Understanding the importance of arbitration agreements for employers

On Behalf of | Mar 8, 2024 | Employment Law

Arbitration agreements play a crucial role in employment law. But what exactly do these agreements accomplish, and why are they beneficial to employers?


First of all, let’s discuss arbitration and what it is. Arbitration is a form of alternative dispute resolution. It is a way to solve conflict outside the courtroom. Instead of going through the court system, the parties who find themselves in conflict present their case to a neutral third party, known as an arbitrator.

The parties present their side of the story to the arbitrator (or, in some cases, a panel of arbitrators) and after reviewing the facts and evidence, the arbitrator makes a decision. This decision is binding, which means that, absent extreme circumstances, going to court to change it is not allowed.

Why is arbitration a good idea?

Arbitration is an excellent way for employers to solve conflicts with anyone. This form of alternative dispute resolution is similar to going to court, in that there is a person who makes a decision (similar to a judge) but arbitration is more informal. It is also:

  • Less expensive
  • Faster for reaching resolutions
  • Confidential

Going to court is expensive. For employers dealing with a lawsuit, it can take months or even years to settle a matter, which means legal fees, court costs and more. In arbitration, on the other hand, the process is much less expensive and more efficient.

Benefits of arbitration

As discussed above, lawsuits can take a long time before the parties reach a resolution or the court makes a decision. Arbitration allows the parties to present their case in an efficient manner, after which the arbitrator evaluates the facts and evidence and makes a legally binding decision.

Court proceedings are usually open to the public but arbitration is a private process, which is highly beneficial to employers if they want to keep their information private. Many times, companies have trade secrets or other information they do not want to release to the public.

In these cases, going to court can be disastrous because any information exchanged between the parties or submitted to the court becomes a matter of public record. This can damage the company’s reputation or disclose sensitive information that the company does not want to disclose.

Drafting the agreement

It is important to note that the person who drafts the arbitration agreement should know what they are doing and have knowledge of the law.

It is critical to have a deep understanding of employment law because there are laws, regulations and exceptions that the public does not have. Attorneys know what should and should not go in an arbitration agreement.

In conclusion, arbitration agreements are a valuable tool for employers because they offer a cost-effective, fast and private way of dealing with problems. However, it is critical that employers have proper guidance in drafting arbitration agreements so they can implement them and for these agreements to be enforceable.


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