Should you give up your right to sue? (Arbitration)

Some companies require applicants to sign an agreement that you will not sue them once employed. The last company I worked for introduced this as a new policy in 1997. Instead of going to court over matters like sexual harassment or workplace discrimination, they had set up some sort of arbitration process. The process was long and involved, but the company’s resoning was that court proceedings & lawsuits tend to be expensive & time consuming. The arbitration process is supposed to allow the plaintiff & defendant to locate some unbiased third party (like a retired judge, for example) and expeditiously come to an out of court verdict that would be legally binding on both parties.

Since I had been working there since 1990, there was some legal reason why they couldn’t force us to sign it, but all new applicants must sign before they will be considered for employment.

I understand that it is the company’s prerogative to require you to ride a unicycle (if they so choose) before being hired, and it is your prerogative to go somewhere else if you don’t like it. That is not my point here.

Would the “verdict” really be legally binding since it was not issued by a judge or jury? Can you appeal to a higher court if you don’t like the verdict? What do you think about giving up your right to sue, even if you get arbitration in return?

Generally speaking, yes.Circuit City Stores, Inc. v. Adams, No. 99-1379 (U.S. 2001).

Generally speaking, no.

As for the public policy of the issue, I’m ambivalent, so I’ll let everyone else work that out.

The answer to your question may vary from state to state. I can tell you that in Georgia, such arbitration clauses are enforceable. I suspect that the same is true in most states, if not all. I’m confident your employer’s attorneys have checked to be sure that it is enforceable in your state as well.

Is it a raw deal for the employee? You’ll get differing opinions, but I think so. I think a wronged employee generally stands a better chance of getting a sympathetic ear from a jury of his/her peers than from some retired judge or volunteer lawyer.

The employee also loses the bargaining chip of legal costs. Without arbitration, an employer might settle a claim rather than face mounting legal costs, even in a case where the employee’s claim is dubious. Arbitration removes (or at least reduces) that incentive to settle.

Viewing the system objectively, that’s certainly a good thing, because it means employees can’t shake down their employers with frivolous lawsuits. But there’s no question that the employee loses some bargaining leverage when he gives up the right to a trial.

Actually, the answer does not vary from state to state. The Federal Arbitration Act apparently trumps any state antiarbitration laws. See Part III of the Supreme Court’s Circuit City decision, which is linked above.

Actually, the answer may still vary from state to state.

As I’m sure you know, minty green a state constitution may not provide less protection to citizens of a state than the federal Constitution, but it may provide more protection. Federal statutes may trump state statutes, but they do not trump rights created by state constitutions.

I can easily imagine a situation where a state supreme court might hold that the constitution of that particular state guarantees a right to jury trial, and that a contractual arbitration provision is therefore void as against public policy.

Darn, I must have slept through that lecture in Con Law. I must have fallen asleep every time I got to that page on my bar review outlines, too. All I have in my notes is this itty bitty thing from the U.S. Constitution. Article VI, paragraph 2:

Guess they repealed that when I wasn’t looking, huh?

Seriously though, the Federal Arbitration Act apparently (I’m just going off what I read in Circuit City here) says that there is no right to a jury trial once you’ve signed a valid arbitration agreement. If a state constitution says you have the right to a jury trial even though you’ve signed an arbitration clause, that law directly conflicts with the FAA and would be of no effect thanks to the Supremacy Clause.

minty green, are you seriously trying to argue that if the federal government refuses to provide a right, no state can do so? Unless the FAA says that states cannot outlaw arbitration, it does not prohibit states from refusing to recognizing arbitration.


If federal law does not prohibit a right, a state is free to provide it. But where federal law specifically denies a right, any state law to the contrary gets trumped by the federal law, whether the source of the law is statutory or constitutional.

According to the Court in Circuit City, the FAA specifically requires that a wide range of arbitration agreements must be enforced. Take a look at section II.A of the opinion for a description of the act. (And also note that this case is virtually all I know about the FAA.) Thus, it is a federal law contrary to any state law (whether constitutional or statutory) that says an arbitration act may not be enforced. In such circumstances, the state law falls, thanks to the Supremacy Clause.

Here’s an example of where a state law can give greater rights than under federal law. The fifth amendment (according to Miranda) means that the confession of a defendant may not be admitted against the defendant in a criminal proceeding unless he was told about the right to remain silent, etc., before the confession occurred. But if a state constitution provides that a defendant’s confession can never be admitted against him in a criminal proceeding, that law does not run afoul of Miranda.

