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Mandatory Arbitration at Work Surges Despite Efforts to Curb It

Bloomberg Law

October 28, 2021


  • Arbitration cases grow in 2020, industry group report shows
  • House lawmakers want to stop mandatory agreements

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.

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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.

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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 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.”

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