LEGAL: Are arbitration agreements really the big bad wolf?

Jeff Jones

By Jeff Jones
Special to the UCBJ

In December, bills were introduced in the House and Senate, both of which are referred to as the Ending Forced Arbitration of Sexual Harassment Act. The bills were introduced by Democrats, but have Republican co-sponsors. Supporters claim that arbitration agreements keep harassment complaints and settlements secret, and serve to protect harassers.

Gretchen Carlson is a vocal proponent of the proposed law. She has stated that “Forced arbitration is a harasser’s best friend.” She asserts that such agreements “allow harassers to stay on their jobs, even as victims are pushed out or fired.”

Are arbitration agreements in the employment setting really forces of evil? Let’s take a closer look.

The Federal Arbitration Act (FAA) favors arbitration as a means of resolving disputes, and the courts have generally done a good job policing the fairness of such agreements. In the employment law setting, where an agreement maintains the available remedies for employees and does not impose undue costs or hurdles on employees bringing claims the courts have found such agreements enforceable.

On the other hand, where the agreements purported to reduce or eliminate remedies available to employees, or created significant barriers such as costs materially above those an employee would bear in court litigation, the courts have refused to enforce the arbitration agreement. In short, when an arbitration agreement changes little other than the identity of the decision-maker, it is likely to be enforced. The farther an agreement strays from that spot the greater the likelihood it will not be enforced.

What of the claims that arbitration agreements promote secrecy, protect harassers, and permit punishment of the alleged victims?

With respect to secrecy, a plaintiff who wishes to make the matter public can initially file her claim in court. The Complaint is a matter of public record. If the employee has signed an enforceable arbitration agreement the employer can file a motion asking the court to refer the claim to arbitration. That does not result in withdrawal of the Complaint, however, nor change its publicly available nature.

If a case is referred to arbitration the arbitral proceedings are not public. As a practical matter, the discovery phases of a lawsuit are by and large non-public as well. The primary difference is that a court trial is public, whereas an arbitration is not. Unless the defendant employer is Fox News or some other well-known entity, or a high profile player in the locality, one might ask whether the public nature of the trial makes a significant difference.

The bottom line is that an enforceable arbitration agreement can result in somewhat greater secrecy of the proceedings. But such an agreement obviously does not keep all matters related to the claim secret.  Gretchen Carlson was subject to such an agreement, and the press and public learned a great deal about her claims.

Nothing about an arbitration agreement inherently protects harassers. When a claim becomes known to the employer, hopefully before any form of litigation begins, the employer must investigate and take appropriate action. If the employer fails to do so and the harassment victim pursues a claim, the employer faces consequences for its failure. This is true regardless of whether the claim is heard by a judge, jury, or arbitrator.

Any employer who believes that having an arbitration agreement excuses it from investigating and taking appropriate corrective action is being foolish. Taking Ms. Carlson’s case as an example again, it certainly appears that Fox News did not handle her concerns properly when they were first raised. How did that work out for Fox News? Ms. Carlson received a $20 million settlement and the Company ultimately fired its founder and CEO.

Nothing about an arbitration agreement inherently allows employers to punish those who raise complaints of harassment. When an employee complains and is thereafter pushed out or otherwise retaliated against, the law provides a remedy. The victim can file a retaliation claim as well as a harassment claim.

When an employer engages in retaliation, there are consequences regardless of whether the retaliation case is heard by a judge, jury, or arbitrator. In Ms. Carlson’s case it certainly appears that Fox News retaliated against her. Again, however, that did not work out so well for Fox News in the end.

Determining whether the law should permit enforceable arbitration agreements in the employment setting is a public policy decision for Congress. That said, the contentions that arbitration agreements in and of themselves create undue secrecy, protect harassers or permit punishment of victims are not accurate.

As a legal point, one wonders whether the bill in its current form is constitutional. As submitted to the House and Senate it applies only to claims based on sexual discrimination. What is the basis for excluding claims based on race or other protected statuses? If the bill is passed in its current form a constitutional challenge may follow.

The bill has not become law and its passage is uncertain. In the meantime, employers who are considering implementing arbitration agreements should think through the pros and cons of doing so very carefully. Such agreements are obviously under attack, and will be scrutinized closely if challenged.

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