Lawmakers Pursue Gradual Path to Tackling Mandatory Arbitration

Opponents of mandatory arbitration are taking a piecemeal approach to slowly diminish the enforcement of the pacts in areas where they can find consensus, even as the political climate remains inhospitable to proposals to ban the use of such agreements altogether.

The current target for worker advocates and lawmakers is a carveout for employment discrimination cases involving older Americans that would invalidate forced arbitration agreements signed prior to such allegations. Leading the charge on Capitol Hill are Sens. Kirsten Gillibrand (D-N.Y.) and Lindsey Graham (R-S.C.), an unlikely duo that successfully pushed for a landmark 2022 law that, following the #MeToo movement, allowed alleged victims of workplace sexual harassment and sexual assault to get their day in court.

The move comes as that successful legislative effort—the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act passed both chambers with overwhelming bipartisan support—will be tested in a case at the US Court of Appeals for the Eighth Circuit next week.

In the meantime, Gillibrand’s latest bill—the Protecting Older Americans Act of 2023 (S.1979)—is expected to be marked up in the Senate Judiciary Committee as soon as next week, and it already has two Republican cosponsors, Graham and Sen. Chuck Grassley (Iowa).

Mandatory arbitration contracts, typically signed at the time of hiring, bind workers to resolve their employment disputes through a third-party arbitrator rather than in court. Opponents of the practice have long pushed Congress to invalidate the pacts because they say the dynamics of arbitration benefit employers by taking away workers’ right to a jury trial and preventing class actions.

But steadfast opposition to arbitration bans from business groups and Republicans remains as they argue that companies can dictate the terms of their employment contracts. Moreover, the US Supreme Court has long held that the agreements are constitutional.

“Our courts have failed us in terms of enforcing our Seventh Amendment right, it’s like they ignore it,” Rep. Hank Johnson (D-Ga.) said of the right to a jury trial. “The Seventh Amendment is meaningless to the United States Supreme Court.”

But following the congressional successes of 2022—and as the Biden administration aims to loosen employment contracts—anti-arbitration advocates and lawmakers say targeting specific areas of consensus will eventually lead to wide curbs on mandatory agreements.

“At some point we will get to an overall ban on those clauses being enforced in consumer agreements, and in all kinds of employment contracts,” said Johnson, who has pushed for a near total ban on the pacts for over a decade. “But in the meantime, if we can pass carveouts in the enforcement of those agreements in certain areas, then great. Incremental progress is fine with me.”

Divide and Conquer

Former Fox News anchor Gretchen Carlson has been at the forefront of the battle to curb the use of predispute arbitration pacts in the employment space. Her group, Lift Our Voices, pushed for the 2022 #MeToo bill as well as another landmark law also signed that year—the Speak Out Act, which invalidated nondisclosure agreements in cases of sexual assault and sexual harassment.

“We are laser-focused on silencing mechanisms,” said Carlson, who was involved in a high-profile sexual harassment case. “Our issues are the silver bullet to equity because if you can eradicate all silencing mechanisms in the workplace, you’re probably going to also see people get paid fairly, people get promoted adequately.”

Carlson said the bills are a “pragmatic approach” to neutralize arbitration agreements by looking for areas that can garner the most consensus in Congress. Curbing discrimination against older Americans has long drawn bipartisan support, and the bill has the backing of the powerful AARP.

But not every supporter of the end goal is satisfied with an incremental approach.

“It’s disappointing to me,” said Sen. Cory Booker (D-N.J.). “Justice shouldn’t be divided based on class and race. The reality is these are bad things and they should be stopped.”

Booker said in a recent Judiciary Committee hearing that forced arbitration agreements tend to benefit large employers at the cost of workers, particularly those in underserved communities. But despite favoring a more expansive approach, Booker himself introduced a narrower bill last year that would invalidate the pacts only in cases of race discrimination.

Republican Support Growing

Despite broad Republican opposition, the narrower proposals are gaining the support of some conservatives.

Graham told Bloomberg Law he’s confident he will be able to garner enough fellow Republicans to bring the age discrimination bill over the finish line. He also said he supports Booker’s bill on arbitration exemptions in race discrimination cases.

Sen. Thom Tillis (R-N.C.), who sits in the Judiciary Committee, defended employers’ prerogative to include forced arbitration clauses in their employment contracts. But he said in an interview he’s open to narrow arbitration carveouts to avoid “egregious examples” such as in sexual abuse and age discrimination cases.

“Those are very clear examples that are abused and they should be fixed,” Tillis said. “Completely removing it is irresponsible.”

Meanwhile, Sen. Josh Hawley (R-Mo.) introduced a bill (S.3585) in January that would invalidate forced arbitration agreements for alleged victims of human trafficking. And a recent high-profile compromise on data privacy legislation between Rep. Cathy McMorris Rodgers (R-Wash.) and Sen. Maria Cantwell (D-Wash.) contains a provision to prevent forced arbitration in cases of “substantial privacy harm.”

‘You Don’t Have to Go to Court’

But major business groups are still a large hurdle for proponents of these bills.

Last year, the US Chamber of Commerce led dozens of business organizations in a letter asking Congress to reject legislation that prohibits arbitration or contains class action waivers.

Matt Webb, senior vice president for legal reform policy at the US Chamber Institute for Legal Reform, said the group has “concerns” about the Gillibrand-Graham bill.

“Plaintiffs typically can win more money, and win it more easily as well as more quickly than going to court. It can reduce the transaction costs for all the parties so it ends up being a win-win for everyone,” Webb said of the arbitration process. “Unfortunately, that bill kind of runs afoul of that.”

Arbitration agreements are also more convenient than pursuing a claim in court, according to Victor E. Schwartz, a management-side attorney who’s co-chair of Shook, Hardy & Bacon LLP’s public policy practice.

“With arbitration, you don’t have to go to court. You can do it down at the corner store. You can do it in a place of your own convenience. You can do it at your own time,” he said.

Schwartz added that it also may be difficult for workers to find an attorney to represent them if the financial return isn’t high.

“They won’t take the case,” said Schwartz, who noted plaintiff attorneys’ contingency fees are typically a third of the amount received. “These cases can take 500 hours, 300 hours—economically it doesn’t make sense.”