A Pennsylvania federal judge used a sexual harassment case to raise broad concerns about the fairness of private arbitration in the United States, saying the for-profit system could harm workers.

U.S. District Judge Gerald McHugh of the Eastern District of Pennsylvania questioned in a recent ruling whether private arbitration was a fair way to enforce laws governing the workplace, warning of “legitimate cause for concern when a parallel system of dispute resolution supplants the courts as the primary means of enforcing the law.”

“Even if individual arbitrators adhere to high standards, we ignore reality if we forget that private arbitration services are profit-making enterprises that advertise and compete for business,” McHugh wrote in his Nov. 30 ruling, which marked a rare step by a federal judge to venture outside the facts of a particular case to raise sweeping societal concerns.

Despite McHugh's concerns, the judge said he was bound to compel arbitration in the sexual harassment and hostile work environment case plaintiff Rachel Styczynski brought against MarketSource Inc. and Allegis Group Inc. Lawyers for both sides were not immediately reached for comment, and McHugh, through a court official, declined to comment Friday.

McHugh's posture on arbitration highlights the tension that is percolating ever more in the corporate and legal arenas. The U.S. Supreme Court in recent years has issued opinions that bolstered the power of companies to force consumers and workers to agree to arbitration as the sole method of dispute resolution.

Most recently, in the case Epic Systems v. Lewis, the divided Supreme Court said employment contracts could bar employees from bringing class actions in court. The majority noted that in the eyes of Congress “arbitration had more to offer than courts recognized—not least the promise of quicker, more informal, and often cheaper resolutions for everyone involved.”

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Public sentiment about arbitration agreements has shifted in recent months. The #MeToo movement created a platform for victims to speak out against harassment, and there has been a push for more transparency and freedom to bring workplace complaints forward. State and local lawmakers have pushed bills that would restrict mandatory arbitration.

Some employers have announced changes to policies that either eliminate or make exceptions for harassment claims in the agreements. But few have fully abandoned arbitration and others have taken steps to further enforce these agreements and lash out against employees who tried to file lawsuits.

More than half of private employers in the United States have mandatory arbitration procedures, according to data from the Economic Policy Institute. Employment attorneys and economists have predicted that will only increase with rulings such as Epic Systems.

In the case before the Pennsylvania federal court, Styczynski, a former district manager, sued talent-management firm Allegis and its subsidiary MarketSource, where she was employed. She claimed management allowed sexual harassment to persist and ultimately forced her to resign. She signed an agreement, however, that said workplace grievances would be sent to arbitration.

Caren Gurmankin, a partner at Console Mattiacci Law, represented Styczynski. William Corum and Dwayne Stanley of Husch Blackwell represented MarketSource.

“Styczynski has agreed to arbitrate any employment-related claim against MarketSource and its affiliate, Allegis. Therefore, she must pursue her claims against MarketSource and Allegis, if at all, in arbitration,” the company's lawyers wrote in a court filing.

McHugh, in his ruling against Styczynski, dug into the history of arbitration and cited recent research. The U.S. Equal Employment Opportunity Commission said in a statement in 1997, which has not been rescinded, that the private arbitral system is “structurally biased against applicants and employees,” McHugh noted. Recent studies, he said, show the scales are tilted toward the employers, and that arbitration can discourage employees from coming forward with claims.

“In light of the growing body of empirical research and the EEOC's admonition, courts must continue to scrutinize the fairness of mandatory arbitration, especially in employment cases,” McHugh wrote. “But just as the judiciary has come to recognize the challenges judges face in overcoming implicit bias on racial and ethnic grounds, we must consider the inherent problems presented by a for-profit system of dispute resolution that addresses important issues of federal law without the same transparency and error-correcting mechanisms as the courts.”

Read the ruling in Styczynski v. MarketSource:

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