbitration when there’s a valid agreement covering the dispute.
But there are exceptions. Courts may refuse to enforce an arbitration provision if:
- It violates public policy (though this is rare).
- It’s unconscionable under state laws.
- The arbitration agreement is invalid under contract interpretation rules.
In Green Tree Financial Corp. v. Randolph, the Supreme Court acknowledged that prohibitive arbitration fees could render arbitration agreements unenforceable if they effectively block claims.
Yet despite these exceptions, courts typically lean toward enforcing arbitration clauses, reflecting the FAA’s pro-arbitration policy. The arbitration system may seem confusing and intimidating, but that’s certainly not the case for those who understand its vitality.
Any alleged violation on such grounds requires arbitration lawyers. The arbitration cases can often become confusing for first-timers, and having the right employment lawyers with you can increase your chances of winning.
Collective Bargaining Agreements and the NLRA
What about unionized workers? Collective bargaining agreements often include their own dispute resolution procedures, sometimes including arbitration.
But the National Labor Relations Act (NLRA) guarantees employees the right to act collectively. The National Labor Relations Board (NLRB) has challenged class action waiver provisions in arbitration clauses as violating the NLRA.
However, the Supreme Court in Epic Systems v. Lewis sided with employers, ruling that the FAA allows enforcement of class action waivers, even in the face of NLRA arguments.
This tension continues, with employment lawyers watching new NLRB decisions carefully.
Class Arbitration vs Class Action Lawsuits
Many employment contracts include explicit class action waivers, prohibiting class arbitration and class action lawsuits.
Without collective claims, workers must pursue small-dollar employment disputes alone. This fragmentation reduces employer exposure and can deter claims altogether.
The Supreme Court decisions have generally upheld these waivers, viewing them as consistent with the FAA. That means unless you opt out (if possible) or successfully challenge the clause as unconscionable, you’ll be forced to arbitrate individually.
State Law Trends and Pushback
Some states have tried to push back. California enacted Labor Code provisions to limit forced arbitration for certain claims, especially sexual harassment or employment discrimination claims.
But courts often find such state laws preempted by the FAA. The California Supreme Court continues to balance state policy goals with federal preemption limits.
Other states have considered similar measures, but employers regularly challenge them in federal court.
Contract Interpretation and Negotiation
Is all hope lost for avoiding arbitration? Not necessarily. Contract interpretation matters. Courts won’t enforce arbitration clauses that are:
- Ambiguous about covering statutory claims.
- Added without proper notice.
- Part of non-negotiated policies imposed after hire without a continued employment agreement.
Employees who negotiate employment contracts can sometimes limit or modify arbitration terms, preserve access to courts for particular disputes, or ensure better terms for arbitration fees and procedures.
Practical Steps for Employees
So what should you do if presented with a mandatory arbitration clause?
- Read carefully: Look for any opt-out window.
- Ask questions: Employers sometimes allow modifications, especially for specialized roles.
- Seek legal advice: An employment lawyer can review the clause for procedural and substantive unconscionability.
- Document everything: Keep copies of the agreement, any opt-out notices, and employer responses.
These steps don’t guarantee freedom from arbitration, but they can preserve rights or strengthen challenges later.
Conclusion: Forced Arbitration in Employment Contracts—Can You Opt Out?
Forced arbitration in employment contracts—can you opt out? The answer is: sometimes, but not always.
While arbitration agreements can offer a valid, efficient way of resolving disputes, they often tilt power toward employers, limit statutory remedies, and block access to the court system.
Employees need to know their rights, read employment contracts carefully, and understand the implications of arbitration provisions—especially when they limit class actions or impose high arbitration fees.
Employers, meanwhile, should draft clear, fair, and lawful terms that withstand scrutiny for procedural and substantive unconscionability.
Have questions about arbitration in your employment agreement or need help reviewing a mandatory arbitration clause? Contact our employment lawyers at Bourassa Law Group today for experienced guidance on protecting your rights and navigating complex employment law issues.
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