IMAGINE wanting to sue your employer, because you have been harassed or discriminated against, only to find that your access to the courts is blocked. It turns out you signed away your right to use the judicial system when you started the job: somewhere, hidden in the documents that came with your employment contract, was a clause obliging you to resolve future disputes through private arbitration, rather than in court.

An increasing number of American employees find themselves in this situation. Over half of non-unionised employees are covered by arbitration requirements, estimates Alexander Colvin of Cornell University, based on a survey in 2017 of 627 private-sector workplaces. Such agreements have come under greater scrutiny after the wave of workplace sexual-harassment revelations last year. Gretchen Carlson, a former news anchor for Fox, a broadcaster, has called arbitration “the harasser’s best friend”. Prevented by an arbitration clause from suing the network, Ms Carlson sued her boss and alleged harasser, Roger Ailes, instead.

Arbitration was originally designed for commercial disputes. It has also become a common feature of consumer services: Airbnb’s terms of use include them, as do mobile-phone contracts. But such clauses increasingly show up in employment contracts, too. Back in the early 1990s, only around 2% of non-unionised workplaces used arbitration for employment disputes, says Mr Colvin. A number of Supreme Court rulings since then have encouraged its broader adoption.

The main advantage of arbitration, compared with litigating in court, is speed: a decision is reached, on average, a year before one is made in court. Instead of complicated legal procedures, the parties involved call in a neutral third person, often an expert in the industry. The arbitrator listens to the evidence and makes a decision, which is binding in most cases.

The popularity of arbitration is a sign of how very costly and technical the courts have become, says Andrew Pincus, a partner at Mayer Brown, a law firm, who advises companies on such procedures. Signing up to arbitration in advance, he argues, does away with jockeying for legal advantage over where the case is best heard, which almost always keeps the parties from settling. And it allows employees to make claims that would be too small to justify a suit in court.

Others argue that arbitration is ill-suited to employment disputes. In many cases, it and its terms are in effect imposed on employees, says Imre Szalai of Loyola University in New Orleans. New recruits may not look at the small print, or think it will ever apply to them. “It is a fantasy of consent, rather than the real thing,” says Katherine Stone at University of California, Los Angeles.

Another concern is that the process of arbitration favours employers. They often pick the firm of arbitrators. And individual arbitrators are more likely to encounter the employer than the employee in future cases. Both features may lead the arbitrator to be unconsciously biased towards the employer, says Victoria Pynchon, a former arbitrator with the American Arbitration Association (AAA), who now runs She Negotiates, a training and consulting firm.

In some cases, biases are explicit. Ms Pynchon was warned at the start of her career that awarding punitive damages against employers could mean she would never arbitrate another case. Large arbitration groups, such as the AAA, do have codes of conduct that prohibit such partiality. But Mr Szalai, of Loyola University, questions whether these counteract implicit biases.

Unsurprisingly, perhaps, recent studies suggest that outcomes and payouts in arbitration are, on average, significantly less generous to employees than those made in court, says Mr Colvin. But comparing arbitration and court cases is not easy: the terms of arbitration can vary widely, making generalising across them difficult.

Another criticism of arbitration agreements, voiced by Ms Carlson, the news anchor, is that they silence victims. Often the proceedings have confidentiality clauses attached that prevent the employee from speaking about the case, thereby protecting repeat offenders. Paula Brantner of Workplace Fairness, an employee-rights charity, contends that, without the threat of litigation and the negative publicity it brings, companies have less of an incentive to root out bad behaviour.

In the wake of the #MeToo movement, legislators are now taking aim at arbitration in harassment cases. A draft bill banning mandatory arbitration in such cases was introduced in Congress last month. Supporters are cheered by the fact that the bill’s sponsors span both sides of the aisle. But lobbyists warn that its broad wording could be construed as banning arbitration in all workplace disputes. Previous such proposals have never got off the ground.

Indeed, arbitration’s scope could widen further. One open question is whether firms can ban employees who are subject to mandatory-arbitration clauses from filing class-action suits. The US Chamber of Commerce says such a ban is essential to avoid needless claims. The Supreme Court is due to rule before June on whether that would violate labour rights.

Such a prohibition has already been approved by Congress in the case of arbitration in consumer contracts (reversing a decision by the Consumer Financial Protection Bureau). Firms may even start slipping arbitration clauses into IPO documents, after Michael Piwowar of the Securities and Exchange Commission welcomed the idea in a speech last year. The courtrooms may yet get emptier.

Source: economist
When you cannot sue your employer