Wall Street Faces End of Arbitration Secrecy Over #MeToo Cases

When Lee Stowell saw that Congress was banning mandatory arbitration for workplace sexual harassment and assault claims, it hit home.

Years ago, the former junk-bond saleswoman sued her boss, a colleague and Cantor Fitzgerald, accusing them of harassment, discrimination and retaliation — allegations they denied. Instead of going to court, Stowell, like so many before her, was forced into arbitration’s shadow legal system.

The legislation, which President Joe Biden is poised to sign now that it cleared the Senate Thursday, will have big implications for employees, whose contracts often include mandatory arbitration provisions, and for corporations, which prefer that route because it can be quieter and cheaper than public litigation. And on Wall Street, where all but one of the six big U.S. banks are still run by men and issues of gender discrimination and inequality have proliferated for decades, the new law will give more victims a chance to sue harassers in front of judges and juries.

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While Stowell celebrates that the legislation will help generations to come, it may be too late for her.

“It’s bittersweet, I’m not going to lie, to be one of the last ones locked into arbitration’s chamber of silence,” she said in an interview.

The number of workplace disputes resolved via arbitration has skyrocketed, increasing by about 66% between 2018 and 2022, according to research from the American Association for Justice. Just 4% of workers won a monetary award through the process in 2020.

Former U.S. Supreme Court Justice Louis Brandeis called sunshine the best disinfectant, but the landmark legislation leaves lingering shadows for workers navigating misconduct, even if it will radically alter how companies respond to allegations.

“To use a lovely Yiddish word, I’m verklempt,” said Rachel Robasciotti, who runs asset manager Adasina Social Capital, when the legislation passed the House. She has also fought mandatory arbitration with a campaign called Force the Issue. “I’m floored,” she said.

Still, Robasciotti said there’s more work that needs to be done to bring transparency and equality to finance, including a fight against racial discrimination. “I can be happy but not satisfied.”

The bill narrowly pertains to sexual harassment and assault allegations. Separate legislation, known as the FAIR Act (H.R. 963), would nullify all pre-dispute arbitration agreements — but hasn’t gathered as much momentum on Capitol Hill.

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Sarah Rudolph Cole, a law professor at the Ohio State University who focuses on issues that arise from alternative dispute resolution, said the bill will cause companies to reexamine all mandatory arbitration agreements.

“Really, how do you justify sex harassment not being arbitrable, but race harassment is?” she said.

Ellen Pao, whose lawsuit a decade ago against her former venture capital firm helped expose gender equality issues in Silicon Valley, said the new law is just the beginning.

“We still need to expand the definition to include discrimination, and to include forms of discrimination beyond gender,” Pao said. “We need better ways to repair the harm, to educate employees to prevent harm, and to report and acknowledge harm when it happens.”

Just before Christmas, Goldman Sachs Group Inc. decided it would continue sending employees who claim they were harassed into arbitration but would allow some to waive the confidentiality of decisions. The firm has been fighting one of the largest class-action gender-discrimination cases seen on Wall Street in more than a decade. Bank of America Corp. doesn’t require arbitration for gender discrimination or harassment, according to a spokesperson, and Wells Fargo announced years ago it would end that practice.

Businesses should embrace the change, according to Indiana University law professor Jennifer Drobac, because of the financial consequences they face when “predators are left to have their way in a company.”

“If you, as a corporate body, have cancer,” she said, “don’t you want to know that its metastasized so you can properly treat it?”

Stowell, whose arbitration process hasn’t ended, believes the legislation comes too late for her. The news was moving but difficult.

“Someone has to be the last one,” she said. “That’s the way it works.”

To contact the authors of this story:
Max Abelson in New York at mabelson@bloomberg.net

Paige Smith in Arlington at psmith347@bloomberg.net

To contact the editor responsible for this story:
Rebecca Greenfield at rgreenfield@bloomberg.net

Danielle Balbi

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