(Bloomberg) -- Over the last decade, more than half of U.S. companies adopted a dispute-resolution process known as forced arbitration to settle worker grievances of all kinds behind closed doors as an alternative to litigating in court. Now, under pressure from the #MeToo movement, Congress has banned mandatory arbitration for workplace sexual harassment and assault claims. While this change is expected to give workers more leverage, activists are seeking a broader ban covering gender discrimination and other grievances.
1. How does mandatory arbitration work?
Where it's used, workers are usually required to agree in advance to arbitrate workplace disputes outside of court. Evidence is presented, and witnesses give their accounts just like in courthouse suits, but cases are decided by privately appointed arbitrators, who act as both judge and jury. Proceedings are conducted out of the public eye, and parties generally are required to keep the outcome secret.
2. What are its pros and cons?
Some studies have concluded that arbitration is speedier and less costly than a trial. It also allows victims to maintain their privacy. Women's rights attorney Gloria Allred, who has represented hundreds of harassment victims in private settlements, has said many of her clients appreciate confidentiality. Critics say that arbitration is stacked against workers and refer to it as a shadow legal system. A 2015 study found employees prevail only about a third as often in mandatory arbitration as in federal courts, and when they do win damages, the typical payout is a fifth of what it is in those courts. Some women's rights advocates contend that arbitration of harassment claims helps companies cover up employee misconduct. They point to a 41% drop in official sexual-harassment complaints to state and federal regulators from 1997 to 2017 as evidence that the resolution process has become more private. More recent data shows the number of workplace disputes resolved via arbitration skyrocketing, increasing by about 66% between 2018 and 2020. Just 4% of workers won a monetary award through the process in 2020, according to research from the American Association for Justice.
3. What sparked the backlash against arbitration?
Allegations of sexual harassment by Hollywood producer Harvey Weinstein cast a spotlight on his use of nondisclosure agreements to buy the silence of some of his accusers. But the original proposal in Congress to bar mandatory arbitration in sexual-harassment complaints was inspired by a case filed against Signet Jewelers alleging systemic abuse of hundreds of women who worked for the company's retail chains. The complaint against the company was made in 2008, but the disclosure in 2017 of hundreds of related documents ignited a scandal that forced the CEO to step down.
4. What happens now?
Employees can still choose arbitration for sexual misconduct cases, but they can't be forced into the process -- and they can't be barred from pursuing class-action lawsuits on behalf of other workers, even if they previously signed an agreement to arbitrate the claim individually. The legislation covers conduct that's alleged to constitute harassment under state, federal and tribal law, but doesn't apply to grievances already filed before the law's enactment. A separate, broader proposal to completely ban enforcement of arbitration agreements that bar workers and consumers from pursuing claims in court in any context hasn't gained enough momentum to clear Congress. But the administration of President Joe Biden has encouraged lawmakers to expand the ban on forced arbitration for employment disputes to include claims on the basis of race, wage theft and unfair labor practices. Activists including Ellen Pao, whose lawsuit a decade ago against the venture capital firm she'd worked for helped expose gender equality issues in Silicon Valley, are pushing to end forced arbitration for all manner of discrimination disputes.
The Reference Shelf
- A Bloomberg Businessweek guide, “How to Break an NDA, Confront a Colleague, and Other Office Tips.”
- The American Arbitration Association's rules and procedures.
- A QuickTake on understanding what is and isn't sexual harassment.
- How activists loosened Wall Street's grip on forced arbitration.
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