I hope that example makes sense.

In other words, if federal law says you ain’t got that right . . . well, you ain’t got that right no matter what state law says.

But if federal law says you got that right, the states may grant greater rights, unless federal law says they can’t. And the FAA says they cannot grant the right to a jury trial.

I’ve always been a little leary of the term ‘impartial arbitration’, so I need to ask this.

Who pays the arbitrator? Do the employer and employee split the cost? I mean, if the employer pays the arbitrator, can he/she really be impartial?

What’s the skinny?

Geez, minty green, if you think a federal statute can abrogate a right created by a state constitution, you must have been asleep in law school.

I’ll give you an example from another field. The Georgia courts have determined that nude dancing is a protected form of expression under the Georgia constitution. In other words, you can’t simply outlaw nude dancing.

Now the U.S. Supreme Court has made it clear that nude dancing does not enjoy that same level of protection under the U.S. Constitution.

Is it your position, then, that the United States Congress could pass a law prohibiting nude dancing, and that law would then override the Georgia constitution? And the feds could then descend on nude dancing clubs in Georgia and shut them down without any concern for state constitutional rights?

Back to law school with you! You need a refresher course on Federalism.


In looking at the Constitutional provision you cited, minty green, it looks like I’m the one who could use some schoolin’!

On the other hand, I guess it depends on your view of what constitutes “interstate commerce” doesn’t it? I get the impression the current SCOTUS is much less likely to use a broad definition of that phrase.

Would the employment contract of a strictly-local business be subject to Federal arbitration laws? Or would the state laws and constitution control?

Dammit, I had this great post all ready to go, and then you go and read the Supremacy Clause, spoke-. :wink: Oh well, no reason to let it go to waste! Apologies if I’m getting redundant here, and I also apologize for our hijack of the OP.

When federal law prohibits an asserted “right,” any state law contrary to the federal law is invalid. When federal law merely fails to guarantee a right, a state is free to grant that right.

FAA/Circuit City

Federal law says: Arbitration agreements must be enforced.
State law says: Arbitration agreements may not be enforced.
Conflicts analysis: Obvious conflict. The state law is invalid under the Supremacy Clause.
First Amendment/Nekkid Dancin’

Federal law says: The First Amendment does not protect nekkid dancin’. (Note that the First Amendment does not prohibit nude dancing–it just does not guarantee a right to g-strings and lap dances.)
State law says: The state constitution protects nekkid dancin’.
Conflicts analysis: No conflict, because federal law does not prohibit nekkid dancin’. The hard-working strippers of Atlanta get to keep their jobs.
In sum: a state may grant greater rights than are available under federal law, but only if federal law has not prohibited the extra rights the state seeks to grant. If Congress passes a statute outlawing nude dancing, it will trump any state law allowing nude dancing, whether that state law is statutory or constitutional.

Incidentally, there is some Supreme Court case law from around 20 years ago saying that nude dancing does enjoy some protection under the First Amendment. I’m pretty sure that has been limited in a more recent case, but there may still be First Amendment problems with an outright federal ban on nude dancing. So there may be First Amendment or Commerce Clause problems with a federal ban, but assuming the law is otherwise consitutional, the Georgia constitution is of no effect.

Again, I know next to nothing about the FAA, so it may already exempt such businesses. But if it does not, I think Congress would indeed have power under the commerce clause to compel arbitration in even those circumstances. Look at some of the cases that arose out of the Civil Rights Act in the late 1960s. I may be misremembering my cases, but I think Heart of Atlanta Motel is a good one on the extent of the commerce clause power as it relates to local businesses.

Yeah, I know the old Civil Rights cases interpret the Commerce Clause very broadly (almost to the point of absurdity), but I suspect the current court might be inclined to take a more federalist perspective and scale back the power of Congress under the Commerce Clause. (What’s a little stare decisis between friends?)

And as far as nekkid dancing is concerned, the feds’ll take away our strip clubs when they pry the dollar bill from my cold, dead hands. :wink:

Wow. Not only did you find a definitive answer, you found a case involving the company I was talking about!

If I recall, the guidelines were that each side got to pick 5 abriters and then each side would sit down at a table and go through the list until one was found that both sides could agree on. What happens if neither side agrees on the same one, I have no idea. I suspect that rules outlining arbitration proceedures are as complex as actual law.

