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Should I Have Employees Sign an Arbitration Agreement?

Employers typically ask new employees to review and understand their company’s policies, to read and sometimes sign the Employee Handbook, and to go through training. One additional document that you, as an employer, might consider is an Arbitration Agreement. While it’s true that Arbitration Agreements only become relevant if there is an employment dispute, this type of arrangement can save your business significant time and legal costs if it is appropriately enforced.


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What is the purpose of an Arbitration Agreement?

An Arbitration Agreement is a legal contract that requires the parties to resolve any disputes they might have through an arbitration process instead of filing a traditional lawsuit. Arbitration is similar to a trial, but it uses a neutral third-party to evaluate the dispute instead of a judge or jury. Arbitration is a private process.

Arbitration is a favored method for settling disputes because it is often faster, costs less than going to trial, and is generally less formal than presenting the case in court. For example, the rules of evidence generally do not apply in arbitration, unless the parties agree that they should. Since arbitration is private, there is no public record of the filings or the facts and legal matters at issue, which can be helpful for both the employer and the employee in some circumstances.

Parties who choose to settle their disputes through arbitration have the advantage of selecting their arbitrator. This is particularly helpful if you know that your industry is very technical or complicated, where someone with specialized knowledge is beneficial.

Can I require an employee to sign an Arbitration Agreement?

You can certainly ask that your employee sign an Arbitration Agreement as part of the onboarding process. While an employee cannot be required to sign an Arbitration Agreement, you, as the employer, may refuse to hire an employee who chooses not to sign it. In some respects, the arbitration agreement can then become a mandatory term of employment.

You may very well decide to rescind an employment offer if the employee will not agree to arbitration. However, if you are hiring an employee with an Employment Contract, rather than as an “at-will” employee, then you may want to check that the requirement doesn’t overstep your contractual rights. You may want to include language in the Employment Contract that an Arbitration Agreement is required for a contract for services.

What if an employee doesn’t want to sign an Arbitration Agreement?

As an employer, you can’t force your employee to sign an Arbitration Agreement. If the employee refuses to sign it, you have two options:

  1. Let their employment continue, knowing that if there is a dispute, it will be heard in court rather than through arbitration
  2. Rescind an employment offer or terminate their employment

For some employers, an Arbitration Agreement would be preferred but may not be a deal-breaker. In other situations, employers may specifically require that all employees sign an Arbitration Agreement as a condition of employment.

Be aware that not all arbitration agreements will be considered valid if they are challenged in court. For instance, it may be worded incorrectly, biased toward the employer, or forces the employee to cover too much of the cost. In those situations, the employee might file a lawsuit in court to challenge the agreement and request to move forward with their case with a judge or jury.

Are digitally signed Arbitration Agreements legally valid?

In the vast majority of situations, an electronic or digital signature will have just as much force and effect as an original signature. While there may be situations where a digital signature is not an option, these circumstances are rare.

Get more information about Arbitration Agreements

Arbitration Agreements can be a great way to reduce the cost of resolving employee disputes. While you can’t force your employees to sign anything, you do have the option of excluding current and prospective employees who refuse to enter into an Arbitration Agreement.

If you have more questions about the legal aspects of Arbitration Agreements, consider asking an attorney. They will be able to help you think through the advantages and disadvantages of these and other employment-related agreements. 

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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