Typical employee arbitration agreements require that all work-related disputes between the employer and employee be resolved by impartial arbitrators rather than by jury trial, says Rappaport, a partner in the San Francisco office of law firm Hanson, Bridgett, Marcus, Vlahos & Rudy LLP.

Many employers prefer arbitration to litigation, as it can save both parties time and money.  However, arbitration has some drawbacks as well, and not all claims can be arbitrated, Rappaport points out. 

Usually Cheaper, But …

Arbitration usually costs your company less than defending employee claims in court. However, because arbitration can be quicker and less costly for employees than litigation, employees may be encouraged to bring claims that they might not have brought if they were facing the prospect of litigation in court.

Usually Faster, But …

Arbitration is usually completed more quickly than court litigation, and unlike trial judgments, arbitration decisions are usually final. Of course, this means that the employer may be stuck with an undesired outcome. 

Also, arbitration usually does not provide for dismissal of unmeritorious or frivolous claims, so employers may have to arbitrate claims that a court would have dismissed in the early stages of trial.

Sometimes Arbitration Isn't Mandatory

An arbitration agreement cannot preclude the employee from filing a claim with the EEOC.  Nor can it prevent such agencies from pursuing legal remedies on behalf of the individual or the public.  State labor codes may also limit arbitration.

Agreements Must Be Fair

Arbitration agreements will not be enforced if the terms and the circumstances surrounding the signing of the agreement indicate unfairness or unequal bargaining. 

Drafting Your Agreement

Employers would be well-advised to consult an experienced employment law attorney to help draft an enforceable agreement. Rappaport recommends you keep the following points in mind:

• No condition of continued employment. Don't threaten to terminate employees who will not sign an arbitration agreement.  It is extremely difficult to enforce such “take-it-or-leave-it” agreements.  An agreement stands a better chance if existing employees are given a chance to opt-out of the agreement, and at least 30 days to review the terms and to resolve any questions.
• Mutuality. Both parties should be bound by the agreement.  An agreement to arbitrate that states that only the employee must arbitrate and containing no similar promise by the employer, likely will not be enforced. 
• Visibility and Clarity. The terms of the agreement should be clear and not be hidden or in fine print, so that employees cannot claim that they did not understand when they signed the agreement.
• Limits on Arbitration Costs to Employees. The agreement should not require an employee to pay more than he or she would have to pay in a court proceeding.

• Fairness and Neutrality. The agreement must provide for a neutral decision maker, as well as other components ensuring fairness and neutrality.  One way to do this is to incorporate the rules of a recognized arbitration association.
• No Limitations on Damages or the Statute of Limitations Period. The agreement should not limit the employee from obtaining remedies (e.g., recovery of attorney's fees) that would be available in court, or shorten the limitations period for bringing claims. 
• Caution as to Class Action Arbitration Waivers. Some arbitration agreements prohibit class action suits and class arbitration, therefore only allowing arbitration on an individual basis.  Whether or not such waivers are valid is still being disputed in the courts. 
• Extra Requirements for “Public Concern” Rights. Certain statutory rights, including those established by the FLSA, ADEA, ADA, and certain state laws, are considered “public concern” rights, and arbitration agreements covering such claims will be subject to particular scrutiny by courts.