Mandatory Arbitration Agreements in Indiana: Your Rights

The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., is the primary federal law governing arbitration agreements in employment. The FAA requires courts to enforce arbitration agreements according to their terms, with limited exceptions. Employers covered by the FAA (those in interstate commerce, which includes most employers) can require arbitration as a condition of employment for disputes arising out of the employment relationship.

However, the FAA does not preempt generally applicable contract defenses such as unconscionability, mutual assent, and consideration. Courts must apply these defenses neutrally to arbitration agreements and non-arbitration agreements alike. The Supreme Court in cases like AT&T Mobility LLC v. Concepcion and Epic Systems Corp. v. Lewis affirmed broad employer rights to require arbitration, including class action waivers.

Employees cannot be required to arbitrate claims that federal law explicitly reserves to judicial or agency forums, such as claims before the EEOC, NLRB, or certain administrative proceedings. The EEOC enforces employment discrimination laws but cannot force arbitration; however, an employee's employment agreement may require it. Remedies available in arbitration include damages and injunctive relief, though arbitration may limit appeal rights and discovery compared to litigation.

Indiana law does not have a specific statute limiting employer rights to require arbitration agreements. Instead, Indiana courts apply the Federal Arbitration Act (FAA) and the Indiana Uniform Arbitration Act (IUAA), codified in Indiana Code § 34-57-2-1 et seq., which authorize and enforce arbitration agreements.

Under Indiana law, arbitration agreements are enforceable if they meet FAA requirements: the agreement must be in writing, the parties must have mutual assent, and the contract must not be unconscionable, fraud-induced, or lacking consideration. Indiana courts have not established stronger employee protections than federal law on arbitration, meaning Indiana generally defers to FAA standards. Unlike some states (e.g., California), Indiana has not ruled that class action waivers in arbitration agreements are inherently unconscionable.

Indiana Code § 22-5-1-1 et seq. establishes that Indiana is an at-will employment state, meaning employers can condition employment on agreement to arbitrate. An employee who refuses to sign an arbitration agreement can be terminated without legal recourse, absent a written contract, union agreement, or specific statutory protection (such as whistleblower protections or anti-discrimination laws).

Indiana courts have applied unconscionability doctrine to arbitration agreements, examining both procedural unconscionability (whether the agreement was imposed on an employee with unequal bargaining power) and substantive unconscionability (whether the terms are unreasonably favorable to the employer). However, Indiana courts have generally upheld arbitration agreements in employment, including those waiving class actions, if the process is fundamentally fair and mutual. Remedies available in Indiana arbitration include compensatory damages, attorneys' fees if authorized by statute or contract, and injunctive relief as determined by the arbitrator.

Arbitration agreements do not apply to certain statutory claims that federal law reserves to specific forums. EEOC charges must be filed with the EEOC; arbitration does not eliminate this administrative prerequisite, though the employee's underlying discrimination claim may be subject to arbitration after EEOC exhaustion. NLRB claims involving union rights cannot be arbitrated; the NLRA protects union organizing and collective bargaining rights.

Arbitration agreements may be unenforceable if they are unconscionable. Indiana courts examine procedural unconscionability (gross imbalance in bargaining power, hidden terms, lack of choice) and substantive unconscionability (terms unreasonably favorable to one party). An agreement that entirely eliminates meaningful remedies (e.g., requires payment of all arbitrator fees by the employee for a low-wage claim) may be unconscionable.

Arbitration cannot waive rights under Indiana public policy. For example, workers' compensation claims, unemployment insurance eligibility, and workplace safety standards under OSHA cannot be arbitrated or waived. However, disputes arising from the employment relationship (wages, wrongful termination, harassment if not within a regulatory framework) can be arbitrated.

If an arbitration agreement is not mutual (e.g., the employer reserves the right to litigate while the employee must arbitrate), Indiana courts may find it lacks consideration or is unconscionable and thus unenforceable. Additionally, if the agreement is so one-sided that it effectively prevents the employee from vindicating statutory rights, it may be unenforceable. An arbitration clause that requires the employee to arbitrate but allows the employer to pursue claims in court generally fails this mutuality test.

Step 1: Document Everything. If you are presented with an arbitration agreement, keep a copy of the signed agreement and any related communications. Document the date you were asked to sign, who presented it, and whether you were given time to review it or have an attorney review it. Note whether the employer made clear that signing was a condition of employment, and save any emails or messages stating this.

Step 2: Understand Your Options Before Signing. Review the arbitration agreement carefully or have an employment attorney review it. Identify the scope (what disputes must be arbitrated), the arbitration process (which arbitrator, cost allocation, discovery limits), and any waivers (class actions, appeal rights). Ask your employer for clarification on any terms. Document whether the employer refused to modify the agreement or allowed negotiation. This step is critical because once you sign, enforcing arbitration becomes the employer's right, not yours.

Step 3: File a Charge or Complaint if You Experience Adverse Action. If you refuse to sign an arbitration agreement and face discipline or termination, first determine if your termination violates a specific statute (whistleblower protection, discrimination, retaliation). If discrimination or retaliation is involved, file an EEOC charge within 180 days (or 300 days in Indiana as a deferral state) at the Indianapolis EEOC field office: 201 South Capitol Avenue, Suite 800, Indianapolis, IN 46225, or call 1-800-669-4000. The EEOC will investigate and can pursue relief even if an arbitration agreement exists for the underlying discrimination claim.

Step 4: Challenge the Arbitration Agreement in Court if Necessary. If the employer enforces the arbitration agreement and you believe it is unconscionable or unenforceable, file a motion in the circuit court where you work or where you were employed to vacate or modify the arbitration agreement. You must prove procedural unconscionability (unfair bargaining process) or substantive unconscionability (unreasonable terms). Indiana courts apply FAA standards, so consult an employment attorney to assess your specific agreement's enforceability. This motion should be filed before or during the arbitration process.

Step 5: Consult an Employment Attorney. Contact an employment law attorney licensed in Indiana as soon as you are presented with an arbitration agreement if you have concerns about its fairness, or if you face adverse action after refusing to sign. An attorney can review the agreement, advise on your enforceability challenge, and represent you in court or arbitration. Fees vary; many employment attorneys work on contingency for discrimination or retaliation claims. The Indiana State Bar Association can provide referrals.