Proposed Law Would Prohibit Mandatory Arbitration Clauses for Sexual Harassment Claims

Proposed Law Guarantees Sexual Harassment Victims Their Days in Court

TIME Magazine’s 2017 Person of the Year was “The Silence Breakers.”[1] In the last 12 months, women and men from all walks of life have stepped forward to report sexual harassment and assault against prominent people like film producer Harvey Weinstein, former FOX Chairman and CEO Roger Ailes and actor Kevin Spacey.[2]  

As the year wound down, this increased awareness led our elected officials to introduce a new bill to assist victims and allow them to break their silence. In this highly-politicized environment, a bipartisan group of lawmakers has introduced legislation that would stop employers from making newly-hired employees sign mandatory arbitration agreements which many say silence victims of sexual harassment and gender discrimination.[3]

 At the center of the bill is a practice wherein employers commonly have new employees sign agreements to arbitrate disputes that may arise during the employment relationship.[4] These mandatory arbitration agreements typically include the following provisions:[5]

·         Mandatory arbitration procedure and process for arbitrator selection;

·         Employee claims that are covered by mandatory arbitration agreement and those that are not covered; and

·         An explanation of how arbitrator fees are to be paid.

Mandatory arbitration is a binding method of alternative dispute resolution which involves the submission of a dispute to a neutral third party, the arbitrator.[6] The grounds for appealing an arbitration decision or seeking judicial review of arbitration awards are very limited.[7]

The Supreme Court first addressed the constitutionality of mandatory arbitration clauses in employment contracts in the 1991 case, Gilmer v. Interstate/Johnson Lane Corp. In that case, Interstate hired Robert Gilmer to serve as a manger of financial services.[8] His employment contract required him to register with the New York Stock Exchange and he was required to fill out a Form U-4, containing a clause agreeing to arbitrate all employment disputes with Interstate.[9]

Interstate terminated Gilmer’s employment when he turned 62 years old and soon after, he filed an age discrimination lawsuit against Interstate for age discrimination under the Age Discrimination in Employment Act. The lower court agreed with Interstate that arbitration of Gilmer’s age discrimination claim could be compelled, and the Supreme Court affirmed.  

The Court reasoned that although the Act allowed parties to file age discrimination lawsuits in federal court, the Federal Arbitration Act’s language that made arbitration agreements enforceable once they’re written into any contract could still be enforced.[10] “So long as the prospective litigant may vindicate his statutory cause of action in the arbitral forum,” the Act’s goals were satisfied.[11] Arbitration was enough of a legal recourse.

Soon after the Gilmer decision, courts across the country extended this analysis to sexual harassment claims, finding that mandatory arbitration for sexual harassment claims are permissible.  

            Mandatory arbitration clauses have also become prevalent, as about 55% of employment contracts have mandatory arbitration provisions.[12] According to Economic Policy Institute, over 60 million American workers are required to arbitrate discrimination claims.

The prevalence of mandatory arbitration clauses has had far-reaching legal ramifications. First, workers who sign these mandatory arbitration agreements are typically shut out of the courtroom when claiming sexual harassment or discrimination.[13] The Society for Human Resource Management provides a template mandatory arbitration agreement on its website that is typical for such agreements. In the paragraph for claims covered by mandatory arbitration, “discrimination based on sex,” is one of the first claims the agreement highlights, as it seeks to prevent litigation of these claims.[14]

 Second, even though an employee who needs to go through mandatory arbitration can hire an attorney for assistance, attorneys are less willing to represent employees who are subject to mandatory arbitration. Alexander Colvin and Mark Gough, two experts in employment law and labor relations, investigated mandatory arbitration and surveyed attorneys involved in employment law cases. They found that while on average, attorneys accept 19% of potential clients for representation who contact them with disputes to be heard in civil litigation, they accept only 11% of potential clients who are bound by mandatory arbitration clauses.[15] This is because employees typically obtain less favorable outcomes in mandatory arbitration than in litigation, including lower win rates and smaller damage awards. Attorneys, who in many cases provide representation through a contingency fee arrangement where the attorney is paid a percentage of the amount recovered, don’t think it’s as financially rewarding to represent clients who are bound by mandatory arbitration agreements.[16]

            New proposed legislation sponsored by Senators Kirsten Gillibrand (D-N.Y.) and Kamala Harris (D-Calif.) as well as Sen. Lindsey Graham (R-S.C.), the Ending Forced Arbitration of Sexual Harassment Act of 2017 would make it illegal for businesses to enforce mandatory arbitration agreements for sexual harassment and sex discrimination claims. The bipartisan bill would allow these victims of workplace discrimination to take their claims to court instead.[17]

            The bill seeks to level the playing field between employees and employers and would have a drastic impact on employers.[18] Should the bill pass, employers would be incurring more legal expenses as they’d have to go litigation to defend themselves in sexual harassment lawsuits. Most importantly, if passed, the bill will incentivize employers to ensure that they have strong anti-harassment policies in place to reduce the likelihood of sexual discrimination claims. Employers will be more likely to revisit their anti-harassment policies and practices to ensure that they comply with the law and that they are fostering workplace environments wherein all employees can work without fear of sexual harassment and discrimination.

            This bill has a long journey before it could become a law. It must withstand debate, pass a vote, and be signed into law by the President.[19]

Though it was just introduced, the bill is already influencing private employers. In late December, Microsoft announced that it would be ending forced arbitration agreements for employees who file for sexual harassment.[20] In explaining why Microsoft adopted this new workplace policy, Microsoft’s President and Chief Legal Officer Brad Smith said, “We concluded that if we were to advocate for legislation ending arbitration requirements for sexual harassment, we should not have a contractual requirement for our own employees that would obligate them to arbitrate sexual harassment claims. And we should act immediately and not wait for a new law to be passed.”[21]

2017 was the year of the silence breaker and 2018 may be the year of fundamental changes to federal employment law with regard to sexual harassment and discrimination.