What Is an Arbitration Agreement for Employment? A Maryland, D.C., and Virginia Guide

Links to outside sources open in a new tab.

If you run a business in the DMV, an arbitration agreement is probably sitting in your onboarding packet. If you are the one being asked to sign it, it is probably the document you skimmed fastest. An employment arbitration agreement is a contract in which the employer and the employee agree that disputes arising from the working relationship go to a private arbitrator instead of a courtroom. What the clause actually accomplishes depends on which law governs it, and Maryland, Washington, D.C., and Virginia do not start from the same place.

A Maryland business attorney can tell you which framework your clause falls under before a dispute makes it matter. This guide covers what these agreements do, which statute controls in each jurisdiction, the federal limits, and what belongs in a clause you can rely on.

What Is an Employment Arbitration Agreement?

It is a contract term. The employer and employee agree in advance that if a dispute arises out of the employment relationship, they will resolve it through arbitration rather than by filing suit.

Coverage is defined by the clause itself and commonly extends to wage disputes, discrimination and harassment claims, wrongful termination, breach of the employment agreement, and disputes over confidential information or intellectual property created on the job. Many clauses also include a joint-action waiver, which is an agreement that would prohibit or waive a party’s right to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum.

Arbitration is a private proceeding. A neutral arbitrator hears both sides and issues a decision, and the hearing is not a public court trial.

Which Law Governs Your Arbitration Agreement?

Two bodies of law can bear on the same clause: the Federal Arbitration Act and the arbitration statute of the jurisdiction whose law applies.

Under the federal act, a written arbitration provision in a maritime transaction or in a contract evidencing a transaction involving commerce is valid, irrevocable, and enforceable. There is an exception for grounds that exist at law or in equity for revoking any contract, or as otherwise provided in chapter 4 of the act. That final phrase is new. Congress added it in March 2022 when it enacted Chapter 4, and it is the source of the most significant limit discussed below.

State arbitration acts still matter for gap-filling and for the procedural framework a clause relies on. This is where the three jurisdictions diverge sharply.

What Does Maryland Law Say About Employment Arbitration?

Maryland is the outlier, and most national content misses it.

Maryland’s arbitration subtitle provides that, except as otherwise provided in the subtitle, a written agreement to arbitrate is valid, enforceable, and irrevocable except on grounds that exist at law or in equity for revoking a contract. The very next subsection then says the subtitle does not apply to an arbitration agreement between employers and employees or between their respective representatives unless it is expressly provided in the agreement that the subtitle applies.

Read that twice if you draft employment agreements in Maryland. The state’s arbitration subtitle is opt-in for the employment relationship. If your clause is silent, you do not get it. Employers who assume the Maryland subtitle applies automatically are assuming something the statute does not say.

How Do D.C. and Virginia Treat Employment Arbitration?

Washington, D.C. has enacted its arbitration chapter as the Revised Uniform Act. An agreement contained in a record to submit an existing or subsequent controversy to arbitration is valid, enforceable, and irrevocable except on a ground that exists at law or in equity for revoking a contract.

D.C. also splits the decision-making. The court decides whether an agreement to arbitrate exists and whether a controversy is subject to one. The arbitrator decides whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable. If a party challenges the existence or scope of the agreement in court, the arbitration may continue pending the court’s resolution unless the court orders otherwise.

Some of that is locked in before a dispute starts. Before a controversy arises, a party to a D.C. arbitration agreement may not waive or vary the effect of the validity rule or the arbitrator’s authority described above, among other listed protections, and may not waive the right to be represented by a lawyer at a proceeding or hearing under the chapter. An employer and a labor organization may waive lawyer representation in a labor arbitration.

Virginia goes the opposite direction from Maryland. Its Uniform Arbitration Act says in the validity section itself that the article also applies to arbitration agreements between employers and employees or their respective representatives, unless the agreement provides otherwise. The same section adds that nothing in the chapter creates any right to arbitration over the employment or terms and conditions of employment of an officer or employee of the Commonwealth.

What Are the Federal Limits on Employment Arbitration?

Two federal provisions deserve attention, and one of them reshaped the landscape.

Sexual Harassment and Sexual Assault Claims

Under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, at the election of the person alleging the conduct, or the named representative of a class or in a collective action alleging it, no predispute arbitration agreement and no predispute joint-action waiver is valid or enforceable with respect to a case filed under federal, tribal, or state law that relates to the sexual assault or sexual harassment dispute. The election belongs to the claimant, not the employer.

Two details employers miss. First, whether the chapter applies is determined under federal law and decided by a court rather than an arbitrator, even if the agreement purports to delegate that question to the arbitrator. Second, the act applies to any dispute or claim that arises or accrues on or after March 3, 2022, so the date the agreement was signed is not what controls.

Certain Contracts of Employment

The Federal Arbitration Act states that nothing in it applies to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. How far that exclusion reaches has been worked out through court decisions rather than through the statutory text, and this article does not resolve it. Two practical points do follow from the text itself. The exclusion is written in terms of classes of workers, and where it applies the federal act is not the enforcement mechanism, though a state arbitration statute may still be.

What Are the Trade-Offs for Employers and Employees?

For employers, arbitration usually means a private forum, a decision-maker chosen through a process the clause defines, and, where a joint-action waiver is enforceable, no class or collective litigation of covered claims. For employees, the clause determines which disputes never see a courtroom and whether joining with coworkers on a shared claim remains available.

For both sides, the terms that matter most are set in advance: what is covered, who pays for the forum, which rules apply, and what happens to the rest of the clause if one piece is unenforceable. Neither side should treat any of that as boilerplate. It allocates leverage before anyone knows what the dispute will be.

What Should Be in a Well-Drafted Arbitration Clause?

Employers drafting for the DMV should be deliberate about the following:

• Which law governs, stated expressly, because Maryland requires an express opt-in for its subtitle to apply
• The scope of covered claims, and any claims deliberately excluded
• The arbitrator selection method and the administering rules
• Who pays the arbitrator and the administrative fees
• The seat of the arbitration and the governing procedural rules
• Whether a joint-action waiver is included, and how it is severed if unenforceable
• A carve-out acknowledging claims that cannot be compelled to arbitration

Employees reviewing a clause should look for the same items and ask what each one costs them. Both sides benefit from having a lawyer read the clause before signing, not after a dispute starts.