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Mandatory Arbitration at Work Surges Despite Efforts to Curb It

Oct. 28, 2021, 5:01 PM

The number of employment disputes resolved in arbitration climbed by roughly 66% between 2018 and 2020, according to new data, despite pressure from the #MeToo movement and efforts by Fortune 500 companies and lawmakers to curb agreements that keep claims out of court.

Companies closed just over 5,000 workplace arbitration cases in 2020, up from more than 3,000 cases in 2018, according to an American Association for Justice report released Wednesday.

The data appears to back a growing trend of companies using arbitration agreements to resolve worker claims through private dispute resolution. The practice has been bolstered by U.S. Supreme Court decisions over the past decade, but it’s been targeted in the wake of the #MeToo movement by worker groups, shareholders, and legislatures as harmful to workers because of a lack of transparency in the process.

Some employers—including Facebook Inc., Alphabet Inc.'s Google, Microsoft Corp., Uber Technologies Inc., Lyft Inc., and Wells Fargo & Co.have said they would drop mandatory arbitration for sexual harassment and assault claims. But companies also have dug their heels into enforcing arbitration pacts when workers allege wage-and-hour and other types of discrimination violations, leading to repeated clashes in court.

“This is what we could have expected—that there would be an increasing number of arbitration cases and a more frequent use,” said Alexander Colvin, a labor relations professor at Cornell University. “There were high-profile examples of companies pulling away, and those were in the public eye, but the general trend is less pressure.”

The new report comes as the House Judiciary Committee considers legislation (H.R. 963) that would eliminate the use of mandatory arbitration in employment and consumer agreements. The bill will almost certainly face headwinds from business groups and Republicans, who argue that arbitration is a faster and more efficient way to resolve disputes than the court system.

Julia Duncan, senior director of government affairs at the American Association for Justice, said arbitration’s secrecy “allows behaviors to flourish that hurt workers” and that “there is a need for greater transparency.”

But the report analyzes limited data and doesn’t reveal what is happening or why, said Robert Whitman, a labor and employment partner with Seyfarth Shaw LLP in New York, who represents employers. He said that even in court, which became even more bottlenecked during the pandemic, few cases make it to trial.

“For all we know, they got generous monetary rewards,” he said. “I’m not an apologist. I understand the pros and cons, but critics of arbitration are misguided in a lot of ways. We’re already bursting at the seams with cases in court, and arbitration can take the cases into a different system.”

Business Use

Nearly 54% of nonunion, private-sector employers have mandatory arbitration procedures, representing 60 million workers, according to a 2018 Economic Policy Institute study. Among companies with 1,000 or more employees, 65% have mandatory arbitration policies.

The AAJ’s report, which analyzed data from the American Arbitration Association and the Judicial Arbitration and Mediation Services, found that 240 corporations registered arbitration clauses with AAA since the beginning of 2020, including Twitter Inc., Square Inc., StubHub Inc., Marshalls, and more than 70 auto dealerships.

The types of employment cases weren’t specified in the data, but the report found that 82 employees won a monetary award in 2020.

The number of arbitration cases closed are small compared to the number of workers in the U.S., which might indicate that workers who sign these agreements are deterred from bringing any action at all, said Jean Sternlight, a law professor at the University of Nevada, Las Vegas.

“It’s clearly still a common business tactic,” Sternlight said. “In the particular context of #MeToo, a few companies pulled back, or some companies saw arbitration backfire on them, when they hoped to use it to protect themselves.”

Family Dollar, owned by parent company Dollar Tree Inc., accounted for one in three employment-related arbitration cases closed in 2020, with at least 1,000 individual claims filed against it, according to the report. A company spokeswoman didn’t immediatley respond to a request for comment.

Bloomberg Law litigation analytics show a decline in the number of employment-related lawsuits filed against Dollar Tree since 2018.

Federal Legislation

States previously have attempted to curb arbitration in cases of sexual harassment, but courts have mostly held that the Federal Arbitration Act preempts those measures. One notable exception is a California law a federal appeals court revived in September that is pending further review.

In light of the power of federal law, Congress is considering the Forced Arbitration Injustice Repeal Act, which would amend federal law to ban mandatory arbitration agreements for employment, consumer, antitrust, or civil rights disputes.

The U.S. Chamber of Commerce has fought the FAIR Act and argued to lawmakers that the bill promotes, “expensive class action litigation that does little to help businesses, consumers and employees and serves principally to benefit the attorneys who file class action lawsuits.” It cites studies from the Institute for Legal Reform that show instead that employees can prevail and recover more money than they could in court.

Congress also is weighing a separate bill to end the enforceability of mandatory arbitration agreements for workers alleging sexual harassment or assault.

Mass Filings

The AAJ report found that companies, including Amazon.com Inc., American Express Co., and AT&T, at times faced more than 10, and sometimes over 100, arbitration filings in a single day.

This could be an indication that companies are being hit with “mass arbitration” claims, attorneys said. Gig companies, including DoorDash Inc. and Postmates Inc., have faced that tactic in recent years, forcing the companies to pay millions in arbitration fees up front.

Those tactics, however, are rare and can only be handled en masse by large firms that have the resources, said Joe Sellers, a partner with Cohen, Milstein, Sellers & Toll PLLC. He represents workers in litigation and arbitration disputes.

The cost of arbitration fees to companies in those situations can be high and far more burdensome than proceeding in court.

“There are several phenomena going on at the same time. There’s a temptation by companies to use these agreements to avoid class claims, but they may be forced to incur large amounts of transaction costs to handle multiple claims that are very similar,” he said. “The increased use of arbitration is largely a hedge against the class actions.”

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editor responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

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