Mandatory arbitration clauses are among the most consequential — and least understood — provisions in US employment contracts. They require you to resolve disputes with your employer through a private arbitrator rather than in court, and almost always prevent you from joining class action lawsuits. According to the Economic Policy Institute, more than 60 million US workers are subject to mandatory arbitration.
What is a Mandatory Arbitration?
A mandatory arbitration clause requires that employment disputes — wrongful termination, discrimination, wage theft, harassment — be resolved through private arbitration rather than the court system. Arbitration is typically faster and cheaper than litigation, but it also means: no jury trial, limited discovery, very limited appeals rights, confidential proceedings (which protects the employer from publicity), and arbitrators who are often selected from panels that employers use repeatedly.
Red flags to watch for
Many arbitration clauses include a waiver of the right to participate in class action lawsuits. This matters enormously for wage theft cases, where individual claims may be small but a class action creates real accountability.
If the employer chooses the arbitration company and uses it repeatedly, there is a structural bias toward employer-friendly outcomes. Look for clauses that allow joint selection of an arbitrator.
Overly broad clauses that cover "all disputes arising out of employment" may include claims under Title VII, ADEA, and state civil rights laws — some of which have special rules about arbitration.
Some clauses require the losing party to pay arbitration fees. This can make it prohibitively expensive for employees to bring legitimate claims.
Mandatory confidentiality about the outcome protects employers from accountability for repeated misconduct. This is one of the features that make arbitration most favourable to employers.
Your legal rights
The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (2022) created a significant exception: mandatory arbitration cannot be required for sexual assault or sexual harassment claims. Some states have additional carveouts. The Federal Arbitration Act generally makes arbitration clauses enforceable, but courts will void clauses that are unconscionable, fraudulently induced, or violate public policy.
Questions to ask before you sign
- 1Does this contract require mandatory arbitration for all disputes, or are there exceptions?
- 2Does it include a class action waiver?
- 3Who selects the arbitrator, and what rules govern the arbitration process?
- 4Who pays arbitration fees, and is there a cost-sharing arrangement?
- 5Does the arbitration clause cover sexual harassment and discrimination claims?
Disclaimer: This guide is for educational purposes only and does not constitute legal advice. Contract law varies by jurisdiction and individual circumstances. Always consult a qualified legal professional before making decisions based on this information.