Vox, September 7, 2018
Byline:
Millions of American workers have given up their right to go to court just to earn a paycheck. They can’t sue their employer for sexual harassment, or for racial discrimination, or for stealing their wages, or for nearly anything else.
That’s because these employees signed so-called mandatory arbitration agreements that are the new normal in American workplaces. These agreements are often buried in a stack of hiring documents that managers require new employees to sign. They usually have a legalese name, such as “Alternative Dispute Resolution Agreement.”
In signing these clauses, employees agree to take whatever claims they might have to private arbitration, a quasi-legal forum with no judge, no jury, and nearly zero government oversight. Under this process, workers are less likely to win their cases, and when they do win, they tend to get much less money than they would in court.
Chances are if you’re reading this article and you work for a private company, you probably signed one. About half of non-unionized workers at US companies are subject to these agreements — more than double the share in the early 2000s. America’s most well-known companies, including Walmart, Starbucks, Macy’s, Uber, Google, and McDonald’s, now require all their workers, or some of them, to sign them. (Full disclosure: Vox Media does too.)
The rise of mandatory arbitration has made it nearly impossible for workers to seek legal justice for wage theft, overtime violations, and job discrimination. This secretive system also has the potential to hamper the #MeToo movement. Women are coming forward, often for the first time, with stories of widespread sexual harassment at work, only to discover that they’ve been shut out of the court system because they signed an arbitration agreement. The practice is particularly harmful to women and black employees, as they are more likely to be subjected to arbitration agreements because they make up a large share of workers in the industries that require arbitration the most: education and health care.
“What’s really happening is that our judicial system is getting privatized,” said David Gottlieb, an employment attorney in New York who often represents workers in arbitration. “It’s being privatized in a way that really only favors one side, the employer.”
But it’s not just hospitals and universities that have gone this route. Silicon Valley tech companies are also fans of mandatory arbitration clauses. And in the wake of a recent Supreme Court ruling that allows employers to prohibit class-action claims from workers in arbitration, companies have even more incentive to add arbitration clauses to their employment contracts. Unless Congress does something to stop this practice, it won’t be long before the vast majority of American workers are forced to give up their day in court.
The remarkable rise of mandatory arbitration in the workplace is the result of multiple Supreme Court rulings that have allowed businesses to expand its use.
Arbitration, which was once limited to contract disputes between businesses, now extends to legal disputes with consumers and employees. Companies argue that it’s a quicker, less expensive forum to resolve employment conflicts, and that’s true. But there are other incentives for businesses too: Private arbitration allows companies to hide misconduct that would otherwise be made public in court; arbitrators are much more likely than jurors to rule in favor of employers; and arbitrators are far less likely than jurors to give multimillion-dollar awards to workers when they find a company at fault for breaking the law.
Information about arbitration cases is scarce because they all take place outside the court system. But in 2015, California began requiring arbitration firms with clients in the state to publish limited data about all their cases in the United States.
The “heavy veil of secrecy” surrounding arbitration is one of biggest problems with the process, says Cynthia Estlund, an employment law professor at New York University.
In the case of sexual harassment, an employee at a company would have a difficult time finding out if a manager had a history of preying on female workers, based on the limited information that arbitration firms have to report. Moreover, the workers who take part in arbitration are often required to sign nondisclosure agreements as part of the settlement process, so they are forbidden by law from talking publicly about the case. If an arbitrator decided that a boss did illegally harass an employee, that boss could theoretically continue to harass women in the same company, or at another job, without his behavior coming to light.
The first thing to keep in mind is that no arbitration proceeding
is the same, as there are essentially no rules that arbitrators have to follow
under the law. That’s because arbitration isn’t bound by court rules and has
nearly no legal oversight. The process can vary from one arbitration firm to
another, or even from arbitrator to arbitrator.
That said, the most well-known arbitration firms require their arbitrators to
follow certain rules, which they make public, and they tend to have some things
in common.
To see how arbitration is stacked against employees, it’s important to understand how the process works. Let’s use the example of two female workers who believe they were fired for reporting sexual harassment to human resources.
The first woman — let’s call her Susan — was not asked to sign an arbitration agreement when she was hired. The other woman, Ana, was required to sign one.
Susan would first have to file a complaint with the Equal Employment Opportunity Commission, the federal agency tasked with enforcing civil rights laws in the workplace. EEOC staff would attempt to mediate some sort of solution between Susan and her employer.
If they can’t reach an agreement, the EEOC will investigate the facts of the case to see if there is enough evidence to show that Susan was the victim of sexual harassment and retaliation. If there is solid evidence, the EEOC lawyers will try to negotiate a settlement on her behalf. During this entire process, which usually takes six months, Susan can reject all the proposed solutions — at any point, she can ask the EEOC to give her permission to take her case to court. Sometimes EEOC lawyers will decide to sue the employer on the worker’s behalf, though this happens in only a small percentage of complaints filed.
Now consider Ana’s situation. She signed an arbitration agreement. She can still file a complaint with the EEOC, but it’s almost pointless to do so because she signed the agreement, she cannot sue. The only logical reason for Ana to file a complaint with the EEOC is in the hope that her case may be one of the very few complaints the commission decides to take to court on behalf of a worker or group of workers. (The EEOC is not restricted by arbitration agreements, so it can sue on behalf of workers who signed them.)
