Arbitration is a quasi-judicial system with flexible procedural rules and largely private proceedings used as an alternative to litigation. Pre-dispute arbitration is the contractual agreement to arbitrate a dispute before said dispute arises between parties; pre-dispute arbitration is the type of dispute resolution commonly seen in employment contracts. An agreement to arbitrate may be found in an employment agreement signed by the employee, but the agreement is sometimes buried somewhere within other hiring documents. Alternatively, the arbitration agreement might be found in the application for employment or the employee handbook. The negative effects that arbitration has on employees’ rights is a public policy concern that many businesses ought to closely examine before utilizing the practice with increasing regularity.

While Section 2 of the Federal Arbitration Act necessitates enforcement of arbitration agreements in maritime transactions and contracts “evidencing a transaction involving commerce,” the clear-cut scope of ‘transactions involving commerce’ has not always been certain.

Since the 1991 Supreme Court decision of Gilmer v. Interstate/Johnson Lane, courts in this country have almost uniformly upheld enforcement of employment arbitration clauses in the United States. Gilmer represented, for the first time, that a statutory civil rights claim may be subjected to mandatory arbitration.

Before 1995, there was a split among U.S. courts interpreting Section 2, with some courts concluding that the FAA applied only to those contracts where both parties contemplated an interstate connection. Then, in 1995, the Supreme Court in Allied-Bruce Terminix Companies, Inc. v. Dobson, held in a 7-2 opinion that the phrase “involving commerce” entails a full exercise of Congress’s power under the Commerce Clause.

Following these decisions, in 2001, the Court affirmed that the FAA covers employment disputes that require arbitration to resolve work-related disputes. In Circuit City Stores, Inc. v. Adams, the Court held that an employment application which included a mandatory arbitration provision was not excluded from the FAA’s coverage following the statute’s exemption clause.

Since the broadening of “transactions involving commerce” under Section 2 of the FAA, arbitration practice has been touted as being cost-effective, time efficient, and confidential. With the FAA continually preempting any state statute that conflicts in any way with arbitration, it is very likely that an arbitration clause in an employment contract will be binding on the employee, thus shutting out the individual’s constitutional access to the court system due to the employee signing a contractual waiver within an employment contract.

Section 2 of the FAA specifically states that agreements for arbitration are valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any written contract. Further, arbitration clauses themselves are severable from the entirety of the contract, so if the employment contract itself is unenforceable, it is very likely that the arbitration clause will still be enforceable.

Empirical evidence shows us that judges in the U.S. are more likely to compel arbitration than to deny enforcing an arbitration clause when faced with a motion to compel. Thus, it is no surprise that businesses and the judicial system favor arbitration as a form of alternative dispute resolution to resolve claims efficiently and keep them out of the already clogged judicial system.

For employees, this prospect is incredibly intimidating. For example, in the context of asserting a statutory discrimination claim against a corporate employer with extensive bargaining power, it is easy to see how an employee might bite the bullet rather than make the claim.

Part I discusses the potential business incentives to use arbitration and to include agreements to arbitrate within employee contracts. Part II reviews the ethical considerations and drawbacks to implementing mandatory arbitration in employment law disputes, especially as it pertains to statutory discrimination and harassment claims. Part III includes considerations for businesses when confronted with the decision to include an arbitration agreement in employment contracts, as well as some guidelines for drafting arbitration clauses to mitigate policy concerns. The analysis concludes with a discussion of best practices for businesses to consider when they decide to include arbitration clauses in their employment contracts, in light of the benefits and ethical considerations in the advent of the #MeToo movement.