Is arbitration worth it anymore? Most employers would have said “yes” without a second thought. Curiously, however, some of the nation's most prominent companies have recently been moving away from this practice and ending mandatory arbitration policies that had been in place for decades—begging the question of “why now?” Based on this sudden change, it's important to make sure you understand this trend against arbitration, the pros and cons of eliminating your own policy, and the potential changes in the legal landscape to watch for.

What Is Arbitration and Can Employers Still Require It?

Arbitration is a valuable alternative to litigation. Agreements to arbitrate require the parties to pursue their claims before a private arbitrator (i.e. usually a retired judge) outside of the normal court system. By doing so, the parties are often able to keep the matters confidential and avoid the delays and costs traditionally associated with bringing claims through the courts. As a result, many employers often choose to require their employees to consent to mandatory arbitration as a standard condition of their employment.

Generally speaking, arbitration agreements are still legal. Within the last two years, the U.S. Supreme Court has consistently upheld the validity of these mandatory agreements, and local federal courts have naturally followed suit by applying an extremely permissive standard on their enforceability. Given this wave of support, and the value that employers can derive from these agreements, widespread adoption seems like a no-brainer, right?

Why Are Companies Moving Away From Arbitration?

In the wake of these victories, more and more companies started moving away from mandatory arbitration agreements. The reason seems to be two-fold.

Public Pressure Following #MeToo. Most notably, the recent #MeToo Movement galvanized substantial swaths of the population against the practice after it was revealed that certain bad actors had been using arbitration agreements, and the confidentiality associated therewith, to silence victims of sexual harassment by keeping them out of the court system and sweeping their claims under the proverbial rug. Enraged and emboldened, social activists took to social media to shame companies for their use of the agreements and demand an end to the practice.

Visibility of these disputes was high, and several prominent companies soon found themselves in the crosshairs. For example, a group of Harvard Law students organized a protest against one of the nation's largest law firms for its use of the agreements—threatening to deprive them of some of the industry's top talent. Around the same time, Google saw similar social outcry after more than 20,000 employees worldwide orchestrated a coordinated “walk-out” to protest the company's alleged misuse of the agreements to stifle harassment claims. In the weeks and months following, both organizations agreed to change their policies, with other large companies quickly following suit.

Rising Cost of Enforcement. Aside the negative publicity, many companies are choosing to forego enforcement of their arbitration agreements for economic reasons. Recently, companies have continued to find themselves more and more mired in costly disputes over mundane decisions, such as where the arbitration should be held or who the arbitrator should be—costing unreasonably large amounts of time and money before the parties start even arguing about their actual claims. Even when companies get to the actual arbitration though, in California, they then find themselves stuck with the bill, sometimes as high as $50,000 or more, just for the arbitrator's time. And because choosing the arbitrator is generally done by both parties, parties report that arbitrators tend to “split the baby” on the claims themselves, lest they run the risk of upsetting either side and jeopardizing future business. In short, companies are realizing that, in a lot of cases, arbitration just isn't worth the hassle.

So What Should We Do?

As the adage goes, you should never throw the baby out with the bathwater. Arbitration agreements can still be a valuable tool to protect the interests of both parties. A few bad apples aside, the confidentiality of arbitration can act as a shield for younger employees who prefer discretion and wish to cultivate a prominent career without having the looming shadow of past litigation forever tied to their names. Accordingly, it's important to take note of a few things when determining whether arbitration agreements are right for your company.

First, arbitration agreements don't have to cover all claims under the sun. A company could easily choose to have an agreement in place for banal claims, like wage and hour disputes, while still allowing employees to bring more sensitive claims, like harassment, in court. By doing this, companies can show their employees that they understand, and firmly oppose, the past misuses of arbitration agreements that the #MeToo Movement brought to light.

Second, arbitration agreements can always be drafted to give employees a choice. A big part of the stigma with these agreements comes from their mandatory or forced nature. Making arbitration voluntary, and explaining the pros and cons to employees openly, can eliminate this problem and make sure that both parties understand, and are satisfied with, the choice.

In short, you have a multitude of options when determining which form of arbitration agreement, if any, is right for your company. Context is important, and what's right for one company may not be right for another. And with Congress's recent introduction of the proposed Forced Arbitration Injustice Reversal Act—which aims to potentially extinguish forced arbitration altogether—employers should take care to factor these potential changes in as they move forward in crafting, amending or eliminating their arbitration policies.

Anthony E. Guzman II is an associate in the San Francisco of Fisher Phillips. He may be reached at [email protected].