Arbitration and mediation clauses are often incorporated into employer-employee contracts and can be a useful way to resolve workplace conflicts. But how do these alternative dispute resolution (ADR) methods work, and in what situations is each method used? In this article, we'll explore how each ADR process functions, how ADR clauses are included in employment and workplace contracts, and key differences between arbitration and mediation.
What is Employment/Workplace Arbitration?
Employment arbitration is a method of resolving employment and workplace disputes outside of court. In arbitration, a neutral third party — the arbitrator — generally conducts a formal hearing and issues a binding award to resolve the dispute. Disputes may center on issues related to the employment contract or terms, compensation, the hiring process, or workplace disagreements.
Although arbitration shares similarities with litigation, it involves fewer procedural steps and is designed to be a more flexible, streamlined, and efficient alternative. Employment cases are typically administered by a neutral, independent arbitration organization, such as the American Arbitration Association® (AAA®).
How Long Do Employment Arbitration Cases Take to Resolve?
An AAA employment arbitration case is typically resolved much faster than the average time to trial in U.S. District courts. For AAA employment cases awarded in 2025, the median time to award was 17 months, which was twice as fast as the median time to trial in U.S. District Courts (all civil cases), at 34 months. The quickest time to award for an AAA employment case was 2.8 months. Also, for AAA employment cases closed in 2025, more than 75% settled before the award was issued, and 22% of settled cases resolved before incurring any arbitrator compensation.
How Do Arbitration Clauses Work in Employment Contracts?
Arbitration or ADR clauses are typically included in an employment agreement or contract between an employer and employee. Independent contractor agreements between a company and a contractor can also include an arbitration clause. When an employee or contractor agrees to arbitration in their agreement or contract, they are generally waiving their right to bring their case to court if a dispute arises.
Although ADR methods can be a useful and typically faster way to resolve a dispute, employees should clearly understand the terms of the agreement before signing an arbitration clause in their employment contract. If no prior agreement exists, the parties still may voluntarily agree after a dispute arises to submit the dispute to arbitration.
Are Arbitration Agreements in Employment Contracts Enforceable?
Yes, if an employee and employer sign an agreement that provides for arbitration in the event of a dispute, the agreement generally is legally binding and enforceable, although enforceability of arbitration clauses may depend on the language of the arbitration clause, the circumstances surrounding the employee’s signing of the agreement, and the law of the applicable jurisdiction. Disputes involving sexual assault or sexual harassment are generally exempt from mandatory arbitration requirements under the Federal Arbitration Act. Disputes involving government employees or contractors may be subject to different laws, regulations, or procedures.
How Does Employment Arbitration Work?
Filing a Dispute and Due Process Protocols
Typically, an employee or contractor initiates arbitration against the employer to claim discrimination, harassment, wage disputes, wrongful termination, or another employment-related issue. The employee files the dispute with the administering organization named in the employment agreement.
At the AAA, the arbitration agreement must comply with the Employment Due Process Protocol, which is designed to uphold fairness, neutrality, and transparency. If the agreement does not meet the protocol's requirements, the AAA may decline to administer the case or may agree to administer the case only if the employer agrees to waive the portion of the arbitration agreement that does not meet the Due Process Protocol's requirements.
Arbitrator Selection
At the AAA, the arbitrator for an employment/workplace case is generally selected through the list “rank and strike” process. In that process, the AAA will provide the parties with a list of arbitrators — generally 10 names — and will ask the parties to strike the arbitrator they do not want and rank the remaining arbitrators. The AAA will appoint the highest-ranked mutually agreeable arbitrator. The parties’ agreement may also specify a different method for selecting the arbitrator. The AAA encourages the parties to agree on the arbitrator where possible.
Preliminary Hearing and Discovery
After the arbitrator is selected, they hold a preliminary hearing with the parties to organize the case and determine the schedule. Before the formal hearing in which the parties present their arguments, the arbitrator typically manages the limited exchange of information between the parties as is appropriate for the specific case.
Hearing and Award
While the arbitrator may decide some cases based on the documents only, without an evidentiary hearing, in most cases the arbitrator will hold a hearing. During the hearing, the arbitrator manages the proceedings and directs each side to present their arguments, evidence, and, if applicable, witness testimony. After the hearing — within 30 days after the hearing is closed — and following careful deliberation, the arbitrator issues a binding award to resolve the dispute. For the full rules and procedures involved in AAA employment arbitration, consult the Employment/Workplace Rules and Mediation Procedures.
What is Employment/Workplace Mediation?
Mediation is another ADR method for resolving employment and workplace disputes. In employment mediation, a neutral third party — the mediator — helps guide the parties through a constructive discussion towards voluntary resolution. Unlike an arbitrator or a judge, a mediator does not impose a binding decision on the parties. Instead, the parties themselves retain full control over the outcome of the dispute. Generally, mediation is the most efficient and least costly formal dispute resolution method.
How Does Employment Mediation Work?
Initial Steps and Mediator Selection
Like arbitration, mediation typically arises from an ADR provision in an employment contract or agreement. Generally, mediation is the first step after informal negotiation, before parties potentially proceed to arbitration or litigation. Even if no formal agreement to mediate exists, parties may voluntarily choose to pursue mediation to resolve their dispute. At the AAA, the parties are encouraged to agree on a mediator using AAAi Mediator Search.
The Mediation Process
Although mediation is less formal than arbitration, it still follows a general structure to keep the parties focused on moving towards resolution. During mediation, the mediator guides joint or separate discussions to help the parties clarify the issues, understand each other’s concerns, and explore possible solutions. Even if the mediation session does not result in resolution, the parties often leave the mediation with greater clarity on their dispute, a deeper understanding of the opposing party's position, and, sometimes, a partial resolution of some of the issues raised.
Settlement or Next Steps
If the parties reach an agreement voluntarily during a mediation, they can sign a settlement agreement to resolve the dispute. Settlement in employment disputes often involves monetary compensation or damages, but the parties may agree to other forms of relief as well. Depending on the dispute, a settlement may, for example, provide for the reinstatement of a terminated employee.
Arbitration vs Mediation: Key Considerations
When circumstances allow, parties may prefer to attempt mediation first to gain greater control over the resolution of the dispute. Mediation is also generally confidential, which can be important for employers seeking to protect internal matters and for employees when sensitive personal information is involved. If the parties expect to continue working together, mediation’s less adversarial nature may also help preserve a productive working relationship.
However, in some disputes, arbitration may be the most appropriate forum for resolving conflicts, or the path the parties are contractually required to follow. While arbitration gives the parties less control over the outcome than a voluntary settlement through mediation, it provides a more structured process that results in a final decision resolving the conflict. This can be particularly useful when the parties are unable to reach a negotiated resolution or when the dispute requires a more formal exchange of information.
Why the ADR Administrator Matters in Employment Disputes
The administering organization plays an important role in managing employment and workplace arbitration or mediation cases. The ADR administrator manages case intake and fees, scheduling, coordinates neutral selection, and oversees case administration in accordance with the applicable rules and procedures. Choosing an experienced ADR administrator can also help parties identify an arbitrator or mediator with the appropriate training, credentials, and expertise for the dispute.
At the AAA, our employment/workplace arbitrators and mediators are experts in employment law and understand the complex nature of employment and workplace conflicts. Our panelists bring decades of industry experience and deep subject-matter knowledge to each case. Learn more about our arbitrators and mediators, ADR rules and procedures, and how to initiate your case: