Mandatory Arbitration for Sexual Harassment: Fair Third Party or Toxic Intimidation?
Sexual harassment and misconduct have long plagued this country. In light of the #MeToo movement and the 43 allegations of inappropriate or violent sexual conduct against President Trump, current debates surrounding these topics are a litmus test for the zeitgeist. Though the weight and frequency of these allegations can cause us to lose hope, the elusive idea of accountability propels us forward. How can survivors of harassment, assault, and/or discrimination realistically pursue justice? While the United States Federal Court System answers this question through mandatory arbitration, survivors and advocates—referring to the concept as forced arbitration—argue that it systematically allows the cycle of harassment and discriminatory behavior to continue. [1]
Arbitration allows aggrieved parties to settle a dispute through an internal company process that is mediated by an independent individual (the arbitrator). The “mandatory” aspect refers to when employment contracts require employees to settle any employment claims through arbitration before seeking legal action. Proponents of mandatory arbitration praise it as an efficient way to resolve disputes without straining court resources. [2] But when mandatory arbitration bars employees from litigating claims under laws such as Title VII of the Civil Rights Act, the Americans with Disabilities Act, and the Fair Labor Standards Act, it is clear that forced arbitration disproportionately impacts low-income and marginalized employees, while also barring employees of all backgrounds from accessing constitutionally guaranteed rights. [3] A 2018 study by the Economic Policy Institute found that forced arbitration clauses are more common for low-wage workers and in industries that disproportionately employ women and Black workers. [4]
Whereas filing a civil claim in court makes information about the alleged discrimination public, official complaints of alleged harassment, employee testimonies, and other crucial evidence remain concealed in arbitration proceedings. In cases of sexual harassment, this means repeat offenders could be investigated in multiple arbitration hearings without information about the allegations ever becoming public. [5] If these investigations took place in a courtroom, then public court filing systems would make them accessible to interested parties, meaning that even in the event that an accuser was not found guilty, people both within and outside the company would be able to read the information and come to their own conclusions. Given that the proportion of sexual assault or harassment cases that actually get reported result in an even smaller proportion of convictions, the potential to “name and shame” abusers is powerful.
Additionally, the long-lasting relationships that arbitrators inevitably form with employers challenge their objectivity. Upon analyzing data from the American Arbitration Association, which handles 50% of the country’s arbitrations, Vox found that employees were awarded damages in less than 2% of cases. [6] Another study showed that over 30 years, only 17 women won their sexual harassment claims through Wall Street arbitration procedures. [7] To understand why federal courts support forced arbitration even when it has counterproductive implications, one can look to the Federal Arbitration Act of 1947 (FAA). Originally enacted in 1923 as the United States Arbitration Act, the FAA validates arbitration agreements in “any maritime transaction or a contract evidencing a transaction involving commerce.” [8] Before the early 20th century, federal courts considered arbitration to be illegal because it infringed upon the courts’ jurisdiction. When the FAA was eventually passed, it was done so with reservations, as well as a clause in Section 1 that exempted “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from its regulation. [9] For the following few decades, judicial interpretations of the FAA maintained these reservations and kept the Section 1 exception in mind. In 1991, however, a landmark Supreme Court decision in Gilmer v. Interstate/Johnson Lane Corp. established that an employee could be compelled to arbitrate a claim under the Age Discrimination in Employment Act (ADEA). The employee argued that arbitration would not adequately address the discrimination they had allegedly suffered, but the Court reasoned that arbitration would only change the setting of the investigation, not its quality or sincerity. [10]
This ruling set the precedent for a series of other decisions that allowed employers to prevent employees from litigating their claims in court. It laid the foundation for the FAA’s Section 1 exemption to be interpreted far more broadly, requiring unionized employees to arbitrate discrimination claims and allowing mandatory arbitration clauses to prevent employees from filing class-action lawsuits. [11, 12, 13] In 1992, before the Gilmer decision set in motion the expansion of judicial interpretations of the FAA, forced arbitration only impacted 2% of American employees. As of 2017, however, 55% of American employees are subject to forced arbitration. This rapid expansion of claims subject to forced arbitration has elevated the FAA to the status of a “super-statute,” making it nearly impossible for courts and legislatures to challenge forced arbitration at the state level.
