Opening the Courthouse Doors: Employers Move Away from Arbitration

An inspiring development is taking place for victims of sexual harassment in the workplace.  Employees who are subjected to sexual harassment at work have faced an increasingly prevalent barrier to getting justice: mandatory arbitration.  This has meant that for many employment disputes, the courthouse doors have been closed, requiring employees to instead seek relief through arbitration.  Earlier this month, Facebook announced that they will be amending their arbitration agreements to no longer require mandatory arbitration for claims of sexual harassment in the workplace. This move comes on the heels of similar announcements earlier this year by Google, Lyft, and Uber, following a wave of protests by employees who felt that the system of requiring mandatory arbitration of all employment disputes contributed to a pervasive culture of sexual harassment.

Arbitration agreements were disfavored historically.  Beginning in England in the 17th century, our legal tradition held that arbitration agreements were freely revocable, up to the point where a dispute was actually subjected to arbitration. This remained the controlling law in the United States up until 1925, when Congress passed the Federal Arbitration Act, signaling a change in how disputes would be resolved going forward. This has gradually led to an increase, and in recent years an explosion, in the prominence that arbitration has played.

Today, it has become the norm for employers to require all new hires to sign arbitration agreements at the start of their employment that bar the employees from suing the employer for any claims arising out of their employment.  A 2017 survey of 1,500 employers conducted by the Economic Policy Institute produced some startling statistics showing just how widespread arbitration has become in the workplace.  According to the survey, among companies with 1,000 or more employees, 65% have mandatory arbitration provisions.  Looking at the employee side, among private-sector non-union employees, 56% are subject to mandatory arbitration.  Extrapolated out, that covers over 60 million American workers.

This trend would not necessarily be so concerning, were it not for the stacked deck that employees are playing with at arbitration.  Simple logic supports the idea that arbitration would favor the employer; they are after all the repeat customers supporting the arbitration industry. But we don’t need to rely on an educated guess, this issue has been studied, and empirical data supports the supposition.  According to a study of nearly 4,000 arbitration cases decided by the American Arbitration Association between 2003 and 2007, the process was considerably more favorable to employers than litigation.

The study found that of those cases, the employee win rate was 21.4%, which is considerably lower than the 33 to 36% win rate reported in studies of federal court employment discrimination trials.  Further, the study found that of those who prevailed, the amount of the award was also substantially lower than that found in litigation.

Mandatory arbitration agreements, therefore, are a subject of debate, with some detractors pointing to statistics such as the ones cited above as proof that the system is unfair.  An issue of even more pressing concern, however, is not the relative rates of success that employees face, but the downstream consequences of diverting employment disputes from public forums into secret proceedings.  When it comes to discrimination and harassment, this means that one of the central goals of anti-discrimination statutes are not served, i.e. eradicating the cancer of discrimination.  Without airing these issues out in public, discrimination can once again fester and grow, insulated by public pressure and protest.

This is what makes Facebook’s decision so consequential.  Not only will employees subjected to sexual harassment be more likely to receive relief in prosecuting their claims, they will also be able to do so in open court if they so choose.  As Justice Louis Brandeis famously said, “sunlight is said to be the best of disinfectants.”  The only way to bring about a widespread cultural shift in how our society treats discrimination in the workplace is to have a public dialogue about the issue. As the #MeToo movement has upended powerful institutions across many sectors of our nation, this dialogue has been happening all around us; hopefully this move by Facebook and other companies continues that dialogue and makes it that much more robust.

Hopefully this will be only the first step, and soon we see companies carving out discrimination and harassment of all kinds from their arbitration agreements.