The only other option for Ana is to take her claim to arbitration. As in most arbitration agreements, the employer picks the arbitration firm that will hear the case, and will pay the cost to hire the arbitrator or panel of arbitrators — creating a potential conflict of interest. (This 2015 investigation by the New York Times describes the often cozy relationship between arbitrators and the companies that hire them.)
After filing the complaint with the arbitration firm, Ana’s attorney and the lawyers representing her former boss are given a list of arbitrators to choose from. They are usually lawyers or former judges, but they don’t need to have any legal training; there are no laws that regulate arbitration proceedings.
Then the two sides schedule a conference call with the arbitrator to discuss what laws may have been broken, what kinds of evidence will be allowed, how many witnesses each side can call, and the burden of proof that Maria needs to meet to prove that her employer illegally harassed and retaliated against her. The individual arbitrator makes the final decision on all of this.
In the court system, Susan would have months to collect evidence,
could compel her boss to share certain documents, and could include as many
depositions and witnesses as she would like. She would also be required to
prove to a jury, by a preponderance of evidence, that her boss violated the
law. She would need to show that the harassment was “severe or pervasive”
enough to create a hostile work environment for her, and that complaining about
the alleged harassment was a motivating factor in why she was fired.
None of that is guaranteed for Ana in arbitration. She will likely have a few
weeks to gather evidence and will be limited to one or two
witnesses and one or two depositions. She also can’t force her employer to
share evidence through a court subpoena, and the arbitrator can decide what
standard of proof she has to meet — it could be a higher burden or a lower
burden.
While Susan will probably go to public court hearings with her attorney, Ana will probably meet only once with everyone at her arbitration hearing. It will probably be in a hotel conference room, and lawyers from both sides will make opening and closing statements, just like a court trial. They will introduce evidence and witnesses, but unlike the court system, there is no jury weighing the evidence, just the arbitrator or panel of arbitrators.
Susan, in court, would wait for jurors to decide if she proved her case by a preponderance of evidence, and if so, what her award will be. Ana would go home and probably wait 30 to 60 days to find out the arbitrator’s decision, and the potential award, by mail.
Ana’s chances of winning her case in arbitration are much slimmer than Susan’s in the court system.
If you ask employers why they require workers to use arbitration, they often say it’s a faster and less expensive process than the courts. They’re not wrong. But legal research, surveys, and employment attorneys point to the largest incentive of all: keeping employment claims from reaching a jury.
Juries are considered more sympathetic to workers’ claims, and more willing to award millions of dollars in damages to workers in these cases. The threat of a high jury award also gives workers leverage in negotiating larger settlements because businesses want to avoid trial.
“Juries tend to be more generous than arbitrators, so keeping a case in the courts means a [worker] is more likely to get an award,” Lichter, the arbitrator, told me.
Research shows that arbitrators can be biased toward employers who repeatedly pick them to handle their cases. This is known as the “repeat player effect,” a term coined in 1997 by Lisa Blomgren Amsler, a public affairs professor at Indiana University Bloomington whose research showed that workers were nearly five times less likely to win their case if the arbitrator had handled past disputes involving her employer. Her research involved a small sample of cases, but later studies have backed up her claim.
While arbitration might seem similar to the court process, it’s not really the same thing. Arbitrators are not required to be neutral, their opinions do not need to be written, and there are few options for appeal, argues Elizabeth Roma, an employment attorney.
The Supreme Court has ruled that the courts would only overturn an arbitrator’s decision based on a “manifest disregard of the law,” something most courts have interpreted as an intentional misapplication of the law. That means most federal appeals courts will only overturn an arbitrator’s decision if it involved fraud, evident partiality, misconduct, or exceeding of powers. There’s no way for a worker like Ana to appeal an arbitrator’s decision by arguing that it was an incorrect interpretation of the law and facts.
Arbitration is not at all like the court system, but the Supreme Court seems okay with that. The nation’s highest court is largely responsible for the rise of this shadow court.
In May [2018], the Supreme Court handed businesses another win in a 5-4 decision in Epic Systems Corp. v. Lewis. The Court said it’s legal for US employers to prohibit workers from joining together to sue the company over discrimination, wage theft, and other workplace violations.
From now on, workers who sign arbitration clauses with class-action waivers can only file claims individually through private arbitration. That means that a US worker’s effort to seek legal justice, or to force a company to change working conditions, just got a lot harder.
Professor’s Note: Many consumer contracts require arbitration and ban class action suits. Some familiar names you might know:
· Telecommunications: AT&T, Comcast, Verizon
· Health Insurance: Kaiser, Anthem Bluecross Blueshield
· Banks and Credit: Wells Fargo, Discover, Amex
· Student Loans: SallieMae, Citibank
· Electronics: Sony, Dell
· Homebuilders: Lennar, KB Home
· Gift Cards: Starbucks, Gold’s Gym, Ticketmaster
· Entertainment and software: Amazon, Netflix, Groupon, Ebay, Microsoft, PayPal, Dropbox, Snapchat
In October 2019, the state of California banned forced arbitration as a condition of employment for new employees or current employees from being fired if they don’t agree to forced arbitration. A similar propsed law, the FAIR Act, passed the Democratically controlled U.S. House of Representatives.
Questions:
Privatization is viewed as an alternative to government. There have been private roads (toll roads), private schools, private contractors, private police (whose numbers are larger than the public ones) and, now, private justice. Describe the advantages and disadvantages of private justice.