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Under scrutiny: Arbitration clauses at the office

By David Donovan
BridgeTower Media Newswires

RALEIGH, NC — When Microsoft announced in December that it was removing language from contracts signed by some of its employees that required them to pursue any sexual harassment claims against the company through binding arbitration rather than through the court system, it was going decidedly against the grain of national trends.

According to a study published last fall by a labor-affiliated think tank, 56 percent of private-sector non-union employees—or more than 60 million workers—are bound by such mandatory arbitration provisions in their employment contracts, whereas in 1992 that number was just two percent. Among large companies, the figure is even higher.

But the ongoing national conversation about sexual harassment has prompted a rethinking about how such provisions impact the victims of workplace sexual harassment.

The arbitration process is private and confidential—in some cases employees may be precluded from even discussing their cases. Critics argue that the confidentiality of arbitration protects harassers, even if inadvertently, and makes it easier for them to go on harassing co-workers.

In February, all 56 state and territorial attorneys general co-signed a letter asking Congress to put an end to mandatory arbitration of sexual harassment claims, citing concerns about the secrecy requirements typically incorporated in arbitration clauses and about arbitrators’ lack of judicial training and ability to ensure that victims receive due process. The AGs noted that many employees won’t even know they’re bound by arbitration clauses until they have been sexually harassed and attempt to bring suit.

North Carolina Attorney General Josh Stein spearheaded the effort along with Florida Attorney General Pam Bondi. (Stein is a Democrat; Bondi is a Republican.) Stein said that the AGs wanted to ensure that Congress understood that the states’ top lawyers thought that sexual harassment in the workplace was an important enough issue that Congress needed to take action to root it out.

“I think that all of the country now has a much greater appreciation for what a terrible situation sexual harassment has put women in, usually women, in the workplace. And so there was a widespread recognition that we need to do more to ensure the sexual harassment is rooted out in the workplace, and one obstacle that we all recognized is that mandatory arbitration often ends up silencing a victim,” Stein said. “You can’t say ‘Me Too’ if you don’t know that another person was also a victim, and mandatory arbitration resulted in the silencing of victims at the workplace, and that’s not in anyone’s interest.”

(Can’t) take this job and shove it

Laura Noble, an employment law attorney with The Noble Law Firm in Raleigh, criticized the use of mandatory arbitration clauses in employment contracts in general, and said that their increasing prevalence has been evident in her own practice. Such clauses used to be reserved mainly for executives, who would typically have access to more resources, be more sophisticated in terms of negotiating their agreement, and receive a substantial compensation package as part of the bargain.

“Now what we’re seeing is more rank-and-file employees getting them as part of their coming on-board materials, and many people don’t even realize what they’re signing,” Noble said. “They’re no longer as associated with high-ranking executives, and a lot of people don’t have the sophistication to understand what a mandatory arbitration clause means.”

Noble said that she thinks the arbitration process significantly affects workers’ ability to get a fair hearing. She noted that in the employment law context, most arbitrators are attorneys whose experience is mainly in defending companies, and so they bring a very different perspective to the proceedings than that of a jury drawn from the community. She also questioned whether it could truly be said that most employees were voluntarily entering into arbitration agreements.

“Most of the time it’s take-it-or-leave-it. If you want this job, you have to sign this agreement, and usually employees don’t have the power to walk away from a good job,” Noble said. “So employees sign these agreements thinking it won’t ever happen to them. It’s troubling to me as an employment law attorney that the parties are being forced into this privately-funded way of resolving disputes.”

But Brian Church, a shareholder in Robinson Bradshaw’s employment law group in Charlotte, contends that arbitration is a faster and cheaper way to resolve disputes, and that this benefits both companies and their employees. He said that the confidentiality provisions of arbitration can likewise often serve the interest of both parties.

As for the criticism that mandatory arbitration clauses can end up silencing sexual harassment victims, Church said that workers will often initiate an employment lawsuit in local court hoping to challenge the enforceability of an arbitration clause. While these challenges are often unsuccessful, they can give workers an opportunity to air their complaints publicly.

“To the extent that there’s a notion that a mandatory arbitration provision necessarily keeps these types of disputes and claims from public view, I would say that notion wouldn’t be correct,” Church said. “It is often the case that these hings are handled publicly before they’re compelled to arbitration, which is a more private dispute.”

Just a bill sitting on Capitol Hill

In the U.S., the law of arbitration is governed by the Federal Arbitration Act, which supersedes any state laws. Over the years, many states have tried to limit the use of arbitration clauses in a variety of contexts, but the U.S. Supreme Court has repeatedly struck down such laws, finding in the FAA a “federal policy favoring arbitration.”

In fact, the surge in arbitration clauses in employment contracts came after—and likely because of—a 2001 ruling from the Supreme Court. Interpreting an ambiguous piece of text in the FAA, the court ruled by a 5-4 margin that employment contracts were not exempted from the law’s reach. So with states’ hands effectively tied, any protections for victims of sexual harassment would have to come from Congress.

Bipartisan companion bills filed in both the U.S. House and U.S. Senate propose to amend the FAA to include a new chapter governing arbitration of sex discrimination disputes. The Ending Forced Arbitration of Sexual Harassment Act would provide that no pre-dispute arbitration agreement shall be valid or enforceable if it requires arbitration of a sex discrimination dispute. Rep. Walter Jones (R-NC) is a co-sponsor of the House bill.

So far, neither chamber has taken any action on the bill. If passed, it would be the first time since the FAA was passed in 1926 that Congress has amended it to exclude a particular cause of action from the law’s ambit. (A subsequent federal law did give states some leeway to regulate the FAA’s application in the insurance context.) Church said that, in light of that history, he was skeptical that Congress would be inclined to amend the FAA in such a way.

But the last year has shown that when it comes to sexual harassment, old ways of doing things can become outdated very suddenly. Stein said that he had gotten some informal feedback that the letter from the attorneys general had created some momentum behind the legislation, but cautioned that he had “long since given up predicting what Congress will or will not do.”

Follow David Donovan on Twitter @NCLWDonovan

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