In The Legal Loop

What is an arbitration agreement and how does it affect you in the workplace?

What is an arbitration agreement and how does it affect you in the workplace?

by Deena B. Rosendahl, Esq.

When you start a new job, there’s tons of paperwork; forms, applications, benefits package information (if you’re lucky), tax forms and more. Typically with larger companies, but becoming more and more common with smaller businesses, too, is an agreement between employee and employer about how to handle employment disputes — and it pays to read this document all the way through.

If you’re asked to sign an arbitration agreement, remember that it is a legally binding and enforceable agreement between two parties. When an employer and employee have a dispute, an arbitration agreement helps resolve the dispute outside the courts. In arbitration, a third party reviews the evidence in the case and imposes a decision that is legally binding for both sides.

Arbitration agreements can be a useful tool for both sides: For employers, the cost to arbitrate is significantly less than costs typically incurred with protracted litigation. If a claim is successful (whether in arbitration or in state/federal court), employers may be liable not just for their own attorney’s fees but for the employee’s attorney’s fees as well. Arbitration can greatly reduce this expense. Moreover, arbitration claims do not become a public record keeping the dispute private in nature. For employees and employers alike, matters before an arbitrator are typically resolved on a more expedited basis – a win-win for both sides.

A recent unreported decision by New Jersey’s Appellate Division dismissed an employee’s complaint filed in Superior Court which alleged claims of hostile work environment sexual harassment and retaliation in violation of the New Jersey Law Against Discrimination. The panel determined that the employer’s arbitration agreement, which the employee had signed upon beginning work for the employer, was valid and required the matter be dismissed and instead submitted to binding arbitration. In determining the arbitration agreement was lawful and binding, the panel found that the terms of the Arbitration Agreement were sufficiently clear, unambiguously worded, was distinguished from other employment documents signed by the employee and was drafted in sufficient language to provide the employee notice of the requirement to arbitrate claims related to her employment.

You can – and should — have your attorney review an arbitration agreement before you sign it, which will help you understand the consequences of the Agreement should any negative employment situation arise, including a hostile work environment, sexual harassment and discrimination claim.

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