The Real Cost of Mandatory Arbitration
ADR is an excellent avenue to elect when both parties truly elect it. Arbitrators handling matters as a function of unequal bargaining power ought to be vigilant in policing employers who may not take the matter as seriously as they would had the case proceeded in traditional litigation.
November 23, 2018 at 03:30 PM
7 minute read
As a result of the #MeToo movement and the significant effort to give voice to victims of sexual harassment who have long suffered without public recourse, the New York State (NYS) legislature amended the NYS Human Rights Law earlier this year to strengthen protections for employees who allege claims of sexual harassment and attendant discrimination. The amendment aims to prohibit employers from forcing victims to proceed with their claims only through arbitration, which is often shrouded in secrecy. This legislation (which is similar to statutes recently enacted in other states, as well) is seemingly a giant step forward for employees who wish to speak publicly through litigation. Nevertheless, while the new NYS law invalidates mandatory arbitration provisions in employment agreements that include discrimination claims and also provides that non-disclosure agreements in discrimination settlements are invalid unless they are requested by the employee, it is not without controversy.
It is almost certain that these laws will be challenged as pre-empted by federal laws, including in large part, the Federal Arbitration Act (FAA). The FAA heavily favors a party's right to contract for arbitration. Given the current make-up of the Supreme Court, and the recent spate of cases holding the FAA as sacrosanct, those challenges are likely to be successful. Of course, Congress could act to amend the FAA to exclude matters of sexual harassment from its reach, but that hardly seems plausible in today's political climate. All of this spells good news for employers and terrible news for employees. While we are huge proponents of alternative dispute resolution (ADR) as a means to resolve disputes more quickly and cheaply than going the traditional litigation route, the use of what effectively constitutes forced arbitration undercuts the entire spirit and policy underlying ADR.
Certainly, laws like the one passed in New York are a step in the right direction. Absent a protective law, or certain extenuating circumstances, mandatory arbitration provisions are presumptively enforceable. The underlying reasoning is that contracting parties should be free to waive the due process available to them and agree to submit their disputes to an arbitrator, or other ADR procedure. Of course, arbitration does constitute a waiver of due process—arbitrators are not strictly required to follow the law or the rules of evidence. And, absent extraordinarily rare and narrow circumstances, the decision of the arbitrator is final and binding. It is almost impossible to overturn or win an appeal of an arbitrator's decision. Without a doubt, there can be benefits to ADR; ADR offers much more privacy around a dispute, an expedited and less burdensome procedure, and a finality to the decision of the arbitrator, in contrast to a litigation that can drag on for years through an appeal process.
The flip side to those benefits, however, is that there is a leverage associated with a public litigation that, in the employment context, provides an employee some power against an employer who will almost always seek to cure a ding to their reputation, and who will be held to much higher standards of conduct than if allowed to proceed through arbitration. It is not uncommon for parties to an arbitration to engage in malfeasance or miss deadlines without consequence, and for the other side to be left with little avenue for relief. It is easy to find oneself between the proverbial rock and a hard place; anger the arbitrator by asking for penalties he or she may not be wont to impose, or go to court for relief and risk being countersued for violating the confidentiality or non-disparagement provisions of the underlying contract. By mandating arbitration (and tying the bow of silence with a broad non-disparagement agreement), the bad-actor employer may face exposure for the specific matter, but aside from the individual confidential case, gets to conceal its bad acts under the cloak of confidentiality, with little incentive to correct its actions either by the so-called court of public opinion, or by fear of a litigant with access to his full rights and an appeal process.
Those in favor of mandatory arbitration provisions will no doubt argue that no party is forced to arbitrate, but rather, that it is a function of contract. Technically, that is true, but that argument assumes that employees are able to engage in arms'-length transactions with their prospective employers. For C-Suite employees and executives, this is often true—the parties do negotiate the terms of their employment agreements, many of which come with a guaranteed term of employment, guaranteed bonuses, mandatory severance, incentive payments and other perks (like gym memberships, travel, etc.). These executives often have multiple offers or opportunities, are wealthy enough to afford counsel, and have the leverage to enter into an agreement that provides a trade—mandatory arbitration and perhaps other restrictive covenants in exchange for a handsome salary and perks. But, to be sure, that is not the case for the average employee.
In the past year, we have represented a multitude of employees, all of whom were bound to mandatory arbitration provisions, and none of whom made more than $60,000 per annum. They simply did not have bargaining power with their prospective employers. Rather, they were young adults, early in their careers, who did not have the means to engage counsel to review their employment agreements. And, even if they had had that means, it wouldn't have mattered. The contracts are effectively contracts of adhesion. Don't want the contract—don't take the job. But often, the only way to progress in a field is to accept a job with these restrictive covenants. This is particularly true where it is standard in the particular industry to necessitate these types of agreements. This is not an arms'-length relationship.
Consider this real life nightmare: A low wage earning woman is sexually-harassed and retaliated against, and files for arbitration to contest her termination as the contractually proscribed method of dispute resolution, only to be countersued on the basis of an innocuous statement that purportedly violates her overbroad non-disparagement provision. Her case progresses, ever-so-quietly, while the employer has no incentive to cease sexually harassing its employees, and, actually retaliates against those employees who assist in the arbitration. And whatever happens in that arbitration happens. The arbitrator's word is final. She loses her day in court; she loses her potential appeal. This, friends, is what happens in the dark under the cover of mandatory arbitration and non-disparagement provisions. Contrast that hamstrung claimant from that of another who is able to fight her case in court. That litigant, while perhaps also bound by a non-disparagement provision, is able to have her case proceed with a public docket, with a judge overseeing the case that does not have to concern him/herself with who will select him/her again in the future, and without the fear that no one will ever know of the accusations—whether they prove to be substantiated or not.
To us, the message is fairly simple: ADR is an excellent avenue to elect when both parties truly elect it. Arbitrators handling matters as a function of unequal bargaining power ought to be vigilant in policing employers who may not take the matter as seriously as they would had the case proceeded in traditional litigation. Congress should consider the will of the States and carve out an exception in the FAA to ensure that victims are not further victimized without access to their day in court with the full light of day.
Kimberly Kalmanson is the principal attorney of Kalmanson Law Office. Randi (Melnick) Cohen is a solo practitioner specializing in labor and employment law.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllTrending Stories
- 1As 'Red Hot' 2024 for Legal Industry Comes to Close, Leaders Reflect and Share Expectations for Next Year
- 2Call for Nominations: Elite Trial Lawyers 2025
- 3Senate Judiciary Dems Release Report on Supreme Court Ethics
- 4Senate Confirms Last 2 of Biden's California Judicial Nominees
- 5Morrison & Foerster Doles Out Year-End and Special Bonuses, Raises Base Compensation for Associates
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250