California Gov. Jerry Brown is considering a bill that would outlaw a common business practice that US employers use to stop workers from suing them for sexual harassment and discrimination.
The #MeToo-inspired bill, AB 3080, prohibits businesses from forcing employees to sign arbitration agreements, which are usually buried in the stack of hiring documents that employees sign. These clauses require workers to waive their right to sue their employers for labor violations, discrimination, sexual harassment, and basically anything else. Instead, workers must resolve complaints through private arbitration, a quasi-legal forum with no judge, no jury, and nearly zero government oversight. The state legislature passed the bill last week, and Gov. Brown has until the end of September to sign it into law.
The #MeToo movement has brought renewed attention to forced arbitration and the role it plays in silencing women who complain about sexual harassment in Hollywood and Silicon Valley. Former Fox News anchor Gretchen Carlson signed one, and so did ex-Uber engineer Susan Fowler. Both women accused their employers of creating a toxic work culture for women, and both discovered that they had waived their right to seek legal justice in the courts after signing these documents. They could only take their claims to arbitration, where workers are less likely to win their cases and where arbitrators award much less money than a jury would award in court. Forced arbitration is so common now that about half of all US workers in the private sector (who don’t belong to unions) have waived their right to go to trial.
California, the most populous state in the country, is one of a handful of states that have been trying to ban companies from forcing employees to go to arbitration. New York and Washington restricted these clauses; Vermont tried. The biggest challenge has been to write laws that don’t invalidate arbitration agreements altogether, because the Supreme Court has said that they’re legal.
California’s bill gets around that barrier by making it illegal for an employer to revoke a job offer or retaliate against an employee who chooses not to sign such an agreement. If they do sign it, however, the courts will likely enforce the arbitration clause.
“If this bill passes, we will need a big education campaign for employees in California, so they know they have rights and that they don’t have to agree to it,” says Jacqueline Serna, legislative counsel for the Consumer Attorneys of California, which has been lobbying for the bill.
Business groups, such as the California Chamber of Commerce, have criticized the bill as a “job killer” and are hoping Brown will veto the bill. Two years ago, Brown vetoed a separate bill that outlawed employment arbitration altogether, arguing that it was too broad and potentially violated federal law. Worker’s rights groups, including labor unions representing restaurant workers and Hollywood artists, believe that California’s bill is narrow enough to limit arbitration without banning it altogether. That’s pretty much all states can do, unless Congress prohibits companies from forcing workers to waive their right to trial.
There’s a reason employers want to avoid a jury
If you ask employers why they require workers to use arbitration, they often say it’s a faster and less expensive process than the courts. They’re not wrong. But legal research, surveys, and employment attorneys point to the largest incentive of all: keeping employment claims from reaching a jury.
Juries are considered more sympathetic to workers’ claims and more willing to award millions of dollars in damages to workers in these cases. The threat of a high jury award also gives workers leverage in negotiating larger settlements because businesses want to avoid trial. Arbitration hearings seem like court hearings, but they are not public, and there is no jury. An arbitrator who works for a private arbitration firm is the one who decides whether an employer broke the law, and if so, how much money to award the worker.
Research shows that arbitrators can be biased toward employers who repeatedly pick them to handle their cases. This is known as the “repeat player effect,” a term coined in 1997 by Lisa Blomgren Amsler, a public affairs professor at Indiana University Bloomington whose research showed that workers were nearly five times less likely to win their cases if the arbitrator had handled past disputes involving their employers. Her research involved a small sample of cases, but later studies have backed up her claim.
Alexander Colvin, a labor relations researcher at Cornell University, published a research paper in 2011 that found another level of potential bias: Not only were arbitrators more likely to rule in favor of businesses that were repeat customers, but they were also more likely to award less money to their clients’ employees when they found the business at fault.
While arbitration might seem similar to the court process, it’s not really the same thing. Arbitrators are not required to be neutral, their opinions do not need to be written, and there are few options for appeal, argues Elizabeth Roma, an employment attorney.
