Big Tech and Big Law face pushback on mandatory arbitration in wake of #MeToo

Ruth Green, IBA Multimedia Journalist

Mandatory or forced arbitration clauses in employment contracts are commonplace in US workplaces. However, such policies have attracted growing criticism as they prevent employees from taking companies to court even when allegations of sexual harassment are involved. Instead, employees are only permitted to settle disputes behind closed doors and are forced to waive their right to appeal or participate in a class action lawsuit.

Google CEO Sundar Pichai told employees in a memo that the company would now ‘make arbitration optional for individual sexual harassment and sexual assault claims.’ In May, Uber was also forced to change its policies after more than a dozen women sued the company for alleged sexual assault. Facebook, Airbnb and eBay were quick to follow Google’s example, joining the growing ranks of companies like Microsoft and Lyft that have done away with the practice in the past 12 months.

Professor Jean Sternlight is an arbitration expert at the UNLV Boyd School of Law in Las Vegas. ‘While the issue is not unique to the United States it does occur here much more than elsewhere, mostly because many other countries have laws in place to prohibit employers from depriving their employees of access to court,’ she says. ‘But the tech sector has proved itself particularly capable of making a stink about these clauses. I think this is true both because of some bad sexual harassment and sex discrimination that has occurred in that sector, and also because tech employees are very adept in using social media to bring attention to their problems.’

Mandatory arbitration is used relatively sparingly in the tech sector. This may have been a factor in helping so many of its biggest names take a stand on this issue, according to Christopher Wilkinson, a labour & employment partner at Orrick, Herrington & Sutcliffe. Wilkinson says other more traditional sectors, such as financial services and manufacturing, which ‘rely somewhat heavily’ on these types of agreements, may be slower to act. That said, he believes the #MeToo movement has persuaded employers in many sectors to reconsider how they handle sexual misconduct. ‘Companies are now trying to think more holistically about how they address sexual harassment, whilst still being very firm.’

Litigation is notoriously costly, making arbitration often a more cost-effective option for employees. However, the #MeToo movement has arguably made it a palatable option for employees keen to air their grievances publicly. ‘We are seeing a phenomenon where the public airing of certain kinds of disputes is now argued to be in the wider societal interest and that argument is used to attack both arbitration clauses and non-disclosure agreements,’ says Peter Talibart, head of Seyfarth Shaw’s London office and Co-chair of the IBA Employment and Industrial Relations Law Committee. ‘Sometimes the threat of publicity will determine the settlement of a matter, irrespective of the underlying accuracy of the allegations made,’ he says. ‘This can help an employee a great deal. Arbitration clauses, depending on how they’re drafted, might diminish that advantage. Whether that is fair in the context of the more limited resources that an employee has to litigate anyway, is the issue.’

Legislative progress in this area has been mixed. Discussions of two federal bills have stalled. At the local level, both New York State and New York City recently passed legislation prohibiting mandatory arbitration clauses from applying to sexual harassment claims. However, California Governor Jerry Brown recently vetoed a similar bill, arguing that it violated the Federal Arbitration Act, which regulates both domestic and international arbitration in the US.

Recent rulings by the US Supreme Court suggest it will be difficult for other states to enact their own legislation. ‘The Supreme Court has held that our Federal Arbitration Act pre-empts and therefore proscribes most efforts local jurisdictions might try to take to protect employees from forced arbitration,’ says Sternlight. ‘Thus, in my view unfortunately, courts are not likely to uphold anti-arbitration laws that might be passed locally to protect employees.’

What’s more, Sternlight says the recent 5-4 decision in Epic Systems Corp. v. Lewis, which enables employers to draft arbitration clauses that prevent their employees from launching class actions against them, could severely damage employee protections. ‘From a practical standpoint it often is not possible for many employees to get a lawyer to help them bring individual claims in arbitration, so eliminating class actions and group claims suppresses claims altogether,’ she says. ‘It’s likely the fix for this problem will have to come from Congress at this point, though in individual situations, like Google, perhaps employees or others will be able to advocate for change.’

Law students are already speaking out. Following a backlash on social media, several law firms announced they were removing mandatory arbitration clauses from their summer associate agreements. Orrick; Munger, Tolles & Olson; Skadden, Arps, Slate, Meagher & Flom; and Kirkland & Ellis have all vowed to halt the practice.

Wilkinson says this student campaign, like the wider #MeToo movement, could have far-reaching consequences for Big Law. ‘I don’t know what other firms are doing, but there’s certainly a big push at law schools to say to firms that if they want to interview at their schools they need to take a look at these student organisations that are very forcefully advocating that these firms get rid of these types of agreements,’ he says. ‘There’s a sense that students from law schools like Harvard and Yale really hold sway because they are very highly desired by Big Law firms,’ says Wilkinson.

‘I do think it is possible that this movement could spread, and that more firms would eliminate their forced arbitration clauses,’ agrees Sternlight. ‘However, law firms, like other employers, have an economic incentive to protect themselves from litigation, and it will take a lot of pressure to overcome that self-interest.’