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Can an arbitration clause block litigation?

On Behalf of | Apr 16, 2018 | Contract Disputes

When new employees obtain a new job, particularly one that could constitute a “dream job,” it is not likely that they will read every line of their new employment contract. This may be especially applicable when it comes to arbitration clauses.

For the uninitiated, arbitration is a form of alternative dispute resolution where parties present their cases to a neutral third party for the purposes of obtaining a decision from the neutral. An arbitration is not a decision in a court of law, but in many instances, the arbitrator’s decision is binding; meaning that it is final and not appealable.

While there are a number of benefits to arbitration (e.g., quicker process, cheaper for both parties), it may certainly have its drawbacks. Most disgruntled employees look forward to their “day in court” so that they can explain to a jury how they were wronged. But an arbitration clause may short-circuit such attempts.

Some arbitration clauses are viewed as absolute bars to litigation, especially if it is constructed in a way where both parties clearly waive their right to litigate disputes in court. A novel example can be seen with former USC football head coach Steve Sarkisian.

Sarkisian sued his former employer in December 2015, two months after he was fired in the midst of a bad season and rumors about his alcoholism. Sarkisian sought the remainder of his $12.6 million contract as damages for being wrongfully terminated. However, USC argued that because of the arbitration clause in Sarkisian’s contract, the suit had no business in superior court. A judge agreed and dismissed the suit.

Sarkisian eventually resumed his case before an arbitrator.

If you have questions about arbitration clauses and whether they can be defeated, an experienced attorney can advise you.