Why is Forced Arbitration Such a Big Deal?

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No Jury for You

Most employees expect their employers to treat them fairly. They work hard; they get great reviews on their performance. Everything is going great. Then something happens. A supervisor begins to discriminate against them. When they experience such discrimination, employees believe they have the right to sue their employer for violating their rights. But companies hate to have their dirty laundry aired in public, and they like to save money. Thus, many employers have chosen to add an arbitration clause to employment contracts, so that they can save on the cost of defending claims of sexual harassment or racial discrimination,. Many companies include arbitration clauses in the company handbook. When you acknowledge receipt of your copy, you may have agreed to be bound by its terms. Boom, you have just agreed to bring any and all claims you may ever have against the company to binding arbitration. Consequently, you have waived your right to a jury and entered the reality of forced arbitration.

How We Got Here

Arbitration can be fine when the balance of power is equal between the parties to the agreement. Realistically, however, employees do not have any significant power when negotiating with an employer. California courts, recognizing that imbalance, consistently ruled against many forced arbitration clauses, which they found “unconscionable,” until April 2011.  At that time, the US Supreme Court in Concepcion v. AT&T ruled that the Federal Arbitration Act superseded, and thus negated, arguments employees might make to be released from these agreements. Now they are binding, regardless of any lack of balance of power between the parties involved at the time they came to be executed. The ruling changed the landscape of the employee-employer relationship, adversely impacting workers across the country.

What’s so Bad About Arbitration?

The judicial system is designed to treat people equally under the law. Forced arbitration puts employees at a disadvantage in several ways.

  • No Ability to Appeal. 

When an employee brings a claim to an arbitrator, the arbitrator’s decision is final. In most scenarios, there is no appeal and no judicial review. Thus, if the arbitrator makes a mistake in applying the law, there’s no remedy available to the employee.

  • No Public Records.

Arbitration is a private process. No public records are kept. Other claimants do not have access to any documents that are to determine what sort of result might be typical for similar claims. It’s done behind closed doors, and “in the dark.” Thus, there is no threat of public pressure on the employer to settle or otherwise correct the wrongful behavior.

  • The arbitrator is hired by the company.

Under California law, and pursuant to most contracts, the costs must be born by the employer, which means your employer effectively pays the salary of the person deciding your case. While most arbitrators make an attempt to remain neutral, it is only human to want to please the entity responsible for paying you. This result is even more likely when arbitrators get repeat business from any one employer.

  • Arbitration is shrouded in secrecy.

Arbitration almost always requires participants to enter into Non Disclosure Agreements (“NDA”). An NDA contains very strict provisions against breaching confidentiality. This practice shields offending companies, and predatory offenders at those companies, from ever worrying about being discovered. Victims are silenced forever by threats of heavy fines and/or other penalties. They cannot warn others by relating their experiences. Unsuspecting employees remain in the dark, opening the door to further abuse. The #MeToo movement has shed daylight on this practice, showing the public how abusers like Harvey Weinstein or Matt Lauer were able to continue their abuse for so long.

  • Forced Arbitration serves as a deterrent.

When informed that they will have to take their claims to arbitration, many employees simply give up on pursuing them.

  • You Lose Your Right to a Jury.

For cases of wrongdoing or injury, the legal community has always felt that juries give plaintiffs a better chance at obtaining a successful result. Juries act as an audience. They respond more emotionally to a compelling story than an arbitrator. They are more sympathetic to what happened and less focused on the technical legal points. Arbitrators are much less swayed by emotional appeals, tending to focus on legal nuances and subtler understandings of the law. While an arbitrator is focused on analyzing technical details of your case, a jury is actively listening to what happened to you. Juries are composed of people from your community, many of whom share your life experiences. Often while listening to your narrative they picture themselves in your place. An arbitrator is far more dispassionate.

The biggest advantage to a jury is that statistically, they are far more likely to produce a higher award at the conclusion of your trial. Juries may be ruled by their passions, and they tend to compute an award based on the victim’s perceived suffering. Thus, a jury may care far more about any harm caused you at the hands of the defendant. This concern can lead to a much heftier award than an arbitrator might grant.

The Takeaway

We are not saying that arbitrators usually make terrible decisions, or that they do not provide some access to the law. Arbitrators are generally quite competent. Many are retired judges. There is nothing wrong with arbitration if the matter is clear cut and the parties mutually agree to have their dispute handled by an arbitrator. In many cases, the result of such an arrangement is likely to be fair.

But forced arbitration requires employees to give up many rights they would otherwise have. The denial of access to the public court system – without employees being able to negotiate whether or not to surrender that right – is a significant loss and an outrageous imbalance of power. Some of the biggest drawbacks of arbitration are:

  • it keeps any wrongdoing by an employer or its management representatives in the dark;
  • there is a potential for conflict of interest when arbitrators are paid only by employers;
  • there is no ability to appeal a decision;
  • it deprives you of your right to access the public court system;
  • it acts as a deterrent, causing many who have been wronged to just give up.

California Legislators are Moving to Change the Practice

In California at least, legislators are making attempts to outlaw the practice.  California law may soon be changing on this issue, as a bill being considered would prohibit the practice of employers’ including forced arbitration in employment agreements and handbooks. The bill, AB3080, however, does not prevent existing arbitration or nondisclosure agreements from being enforced.

This move to shed daylight on company practices that have previously been surrounded by secrecy is a positive sign. It results, in part, from the power of the #MeToo movement, which highlighted the negative consequences of these claims’ remaining secret. Employees have a right to air their grievances in the public court system. Women victimized by sexual harassment should be able to tell their stories. Potential victims have a right to know to what threats they may be exposed from predatory men whose behavior has been previously shielded by an NDA.

You should be very cautious about agreeing to a mandatory arbitration clause, and, if you have any bargaining power, you may well want to exercise it to retain your right to use the public court system.

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