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How forced arbitration in the workplace became the norm

Mandatory arbitration has grown increasingly popular in employment agreements over the last three decades, as a tool to help shield companies from litigation.

How forced arbitration in the workplace became the norm
[Photo: Sora Shimazaki/Pexels]

The Supreme Court awarded a small victory to workers when it ruled on a case earlier this month, which hinged on an airline worker’s right to sue her employer. In a narrow ruling, the Court decided that Latrice Saxon, an airplane cargo supervisor, was exempt from the company’s policy on forced arbitration and therefore entitled to bring a lawsuit against Southwest Airlines, building on an existing federal carveout that applies to transportation workers.

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But the Court’s decision was hardly a rebuke of forced arbitration—a feature of employment contracts that has been thrust into the spotlight in recent years, as the #MeToo movement revealed how arbitration agreements can suppress allegations of sexual misconduct in the workplace.

Mandatory arbitration has grown increasingly popular in employment agreements over the last three decades, as a tool to help shield companies from litigation. Workers who sign mandatory arbitration agreements as a condition of employment are typically barred from filing a lawsuit and pleading their case in court to a judge or jury; instead, they’re forced to pursue any legal claims through private arbitration, a process that tends to favor employers. (Arbitrators are usually selected by the defendant.) This practice has been so widely adopted that more than 60 million workers across the U.S. are subject to mandatory arbitration as of 2017, according to a study published by the Economic Policy Institute.

The proliferation of forced arbitration in the workplace can be traced to a series of Supreme Court decisions dating back to the ’90s—starting with Gilmer v. Interstate/Johnson Lane Corp., which set a precedent for enforcing the Federal Arbitration Act in employment disputes.

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“Over the course of the ’90s, it became clear legally, that this meant you could require your employees—as a condition of their job, if they want the job—to have to agree to arbitration of any employment claims against the company,” says Alexander Colvin, the dean of Cornell’s School of Industrial and Labor Relations and author of the EPI study. “From then on, you see this sort of gradual expansion of use by companies.”

Since the Supreme Court has framed mandatory arbitration as an enforceable contract, it can be applied to any number of agreements between companies and individuals, whether they’re independent contractors or full-time employees or consumers. “It’s a very flexible tool for companies to use,” Colvin says. “They can use it in all kinds of settings.” Arbitration clauses have become common practice in consumer contracts, where they serve a similar purpose and reduce exposure to class action lawsuits; consumers often sign away their right to sue without even realizing it.

Employers have also taken cues from consumer contracts—for example, including class action waivers in arbitration agreements, a tactic reportedly used by more than 30% of employers who require mandatory arbitration. (A Supreme Court ruling in 2018 confirmed that class action waivers could be enforced in employment agreements without violating labor law.)

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Until a few years ago, there was limited awareness of the insidious rise of mandatory arbitration clauses in employment agreements. “Forced arbitration was going on for a while, but I think kind of under the radar,” Colvin says. “People didn’t really pay attention to it. The #MeToo movement really brought it to light.” As arbitration drew increased attention for its role in silencing workers, large companies like Microsoft and Google responded to public pressure by banning forced arbitration in instances of sexual misconduct. That momentum also paved the way for federal legislation that President Biden just signed into law, a major win that the bill’s co-sponsor Senator Kirsten Gillibrand described as “one of the most significant workplace reforms in American history.” The bill extends protections to workers across the U.S. who are dealing with sexual harassment or assault, by blocking enforcement of mandatory arbitration.

But given the Supreme Court’s current makeup—and the limited scope of its most recent decision—it’s unlikely that the Court will radically change its approach to mandatory arbitration, leaving the future largely in the hands of workers and advocates. Some lawyers, for example, have attempted to circumvent class action waivers by burying companies in arbitration claims. “If you can’t do a class action, you sign up 500 individual employees and file 500 claims to arbitration,” Colvin says. “[You’re] putting this pressure on the company that they’re going to have to pay all these costs of arbitration—and that has been relatively successful.”

The recent legislation on sexual misconduct also indicates there might be an appetite for other potential carveouts at the federal level. Religious discrimination, Colvin argues, “cuts across conservative and liberal lines,” making it an issue where lawmakers might actually find common ground. “The new federal statute suggests you could get more carveouts,” he adds. “If you’re going to carve out sexual harassment, why not other things like religious or racial discrimination in the workplace?”

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About the author

Pavithra Mohan is a staff writer for Fast Company.

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