Daily Labor Report®

Job Arbitration Pacts in Public Eye and on DOL’s Radar

Dec. 5, 2018, 11:13 AM

Companies’ use of mandatory arbitration is getting more scrutiny from the Labor Department.

The issue is on the nation’s radar, too, more than a year into the #MeToo movement. Google and Facebook recently announced they would make some mandatory arbitration policies optional for employees making claims of harassment and assault. Airbnb also ended forced arbitration for employee harassment claims as well as those involving workplace discrimination.

Arbitration is a private legal proceeding that takes place out of court and can involve confidential proceedings. As the public focuses more on the role of these deals in the workplace, the DOL’s chief legal officer is turning her attention to the phenomenon as well. It’s unclear what the implications will be for employers that rely on these clauses, though it could signal a return to a recommendation from the George W. Bush administration’s labor solicitor, who said the agency should consider staying out of cases where employees signed contracts that included arbitration agreements.

In the past few years, there’s been an “explosion” of arbitration agreements on the job, and in many cases, they’ve become a condition of employment, Justin Swartz, partner at Outten & Golden, said. The U.S. Supreme Court case Epic Systems v. Lewis in May had a role in exacerbating the trend, Swartz said. In that case, the court ruled that employers can enforce arbitration agreements signed by workers, even if they bar class-action claims.

Eighty of the Fortune 100 companies in the U.S., including their subsidiaries and affiliates, have used arbitration to resolve employment disputes since 2010, according to a March report from the Employee Rights Advocacy Institute for Law and Policy. Thirty-nine of the 80 have used class action waivers, meaning workers agreed to waive their right to pursue legal claims as a class.

Labor Solicitor Kate O’Scannlain wants agency attorneys across the country to give her a heads-up on “proposed enforcement actions where the Department would litigate on behalf of an employee(s) who has agreed to arbitrate employment disputes with his or her employer,” according to a memo to her regional solicitors that Bloomberg Law obtained.

A DOL spokeswoman commented briefly on the memo. “Arbitration agreements are a matter of substantial national legal discussion, and the solicitor’s attention to arbitration agreements is consistent with the practice of past solicitors,” the spokeswoman said. But she didn’t disclose or respond to follow-up questions about whether and if so, how, the new focus will affect how the solicitor’s office handles cases.

The DOL ought to strongly consider prioritizing investigating cases with arbitration clauses, Michael Felsen, a former DOL regional solicitor, told Bloomberg Law. The department will be increasingly called upon to address illegal employment practices that previously could have been remedied through class litigation, which is no longer available in certain cases, he said.

Similar to Bush-Era Memo

Although it’s unclear why O’Scannlain seeks a review of cases involving arbitration agreements, it’s not unheard of for a solicitor to issue a directive on arbitration.

O’Scannlain’s memo holds similarities to a memo issued by Eugene Scalia, the labor solicitor under George W. Bush, former DOL staff and officials said.

The O’Scannlain memo, like the Scalia version, indicates that if employees sign arbitration agreements, the department should consider staying out of those cases, Felsen said.

Scalia’s memo was later withdrawn by the Obama administration’s DOL and replaced with one that said arbitration agreements shouldn’t be a factor for department attorneys, Patricia Smith, the labor solicitor during that time, said.

Ryan Bates, a management-side attorney for Hunton Andrews Kurth, said it’s not immediately clear what O’Scannlain’s office intends to do. However, it seems more likely that her office is trying to get a handle on how many cases the DOL fields where arbitration agreements come up, rather than trying to avoid cases involving arbitration, he said.

“I don’t think arbitration agreements will deter DOL to any extent. I fully expect the DOL to continue enforcing laws regardless of whether there’s an arbitration agreement and regardless of an employee signing off on it,” Bates said. “They have the right to force the matter in court, regardless of whether an employee signed off on the agreement.”

Felsen said that during his time at the DOL, he wasn’t aware of any situation where the department would have backed away from a case in which there was evidence of serious violations of the Fair Labor Standards Act, simply because individual employees had signed an arbitration clause or a class action waiver.

To contact the reporter on this story: Jaclyn Diaz in Washington at jdiaz@bloomberglaw.com

To contact the editors responsible for this story: Cynthia Harasty at charasty@bloomberglaw.com; Terence Hyland at thyland@bloomberglaw.com

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