An arbitration agreement requires disputes to be resolved by a private arbitrator instead of a judge and jury, and under the Federal Arbitration Act — a 1925 statute — courts enforce written agreements to arbitrate according to their terms. In employment, that means a valid agreement can remove wage claims, discrimination claims, and dismissal disputes from public court entirely. What it cannot do is equally important: it does not erase the underlying rights, it does not bind parties or claims outside its scope, and it does not close the agencies' doors.
This primer explains the system. It is not legal advice; whether a specific agreement covers a specific dispute turns on the contract's own text.
Where does the authority to enforce these agreements come from?
The Federal Arbitration Act, 9 U.S.C. 1 et seq., enacted in 1925, directs courts to enforce written arbitration agreements "save upon such grounds as exist at law or in equity for the revocation of any contract." The Supreme Court read that directive broadly in the 1980s and after — Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1 (1983), called any doubts in favor of arbitration. Employment applies through Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), which held the Act covers employment contracts generally, excluding only transportation workers engaged in interstate commerce.
What kinds of workplace claims can an agreement cover?
In principle, any claim that is arbitrable by contract: breach of contract, wage and hour claims under the Fair Labor Standards Act, discrimination claims under Title VII and the ADA, and statutory tort claims. AT&T Mobility LLC v. Concepcion, 563 U.S. 921 (2011), lets employers require those claims individually, barring class or collective proceedings. Epic Systems Corp. v. Lewis, 585 U.S. 855 (2018), extended that to waiver of FLSA collective actions specifically. The agreement, not the courthouse, sets the forum — but the statute being enforced stays the same.
What can an arbitration agreement not do?
Four limits matter most. It cannot waive rights that Congress made nonwaivable, such as the FLSA's minimum substantive protections as interpreted by the courts. It cannot block administrative agency action: the EEOC may still investigate and even sue an employer without the worker, per EEOC v. Waffle House, Inc., 534 U.S. 279 (2002), and the NLRB and OSHA enforce on their own authority regardless of arbitration clauses. It cannot bind parties who did not sign. And it cannot be enforced against a sexual assault or sexual harassment claim at the claimant's election: the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2022 amended the FAA to let those claimants choose court instead.
Do union contracts work the same way?
No, and the difference is structural. A collective bargaining agreement's grievance-arbitration clause is a bargained-for exchange supported by the duty of fair representation, not a take-it-or-leave-it term. The Steelworkers' Trilogy — three 1960 Supreme Court decisions, including United Steelworkers v. American Manufacturing Co., 363 U.S. 464 (1960) — commits contract interpretation to labor arbitrators, and courts enforce those awards with narrow review. An individual statutory claim can run in parallel: Wright v. Universal Maritime Service Corp., 525 U.S. 70 (1998), held a CBA arbitration clause does not waive a statutory discrimination claim absent a clear and unmistakable waiver.
Who pays, and does cost matter legally?
Cost is the practical fault line. In union grievance arbitration, the contract usually splits the arbitrator's fee, and the process is familiar to both sides. In individual employment arbitration, the employer typically bears forum costs under case law dating to Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79 (2000), which held that fees alone do not invalidate an agreement but left cost challenges open where they effectively bar claims. Arbitrator fees in commercial-style panels can run to thousands of dollars per day, a figure widely reported in academic and GAO studies of the system.
Can an award be challenged?
Rarely successfully. The FAA's Section 10 lists vacatur grounds: corruption, fraud, evident partiality, misconduct, or the arbitrator exceeding powers. On the merits, courts do not review an award for legal error — even clear error — a rule the Supreme Court reaffirmed in Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013). What a court gives up in review it expects in exchange: a faster, final resolution. Appeals from arbitration awards are, by design, almost unheard of.
What should a reader check first in any agreement they hold?
Scope and carve-outs. Whether the agreement names the claims covered, who selects the arbitrator, who pays, whether class claims are waived, and whether statutory claims are expressly included. Whether the 2022 sexual-harassment election applies. And whether a union contract rather than an individual agreement governs, because the two systems differ in nearly every procedural detail. The document itself, not general doctrine, decides.
What can change an agreement's reach
Two systems of workplace arbitration exist, and they answer to different rules. An individual agreement is a contract the worker signed, governed by the Federal Arbitration Act and ordinary contract defenses; a union contract's arbitration clause is part of a collective bargaining agreement, shaped by labor statutes and grievance machinery. The same word covers different institutions.
State law adds a layer the article's framework leaves to the document. Several states restrict enforcement of certain mandatory arbitration provisions, and the interaction between those statutes and the federal act is itself litigated. Where a dispute sits geographically can matter as much as what the agreement says.
The agreement's own text remains the primary source, as the article concludes: the claims named, the arbitrator-selection method, cost allocation, class waivers and the statutory claims expressly covered. The document decides, and reading it precedes any doctrine.
Related: How an EEOC lawsuit proceeds, from charge to consent decree · Why the federal circuits disagree about employment law — and how splits close.
For more context, read How a wage case becomes a class action in federal court.
For more context, read How union democracy litigation works under federal law.
For more context, read How an EEOC lawsuit proceeds, from charge to consent decree.