Employees at four tech giants can now take their companies to court to pursue workplace sexual harassment claims, instead of being forced to settle such claims through private arbitration, thanks to policy changes announced in the past week.
Google, the first company in this recent wave to undo its mandatory arbitration clause for harassment, made the move Nov. 8 to appease outraged workers, who had days before staged a 20,000-employee walkout worldwide over the company’s handling of sexual misconduct allegations. Facebook followed suit on Nov. 9.
Last week, both Airbnb and eBay said they too would be ending the controversial legal practice, which has come under fire in the #MeToo era for protecting serial harassers and silencing victims.
“Whether companies have done this in good faith to better help victims or, if you’re more cynical, to avoid backlash and negative publicity, it is a good move for employees,” says Imre Szalai, a law professor at Loyola University New Orleans who is an expert in arbitration issues and author of “Outsourcing Justice: The Rise of Modern Arbitration Laws in America.”
Mandatory or forced arbitration, Szalai tells CNBC Make It, is typically a raw deal for employees.
Workers, usually at medium-to-large companies, often at the time they’re hired, sign documents agreeing to forgo the involvement of the judicial system and instead use a private forum to settle potential disputes as part of their terms of employment.
Handling these matters out of court means an arbitrator, not a judge and jury, decides a case.
“When arbitration is forced, companies don’t need to make the option attractive as they do when someone has the option to go to court instead. That makes it a slanted process,” says Szalai. “I’ve seen cases in the past where companies with forced arbitration clauses have required employees [meet] harsh conditions, such as attending arbitration hearings held on the opposite end of the country, allowing only 30 days to bring a claim, charging expensive fees and capping damages at $5,000.”
In arbitration, employers typically set the parameters, which means they can add such criteria and, also, limit the timeline of the case. For instance, in court, an employee’s legal team could set up multiple depositions and make broad discovery requests, which can be crucial for supporting sexual harassment claims, says attorney Zachary Liszka, who specializes in sexual harassment and discrimination cases. In arbitration, employers can mandate no discovery and a single deposition.
They can also select the arbitrator deciding the dispute. Researchers who reviewed cases settled by the American Arbitration Association over an 11-year period found that employers who rely on the same arbitrator win more often and have lower damages awarded against them, likely because companies stick with arbitrators who’ve ruled in their favor in the past.
Damage amounts determined by a federal or state court are also typically much larger than those awarded by an arbitrator, according to the Economic Policy Institute.
“One of the downfalls of arbitration is that you have the one experienced arbitrator deciding. That person will not have the same experiences as a 12-member jury,” Liszka tells CNBC Make It. “One of those jury members may have a better sense of what you’re experiencing. They may have been though something similar.”
Szalai says the move these companies made is a step in the right direction, but still too narrow.
The new policies apply only to sexual harassment claims. Workers are still beholden to mandatory arbitration for discrimination, contract violations, wage disparity, other harassment and all other workplace issues.
Few workers even realize they’ve signed away their right to sue, or that they’re even bound by an arbitration agreement, Alexander James Colvin, a Cornell University law professor who specializes in employment dispute resolution and arbitration, tells CNBC Make It.
Not that it matters, as employees would be hard-pressed to even find a role at medium to large size company that doesn’t require such a sign-off. More than 60 million workers, or 56 percent of the non-union private-sector, are subject to mandatory arbitration clauses, according to a study Colvin authored, published last year by the Economic Policy Institute, and the trend has only been growing.
Between 1995 and 2017, the share of employees barred from ever taking an employer to court rose seven-fold. A recent Supreme Court ruling, which decided employees who sign class-action waivers are truly unable to file collective action lawsuits, may spur even more companies to add arbitration agreements.
“When you join a company, you’re signing all kinds of forms about benefits and taxes,” says Colvin. “Some companies do a good job explaining what mandatory arbitration is and some don’t, but employees are often more preoccupied with signing up for healthcare or figuring out their 401(k) to pay it much attention.”
While critics have called for an end to mandatory arbitration for decades, arguing that the system hurts employers and consumers, these changes in the treatment of sexual harassment are the first major rollback of the pervasive legal tactic, and some are optimistic the trend could continue expanding to other companies.
After all, these four tech players are only the latest to adopt the change. Microsoft made the move away from forced arbitration in December 2017, and Uber and Lyft did so in May. Major law firms such as Munger, Tolles & Olson changed their tune in March, after criticism from Harvard Law School lecturers and students.
And in February, for the first time in about a decade, all 56 U.S. attorney generals joined together to urge Congress to to ban forced arbitration for workplace sexual harassment. Bills on the subject have been proposed before — the most recent was introduced in December of last year by a bipartisan committee — but none have resulted in federal legal change. Some states have taken matters into their own hands and passed laws this year barring the practice, but Colvin warns they may not hold up if companies challenge them in court.
The big changes still need to happen at a federal level, Colvin says. Though he thinks that’s unlikely to happen anytime soon, he’s optimistic the pressure that led Google to change its stance on sexual harassment cases could lead companies to make similar changes for other workplace issues, like racial discrimination.
“The strategy in the past that nonprofits and workers’ rights groups have used called for bans on all mandatory arbitration, and those calls have fallen on deaf ears,” says Szalai. “Many have realized broad reforms are not working but this piecemeal approach has led to change.”
He likens this progress to the the women’s rights movement. “You’re not going to bring about a sea change at once, but maybe, over time, with each of these little steps, we will see a day where arbitration will be voluntary for all disputes.”
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