Are Arbitration Agreements Fair and Consistent With Company Culture?

This series (Is Arbitration the Answer? and Can Arbitration Agreements Protect Employers Against Class Actions?) examines whether an employee arbitration program can help minimize legal risks from COVID-19 and beyond.

In this article, we consider a factor employers sometimes overlook in deciding whether to make arbitration of disputes a condition of employment:  Is such an arbitration program consistent with company culture? 

To some, requiring employees to agree to arbitrate disputes is a corporate scheme to make it harder for employees to hold their employer accountable for harassment, discrimination or unlawful pay practices.  Under this view, arbitration is unfair because it:  (a) forces employees to submit their claims to arbitrators who are beholden to employers; (b) prevents employees from conducting broad discovery to try to show systematic wrongdoing; (c) allows employers to keep their wrongdoing confidential; and (d) deprives employees of their most effective weapon, the class action. 

We think this portrayal of arbitration is an inaccurate caricature.  Below, we explain why.  But, before adopting an arbitration program, employers should consider whether their employees and their candidates for future employment are likely to hold these misconceptions, and, if so, whether the employer can persuade them that arbitration is consistent with a culture in which employees are valued and treated fairly.  A misjudgment as to this issue can deal a serious blow to employee engagement.  It can hurt an employer’s ability to attract the best candidates or even damage a company’s brand in the eyes of its customers.  For example, in 2018, thousands of Google employees reportedly walked off the job to protest the company’s handling of sexual harassment claims, including the requirement that they be arbitrated.  After the protest garnered worldwide attention, Google first carved sexual harassment claims out of its arbitration program, then ended the program entirely.  (For an account of the episode and a flavor of how arbitration’s opponents describe employment arbitration, see:  Google Put An End To Forced Arbitration -- And Why That's So Important. )

Fortunately, employers can usually, we suggest, make a strong case that arbitration benefits both employers and employees, and that the most common employee objections to arbitration are inaccurate or at least overstated.  Employers can cite several factors suggesting that arbitration is a fair way to resolve employment disputes: 

• Arbitration has been widely used to resolve disputes in unionized workforces for more than 70 years.
• Arbitration is often faster than litigation. Employees may not realize that litigation often takes years.  Most experts consider arbitration at least somewhat faster. 
• Arbitration is more likely to provide an employee a chance to be heard. Many arbitrations proceed to hearings where an employee can testify about how the employee was treated.  Only a tiny percentage of civil lawsuits ever go to trial.  
• Many experts have concluded that employees who arbitrate their claims obtain results that, on average, are as good or better than the results obtained by employees who litigate.

Employers can also refute the criticisms of arbitration that many employees hear. 

(a)   Arbitrators can’t be beholden to employers (or employees) or they’ll stop getting cases.  Both sides have to agree to an arbitrator and the lawyers who represent employees (like the lawyers who represent employers) learn and share information about an arbitrator’s reputation. 

(b)   It’s true that there’s usually less discovery in arbitration than in litigation but many employment disputes don’t require much discovery.  And generally nothing prevents an arbitrator from making an exception to discovery limits if an employee shows “good cause,” i.e., that an exceptional range of discovery is essential to proving the employee’s case.

(c)   While it’s true that arbitration is usually confidential, an arbitration agreement doesn’t prevent an employee from filing a complaint with a government agency or telling others about their experience as an employee.  In short, it’s a myth that arbitration agreements allow an employer to hide wrongdoing.

(d)   Arbitration agreements do often preclude class and collective actions (see Can Arbitration Agreements Protect Employers Against Class Actions?).  But individual employees usually don't need class actions to pursue their claims.  An employee who can prove unlawful compensation is usually entitled to double damages, plus attorneys’ fees, and an employee who can prove unlawful harassment or discrimination is usually entitled to lost wages, emotional distress (and sometimes punitive damages), plus attorneys’ fees.  There’s no economic barrier to asserting such claims individually, if they are meritorious.  And if an employer is mistreating large numbers of employees, each employee can demand arbitration. 

Many of the issues discussed above are hotly disputed by the employee-side bar, and we don’t try to resolve them definitively in this short article.  Certainly, if an organization’s employees start out thinking that arbitration would make it harder to combat racism, sexual harassment and other serious workplace problems, it may not be easy to change their minds.  At some organizations, the best option might be to require arbitration of some kinds of disputes but not others, or to implement an arbitration policy but allow employees to opt out. 

In any case, employers would be wise to try to gauge the attitudes of their employees – and of the individuals they would like to recruit in the future – before rolling out an arbitration program.  For some, arbitration may not fit the culture.  Other employers may see arbitration as a good way to resolve employment disputes efficiently and fairly on their merits -- and their employees may largely agree.