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Federal Contractors Wary of Push for Biden Ban on Arbitration

June 23, 2021, 4:02 PM

President Joe Biden is being asked to ban mandatory arbitration clauses for federal contract workers via executive order, a tactic that could allow him to circumvent a razor-thin Democratic majority in the Senate and enact a pro-worker policy closely watched by lawmakers, attorneys, and shareholders.

Forty House Democrats last week sent Biden and Vice President Kamala Harris a letter asking the White House to take swift action, saying the pre-dispute agreements enable employers to “evade public accountability by funneling cases into secret tribunals that are designed to be rigged against workers and lack the protections that workers would have in court, such as access to a judge and jury.”

Arbitration clauses are widely used and preferred by businesses that view the alternative resolution process to be more time- and cost-efficient, as well as taking place in a private setting, unlike traditional litigation. But critics say the clauses create an unequal playing field that favors businesses, and they prevent workers from bringing their allegations of discrimination to the public courts of law.

In the context of federal contracting, banning mandatory arbitration would pull back the curtain on potential wrongdoings an employer has committed before taking taxpayer dollars, according to Anastasia Christman, director of the National Employment Law Project’s Worker Power Program. Federal contractors employ about 25% of the U.S. workforce.

“We, as a people, should not be financing discriminatory behavior,” she said.

Attorney Concerns

Moves in Congress to restrict arbitration clauses have stalled, leaving Biden the option to mandate a ban. While Democrats hold a majority in the Senate with Harris’s tie-breaking vote, 60 votes—and significant Republican support—are still required to overcome the filibuster.

“The only way the social policy is going to move forward on this is if the president issues an executive order,” said Alissa Horvitz, an attorney with Roffman Horvitz who counsels federal contractors on compliance matters.

The U.S. Supreme Court has held that the employment agreements are enforceable under the Federal Arbitration Act, and shut down other arbitration-related concerns, according to the U.S. Equal Employment Opportunity Commission.

Horvitz said she was concerned what effect an executive order would have on contractors bidding for government work.

“If you force people to litigate, it raises the cost of doing business with the government,” she said. “It’s definitely going to cause some employers to evaluate whether they want to get into the government contracting space if this potential resolution dispute path is unavailable to them.”

Mickey Silberman, who also represents federal contractors in employment matters, said any order could become another cost for contractors.

“Government contractors are not obligated to do business with the federal government, but if they do, then these are the terms of the deal,” he said. “I expect that if we see this executive order, we’ll likely see some legal challenges.”

Arbitration Action

Shareholders recently joined pro-worker coalitions to support an end to mandatory arbitration agreements, and stepped up pressure on Wall Street.

Goldman Sachs Group Inc., a federal contractor, agreed to study the impacts of mandatory arbitration clauses on workers following the narrow defeat of a shareholder proposal to do so. The proposal was backed by former Fox News anchor Gretchen Carlson, who has campaigned against the employment agreements.

Shareholder proposals have recently become a strategy to pressure companies on a number of workplace issues that may not see legislative action, including the disclosure of workplace diversity data.

NELP’s Christman said her nonprofit group has had an “ongoing dialogue” with the U.S. Labor Department and the White House about banning mandatory arbitration clauses.

“I think that they are really taking a hard look at what the current policies and practices are, and they really are committed to figuring out how to do it better,” she said.

To contact the reporter on this story: Paige Smith in Washington at psmith@bloomberglaw.com

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Travis Tritten at ttritten@bgov.com

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