What is an Arbitration Agreement and What Does It Mean for Me?

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What is an Arbitration Agreement and What Does It Mean for Me?

An arbitration agreement is a contract in which two or more parties agree to resolve their dispute through arbitration rather than in a courtroom. In an arbitration, the arbitrator (akin to a privately-hired judge) or panel of arbitrators hears the dispute, receives and considers the evidence, and resolves the matter by entering an arbitration award. Arbitration agreements (or clauses) are often used in employment contracts, but they can be included in any contractual agreement.

Costs and Benefits of Arbitration Agreements for Businesses

There are costs and benefits to arbitration agreements for Arizona businesses:

Class action waiver. Many arbitration agreements include a class action waiver, requiring employees to resolve disputes on an individual basis and prohibiting them from joining any class action suit with other employees.

Privacy. Arbitration proceedings take place before a neutral arbitrator (one person or a panel), not a judge. The proceedings are held in private, whereas lawsuits filed in court are open to the public.

Rules. Arbitration proceedings operate under a different set of rules than lawsuits. Both parties agree to the selection of an arbitrator; you have no say in the choice of a judge for your case. In addition, arbitrators are not bound by formal civil procedure rules like courts, which helps expedite the process. In addition, arbitration awards typically cannot be appealed.

Cost. Since arbitration proceedings are private, held outside a courtroom, and have more informal rules as to discovery and procedure, the cost is typically much less than litigation.

Limits to Arbitration Agreements

Not all employment matters can be arbitrated. These can include non-waivable claims under unemployment compensation or workers’ compensation laws. Any administrative complaint an employee may file with the National Labor Relations Board (NLRB) or the Equal Employment Opportunity Commission (EEOC) would be investigated by the applicable agency. If the EEOC decides to pursue legal action against a company on behalf of an employee, an arbitration agreement would not apply since it does not extend beyond the signing parties.

Enforceability of Arbitration Agreements

Arizona courts have generally found arbitration agreements to be valid if the following factors exist:

  • There is mutual obligation.
  • The agreement is in writing and signed by the applicable parties.
  • There is consideration by both parties.
  • The agreement was not signed because of fraud, undue influence, misrepresentation, mistake, or under duress.

In addition, if an arbitration agreement is found to be unconscionable by a court, it is unenforceable. Unconscionability typically refers to conditions a court finds onerous or unfair to an employee.

Although arbitration agreements may not right for every business, they can be effective for employers seeking to minimize their liability exposure to employees.

Williams Mestaz, L.L.P., has the experience and reputation that you want when you are dealing with a business-related lawsuit. We are here to obtain the best possible outcome for your situation. Do not hesitate to contact Williams Mestaz, L.L.P., at (602) 256-9400, and see how we can help you resolve your legal matter.

 

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