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

New Maryland Law Requires Employers to Gather Information on Settlement of Sex Harassment Claims

Q.  Are there any laws related to settlement of sex harassment claims in Maryland that I should be aware of?

A.  In response to the many high-profile scandals in the news, several jurisdictions have enacted anti-sexual harassment legislation. To date, Vermont, New York, and Washington passed anti-sexual harassment laws. Maine, North Carolina, Ohio, and New Jersey introduced similar statutes in state legislatures. The new legislation aims to reduce sexual harassment in the workplace by prohibiting waiver provisions in employment contracts, preventing non-disclosure and other provisions in sexual harassment settlement agreements, and providing new avenues for employee reporting and disclosure. Maryland is the latest state to say “#MeToo.”

On May 15, 2018, Maryland Governor Larry Hogan signed into the law the Disclosing Sexual Harassment in the Workplace Act of 2018 (the “Act”). Designed for transparency, the Act prohibits jury trial waivers and also imposes reporting requirements related to settlement of sexual harassment claims by Maryland employers.  Unlike many of the other laws, the Maryland law does not expressly prohibit nondisclosure provisions in settlement agreements.

The Act takes effect October 1, 2018.

Prohibition on Waivers

The Act prohibits Maryland employers, regardless of size, from requiring employees to arbitrate sexual harassment claims. The Act renders mandatory arbitration provisions as void against public policy. In addition, the Act prohibits an employer from taking any adverse action against an employee because the employee refuses to enter into any agreement containing an invalid waiver.

As we have written previously, mandatory arbitration provisions are favored under the Federal Arbitration Act, despite state law to the contrary. In fact, in a recent United States Supreme Court opinion, Epic Systems Corp. v. Lewis, the Court confirmed previous rulings in favor of mandatory arbitration of employment claims, upholding the validity of class action waivers in arbitration agreements signed by employees.  It is therefore likely that the prohibition on mandatory arbitration clauses will be attacked on the grounds that it is preempted by federal law. Similar state statutory provisions prohibiting mandatory arbitration have been found to be preempted.

Reporting Requirement

The Act also requires Maryland employers with 50 or more employees to submit a survey to the Maryland Commission on Civil Rights containing the following information:

  1. the number of settlements made by or on behalf of the employer after an allegation of sexual harassment by an employee;
  2. the number of times the employer has paid a settlement to resolve a sexual harassment allegation against the same employee over the past 10 years of employment;
  3. the number of settlements made after an allegation of sexual harassment that included a confidentiality provision; and
  4. information on whether the employer took any personnel action against the employee who was the subject of the settlement.

Employers must submit the first survey on or before July 1, 2020 and a second survey on or before July 1, 2022. The Commission will collect the employer-provided data and publish aggregate data on its publicly-accessible website, as well as provide, upon request, responses of individual employers to requirement number. 2.

Employer Action Items

With respect to the waiver prohibition aspect of the new Act, Maryland employers will have to decide whether to remove any provisions in employment agreements mandating arbitration of harassment claims, or take the position that the Maryland Act is preempted by federal law.

In addition, Maryland employers with 50 or more employees should prepare to comply with the survey requirements of the Act by coming up with a method to track and gather internal information on sexual harassment claims and settlements, as well as ensure that personnel files of the subjects of those sexual harassment claims are retained in order to complete the Commission survey.

Employers also should monitor for any future regulations or other guidance issued by the Commission that clarifies the Act’s employer reporting provision. For example, the Act does not address if the survey includes current and former employees and settlements outside of Maryland. Nor does the Act provide for any penalties or enforcement mechanisms if an employer fails to comply with the mandatory reporting requirements.

— Tracey E. Diamond and Sara Mohamed*, 2018 Summer Associate

* Ms. Mohamed was a 2018 Summer Associate, resident in the Philadelphia office. She is not admitted to practice law.