What You Absolutely Need to Know Before Signing a Mandatory Arbitration Agreement

Mandatory arbitration is a practice in which the parties to a contract are required to settle legal disputes through arbitration, rather than court proceedings. These agreements are legally binding and prevent parties from taking legal matters to court, directing them instead to an arbitration process specified in the agreement.

Often, these contracts will be a prerequisite for employment or for conducting business with the company.

How Mandatory Arbitration Affects Employee Rights

Mandatory employment arbitration agreements prevent employees from taking any legal claims to court, including those under Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Family and Medical Leave Act, and the Fair Labor Standards Act. If a worker’s employment rights, protected by federal or state laws, are violated and they have signed such an agreement, they must resolve the issue through the arbitration process specified in the agreement, rather than through the court system.

Since the 1990s, courts have regularly upheld arbitration clauses in employment contracts. In response, employers have increasingly adopted their use. Today over half of all non-union private sector employers require employees to agree to mandatory arbitration, leaving 60 million U.S. workers without the option to go to court to defend their workplace rights.^[1]

Exemptions from Mandatory Arbitration

In certain circumstances, an aggrieved employee may be exempt from mandatory arbitration:

• Any case involving claims for sexual harassment or assault is exempt from mandatory arbitration.
• In California, PAGA claims brought by an aggrieved employee on behalf of other employees may not be compelled to arbitration.

Recent Case: Rodriguez v. Packers Sanitation Services Ltd., LLC

In Rodriguez v. Packers Sanitation Services Ltd., LLC, the California Fourth District Appellate Court reviewed a Trial Court’s decision to deny a motion to compel arbitration concerning a PAGA claim because, it reasoned, the plaintiff did not include an individual component to his PAGA claim. The Appellate Court affirmed the Trial Court’s decision to deny the defendant’s motion to compel arbitration, finding there was no individual component of the complaint to arbitrate. Importantly, the court declined to address whether a PAGA complaint can solely assert a non-individual component, stressing the importance of evaluating each complaint on its own merit. The Court of Appeal also noted that the plaintiff cannot later claim to address the individual component.

At TONG LAW, our experienced employment attorneys are committed to interpreting complex employment contracts to ensure your protection.

[1] Dan Ocampo, How Mandatory Arbitration Weakens Workplace Laws and Lets Employers Off the Hook, National Employment Law Project (Oct. 30, 2024)