How Employment-Based Arbitration Contracts Can Hurt Employees

In last week’s post, we discussed a U.S. Supreme Court decision that allows employers to ban employees from filing class action lawsuits—forcing them to instead pursue arbitration to resolve employment-based disputes. In this article, we examine how arbitration can disadvantage the employee.

What Is Arbitration?

Arbitration is a form of alternative dispute resolution. Compared to litigation, the process is relatively quick. The employer and employee meet with an arbitrator—a neutral party—who hears evidence from both sides and issues a decision on the matter.

While at first glance, arbitration may seem like less of a headache, it can create unfavorable scenarios for the employee:

Lack of Options

Many employers require all new hires to sign an arbitration agreement before they commence employment. In such cases, a new employee may feel that their arm is being twisted—that they must either waive their rights to litigation or risk losing their job.

In other cases—which could become more frequent in light of the recent Supreme Court ruling—employers may issue electronic notifications to existing employees, informing them of the new class action prohibition. In many cases, simply clicking a button to certify that you received the notice is an automatic acceptance of the restriction.


Fear of retaliation can be a disincentive for employees to pursue arbitration. In addition, the cost of arbitration could outweigh any potential benefit. In her dissent to the recent Supreme Court decision on the matter, Justice Ginsburg found that an Ernst & Young employee with an overtime wage dispute of $1,900 could expect to pay as much as $200,000 for arbitration fees. This situation presents a clear disincentive for vulnerable employees to pursue justice.

Legal Proceedings

Unlike litigation, arbitration has no trial and no jury. This situation can hurt an employee, because juries have a tendency to sympathize with the plaintiff in employment cases. Additionally, with arbitration, each party can only request a limited amount of evidence from the other party. This situation also tends to benefit the employer—who tends to have access to the most pertinent evidence in employment disputes. Finally, there is no appeals process in arbitration, so an employee has no recourse if the decision doesn’t go in their favor.

If you have questions about your employer’s arbitration policy or the implications of the new class action restriction, it’s worth consulting with an employment attorney to understand your rights.