New York attempted the seemingly impossible when it passed 2018 state arbitration law §7515, banning forced arbitration in the state. Responding to the #MeToo and #TimesUp movements, the law sought to make it easier for employees to pursue legal action over harassment and discrimination claims.[14] However, when Mahmoud Latif filed a federal lawsuit against Morgan Stanley for assault and battery, aggravated sexual abuse, and discrimination merely a few months after this law was passed, a debate emerged over whether or not Latif could use § 7515 to escape the forced arbitration clause in his contract. The Southern District of New York ultimately ruled that §7515 was preempted by the FAA, arguing that New York did not have the authority to ban forced arbitration when it was allowed by federal law. [15]
Latif v. Morgan Stanley & Co. LLC, et. al. set a groundbreaking precedent for other states considering measures against forced arbitration. The court ruled that §7515 violated the FAA by treating arbitration less favorably than other contracts, which will have reverberating implications for any other state that seeks to challenge forced arbitration. While these consequences may seem daunting for labor advocates, the fight is not over. Employees across the country have called directly on their employers to end arbitration without court intervention, a strategy that has been successful in large corporations such as Google, Facebook, and Airbnb. [16] Additionally, the House of Representatives passed the FAIR Act in September of this year, a bill that would ban forced arbitration for employment, consumer, antitrust and civil rights claims. [17] Though the federal courts have most recently sided with forced arbitration, it is clear that the public is against it. Perhaps a combination of public pressure directly on companies and federal legislation will challenge forced arbitration from another angle, or inspire a court in a future lawsuit to adopt a new outlook.
[1] Jean R. Sternlight, "Mandatory Arbitration Stymies Progress Towards Justice in Employment Law: Where To, #MeToo?" (2019). Scholarly Works. 1178. https://scholars.law.unlv.edu/facpub/1178
[2] Kathleen McCullough, Mandatory Arbitration and Sexual Harassment Claims: #MeToo- and Time's Up-Inspired Action Against the Federal Arbitration Act, 87 Fordham L. Rev. 2653 (2019). Available at: https://ir.lawnet.fordham.edu/flr/vol87/iss6/13
[3] Colvin, Alexander J.S. “The Growing Use of Mandatory Arbitration: Access to the Courts Is Now Barred for More than 60 Million American Workers.” Economic Policy Institute. Accessed October 29, 2019. https://www.epi.org/publication/the-growing-use-of-mandatory-arbitration-access-to-the-courts-is-now-barred-for-more-than-60-million-american-workers.
[5] McCullough, “Mandatory”, 2659.
[6] Campbell, Alexia Fernández. “Google Will Allow Employees to Sue the Company. Here's Why That Matters.” Vox. Vox, February 22, 2019. https://www.vox.com/technology/2019/2/22/18236172/mandatory-forced-arbitration-google-employees.
[7] Antilla, Susan. “FINRA's Black Hole.” Type Investigations, April 18, 2018. https://www.typeinvestigations.org/investigation/2018/04/18/finras-black-hole/.
[8] FAA
[9] Ibid
[10] 500 U.S. 20, 35 (1990)
[11] 532 U.S. 105 (2001).
[12] 556 U.S. 247, 264 (2009).
[13] 138 S. Ct. 1612 (2018).
[14] Klein, Traycee Ellen, Shira M. Blank, and Amanda M. Gomez. “Federal Court Declares That a Ban on Mandatory Arbitration of Sexual Harassment Claims Is Inconsistent with Federal Law.” The National Law Review. Accessed October 29, 2019. https://www.natlawreview.com/article/federal-court-declares-ban-mandatory-arbitration-sexual-harassment-claims.
[15] Latif v. Morgan Stanley & Co. LLC, et al., No. 1:18-cv-11528, S.D.N.Y. (2019)
[16] Martins, Andrew. “Joining Other Major Players, Google Ends Forced Arbitration.” Business News Daily, February 23, 2019. https://www.businessnewsdaily.com/11302-google-axes-forced-arbitration.html.
[17] H.R. 1423, 116th Cong. (2019). (View the page cited)