Pros and Cons of Mandatory Arbitration Policies for Employment Disputes

Q.  Our company has a policy providing for mandatory arbitration of employment claims. I heard recently that some companies are moving away from these types of policies.  What are the pros and cons of requiring all employees to submit their employment claims to arbitration?

A.  There are a number of issues to consider regarding whether a company should require its employees to submit all employment claims to arbitration. These types of policies have been in favor since the 2018 United States Supreme Court opinion in Epic Systems Corp. v. Lewis, which endorsed mandatory arbitration agreements even where they resulted in employees waiving their rights to pursue claims in a class or collective action.

In light of the #MeToo movement, however, federal and state legislatures have taken steps to ban private resolution of sexual harassment claims. For example, New York State recently passed a law prohibiting not only the use of mandatory arbitration for sexual harassment claims, but also non-disclosure agreements relating to settlement of those claims.  Similar laws were passed in Washington and Tennessee in 2018, and comparable legislation has been introduced in several more states.  At the federal level, Congress currently is considering a bill called the Forced Arbitration Injustice Repeal (FAIR) Act, which would ban mandatory arbitration in employment and consumer agreements.

In addition, some companies have scaled back their mandatory arbitration policies in the face of employee resistance. In November 2018, for example, about 20,000 Google employees made their case against mandatory arbitration in a very public way when they walked off the job in protest of the company’s arbitration policy, which required employees to bring all claims for sexual harassment to arbitration.  Google waived the policy with respect to those claims only, but the employees pressed the company to abandon the policy for all employment-related claims, and Google eventually acquiesced.  On February 21, 2019, Google announced not only that it would end the mandatory arbitration policy altogether, but also that it would no longer require agreements that deny employees the right to bring class actions against the company.

Since that time, Facebook, Airbnb and eBay followed suit by modifying their policies to allow employees to bring sexual misconduct and harassment claims in court. Twitter also made a announcement touting that it has never required employees to submit employment claims to arbitration.

In the face of these developments, should companies compel their employees to submit all employment claims to arbitration?

There are certain advantages to arbitration as a process for resolving employment claims. First, in light of the Epic Systems decision, companies can require employees to bring their claims individually in arbitration, rather than banding together to pursue claims as a class or collective action.  Second, arbitration is a private proceeding and therefore provides an advantage to employers who would rather avoid the public embarrassment of what sometimes can be salacious allegations.  Third, the arbitration proceeding is a way to avoid having disputes heard by a jury, which may be more willing to award substantial sums to sympathetic plaintiff-employees.  Fourth, when compared with traditional litigation, the arbitration process is at least supposed to be a faster resolution of the dispute at a reduced cost.

However, companies are finding that, in practice, arbitration proceedings sometimes can be as lengthy and costly as court proceedings, particularly since the employer usually is responsible for the arbitrator’s fees on top of its own legal fees and expenses. In addition, arbitrators rarely grant summary judgment and are often more likely to split a decision down the middle, rather than rule completely in the employer’s favor.

With this in mind, your company should consider carefully whether mandatory arbitration is appropriate, giving thought to the company’s culture, industry standards and the evolving legal framework. If the company does decide to put a mandatory arbitration policy in place, it is important that it is drafted carefully with the assistance of counsel, taking into consideration state laws of your jurisdiction, to ensure that the provision will be found fair and enforceable.

Rogers Stevens

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