The terms of the arbitration agreement probably spell out who pays the arbiter.

IANAL, but -

Didn’t Roe v. Wade make it illegal for states to regulate abortion in the first two trimesters? I thought part of the problem was that the Court simply overruled all state legislation on the subject.

minty and spoke- have addressed the legality and enforceability of arbitration very well, and kudos to both. Now, onto whether arbitration is a good or bad thing for an employee.

Arbitration clauses have exploded in recent years, and employers love them. They are also becoming more popular in non-employer/employee contexts, although most contracts (at least in my experience) between two corporations still do not include arbitration clauses.

Why do companies like arbitration? Well, it’s not necessarily because they are more likely to win. Research is still going on to determine whether arbitration decisions trend more pro-employer, but the little I’ve seen so far does not indicate that it does, and I personally doubt that such a finding will be made. Admittedly, I was wrong once, back in 1993, and I guess it could happen again. :wink:
No, the reason that employers like arbitration is that is drastically cuts legal costs. In almost all cases, the arbitration decision will be the final decision, with no appeal. Further, arbitration has considerably less procedural hoops, which add enormously to costs in court cases.
So, does the fact that arbitration is cheaper hurt employees, even though the employee splits the costs of the arbitration? I’d say yes. Employees generally bring claims against employers in court on a contingency fee basis. So, there is little cost to the employee.
OTOH, we defense attorneys demand cash on the barrelhead from employers, win or lose. This induces settlements, and settlements are good for employees. Every corporation keeps a running calculation going when they are sued, basically considering the likely legal costs against the odds they are going to win in court. Very often, the legal costs will be more than the money a corporation will save by winning in court (if it wins), so it cuts its losses and offer to settle.

As arbitration is much cheaper, it shifts the calculus farther in favor of fighting the case out and/or offering lower settlements. Whether this is a good or bad thing as a matter of public policy, I don’t know. In a perfect world, legal fees wouldn’t be a consideration for either side in determining how to proceed with a case, but hey, lawyers like me gotta eat, and our doctors strongly recommend a lot of caviar, as part of a balanced diet. :smiley:


That’s sort of where I wanted the discussion to go. I wonder, if employers all of a sudden felt that medical costs were getting out of hand, might they require employees to visit nearby free clinics instead of going to their primary care physicians.

Shouldn’t all American citizens always be allowed their day in court if they feel they have been wronged? Can I require anybody who wants to transact business with me (personally) to sign a binding statement saying they won’t sue me? Or if they want to sue me, they have to take it to a third party that is not directly affiliated with the U.S. judicial system proper.

Say an employer caught the employee taking money out of the cash register. Could a third party arbiter have the power to find the employee guilty of theft and send her to jail for 2 years? If the arbitration clause allowed the employer to sue the employee in an actual court of law but limited the employee to arbitration as his only counter measure, would that really be fair?

I think it’s a dangerous road taken when you start requiring employees to give up traditional legal rights of recourse in exchange for life-sustaining employment.

  1. No. In civil matters, courts are simply a mechanism for dispute resolution. Other dispute resolutions are valid.
  2. Yes, you can certainly require anyone doing business with you to sign an arbitration agreement. The option of the other party is to refuse to do business with you. You then have to decide if the benefit you think you get from arbitration outweighs any loss of business.
  1. An arbiter would not have the ability to sentence someone to jail, and an employer would have no incentive to include that in an arbitration clause even if it were possible. The whole point of arbitration is to avoid legal costs; in criminal prosecutions, those costs are borne by the state in the form of the D.A.'s office.
  2. I’ve never seen an arbitration clause that allows one of the parties to go to court. Again, a company would not want to do this; if they go to court, even as the plaintiff, they will run up the very legal costs they are trying to avoid.

The perils of living in a free society. We treat employers and employees as two parties making a contract with each other. If either side makes demands the other one doesn’t like, either can walk away.
The employee can always try to find work at a place that doesn’t require arbitration. BTW, there is a safety net in arbitration; a party can appeal if the decision of the arbitrator is so far out of bounds with existing law that no court would have reached the same conclusion.


Employers don’t have to offer medical coverage. Since the employer is permitted to offer NO coverage, he should be allowed to offer LIMITED coverage, IMHO.

Do you understand how that is quite different from