The Supreme Court has ruled that the courts would only overturn an arbitrator’s decision based on a “manifest disregard of the law,” something most courts have interpreted as an intentional misapplication of the law. That means most federal appeals courts will only overturn an arbitrator’s decision if it involved fraud, evident partiality, misconduct, or exceeding of powers. There’s no way for a worker like Ana to appeal an arbitrator’s decision by arguing that it was an incorrect interpretation of the law and facts.
Arbitration is not at all like the court system, but the Supreme Court seems okay with that. The nation’s highest court is largely responsible for the rise of this shadow court.
The Supreme Court unleashed arbitration on American workers
The widespread use of arbitration clauses in the workplace came after a crucial 2001 Supreme Court ruling involving sexual harassment.
In that case, Circuit City Stores Inc. v. Adams, a salesperson working at a California Circuit City store sued the company for sexual harassment. The employee, a man named Saint Clair Adams, said his co-workers harassed him because he was gay. But Adams, like all other Circuit City employees, had signed an agreement to resolve all disputes with the company through private arbitration. Circuit City argued in federal court that Adams had to move his claim to arbitration.
The judge sided with Adams, arguing that the Federal Arbitration Act — which allows businesses to resolve contract disputes through arbitration — has a provision excluding employment contracts. The ruling was upheld by the Ninth Circuit Court of Appeals.
But Circuit City took the case to the Supreme Court, where the justices overturned the lower court’s ruling, allowing businesses to extend arbitration to nearly all employment contracts.
The justices, in their 5-4 opinion, created a very narrow interpretation of the employment exclusion in the Federal Arbitration Act. It came down to this line of the act: “but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in interstate or foreign commerce.”
The justices decided that this clause limited the exemption “to transportation workers.” In other words, only workers in the transportation industry were exempt from these mandatory agreements; all other workers could be forced to take their claims to arbitration.
Mandatory arbitration is particularly bad for #MeToo and workers of color
When women began to come forward to describe rampant sexual harassment at companies like Fox News and the Weinstein Company, many realized that they could not seek legal justice in the courts because they had signed mandatory arbitration agreements.
Former Fox News anchor Gretchen Carlson was one of them. She ended up suing Roger Ailes for sexual harassment, and they settled for an undisclosed amount. But Carlson could not sue 21st Century Fox for the company’s role in allowing the sexual harassment to persist, and neither could dozens of other women who accused the media company of tolerating sexual harassment, had they decided they wanted to sue.
As more women speak up about sexual harassment in the workplace, many of them are pressuring members of Congress to restrict or abolish arbitration clauses from US workplaces.
In December, a bipartisan group of senators and representatives introduced the Ending Forced Arbitration of Sexual Harassment Act, which exempts sexual harassment cases from required arbitration.
On February 12, all 56 state attorneys general (including those in five US territories) weighed in, urging congressional leaders to vote on the bills. In their letter, they said that forcing sexual harassment cases to go to arbitration perpetuates the “culture of silence that protects perpetrators at the cost of their victims.” They also questioned the process itself:
While there may be benefits to arbitration provisions in other contexts, they do not extend to sexual harassment claims. Victims of such serious misconduct should not be constrained to pursue relief from decision makers who are not trained as judges, are not qualified to act as courts of law, and are not positioned to ensure that such victims are accorded both procedural and substantive due process.
Then, in March, Sen. Richard Blumenthal (D-CT) and a group of Senate Democrats proposed an even better idea: Don’t let businesses force employees and consumers to take their claims to arbitration.
Their bill, the Arbitration Fairness Act, would let workers and consumers decide where to pursue their legal claims.
“Mandatory arbitration undermines the development of public law because there is inadequate transparency and inadequate judicial review of arbitrators’ decisions,” they wrote.
So far, Republican leaders in Congress have ignored these proposals. But unless Congress bans arbitration clauses in the workplace, states will need to continue coming up with creative ways to limit the arbitration. That’s what California is trying to do.