Forced Arbitration. Not a Good Thing.

Gretchen Carlson sued Fox News Roger Ailes in court for sexual harassment, but now Ailes’ lawyers are fighting to remove the case to an arbitral forum, arguing that Carlson agreed in her employment contract to arbitrate any employment conflicts that may arise.

Arbitration is a private trial conducted before a private judge, who is known as the arbitrator, and it has been used for commercial disputes for many years. Those arbitrations have been voluntary, chosen by companies with panels of arbitrators who are experienced in their particular industry or field. In those select circumstances, arbitrations may settle certain disputes quickly and relatively inexpensively, for both sides, which is a good thing, as both sides agree to pay a neutral person, usually a lawyer, to act as their judge and decide their dispute. It’s a win-win for both parties.

Arbitration also has a rightful place in organized workplaces where employees are represented by labor unions. Arbitration between the union and management is often the end of the “grievance” process for the union member employee who is covered by a collective bargaining agreement. Collective bargaining agreement which is really just a big group contract between the rank and file employees and the company’s management.

Arbitration can work well for the parties in union disputes, in part, because the arbitrators are well versed in the business and workplace that they are asked to deal with in the arbitration proceedings, especially as the arbitrator is often asked to interpret the cumbersome contract itself, and the players involved are often repeat users of the system.

In these types of private trials, the parties have equal bargaining power, mostly equal resources to retain counsel, and equal access to the evidence necessary to prove their case. But most importantly, these types of arbitrations result from a voluntary agreement between the parties. The parties have agreed, though have the option decline, to participate (with some limitations) in future arbitrations. This distinguishes arbitration generally, from “forced” arbitration, such as are increasingly occurring in discrimination disputes, and this type of arbitration, being forced, is not good, at least not for the employee.

Forced Arbitration is Bad for Employees

Forced arbitration is generally bad for employees, because it deprives us of our right to access the public court system, and the denial of that access, in the absence of a meaningful voluntary choice to surrender that right, and it is a significant loss of legal leverage, and the power to right a wrong and obtain ample compensation.

The public court system provides the protection of a judiciary that is relatively free from the corrupting influence of the employer, which is a protection not provided by forced arbitration, where the company pays the arbitrator. Guess which side the arbitrator will be partial to? The side that pays him or her $500 per hour, or the side that doesn’t pay at all?

Additionally, the court system is open to public scrutiny and its decisions are subject to review in the appellate courts. In employment cases, access to certain documentation called “discovery” is critical to the success of the case, since so much of the information employees need to prove their case is in their employer’s hands.

Also, the facts in controversy in a litigation in court proceedings that make it to trial are decided by 6 to 8 person juries of impartial citizens of your community. An arbitration decision is made by one private judge. Lay juries are often more sympathetic than arbitrators to Plaintiff’s alleging harm caused by their employers.

Unlike arbitration in union cases or commercial disputes, instead of having a contract (that ginormous collective bargained agreement) that governs the relationship between the parties, there are state and federal laws that must be interpreted and enforced as they apply to the employment relationship. This makes these cases more complex, and they require judges well-versed in employment law. These and other features of the public court system are either very limited or not available at all in the forced arbitration system.

Last but certainly not least, the costs are much higher in forced arbitration than with use of the public court system, as the arbitrator in an employment case is a high-priced private lawyer charging hundreds of dollars per hour to hear and decide the case. A public court system judge is paid by our taxpayer dollars, so he or she is paid by all of us regardless of which side wins the case.

As employees can rarely afford to pay the arbitrator’s fees–and forcing them to do so would be substantively unconscionable–hence not allowed. Most employers pay the arbitrator’s fees in forced arbitrations, but then we get the resulting problem of the arbitrator’s knowing which side their bread is buttered on, so to speak, and it’s always the employer. It’s only human nature to assume that such an arbitrator is no longer safely, objectively and thoroughly neutral, as state or federal court judges are supposed to be.

Is Forced Arbitration Legal?

Generally, yes it is. The Federal Arbitration Act (“FAA”) was passed in 1925 in response to several court decisions that held arbitration agreements were unenforceable. This old law says that arbitration agreements are generally valid and enforceable, except if the agreement violates the law of contracts in the state where the contract was executed.

In 2001, the US Supreme Court decided that the FAA applies broadly to all employment contracts. Most decisions before this limited the ability of employers to force employees to agree to arbitration provisions under the FAA. Since the Court’s decision in 2001, the use of forced arbitration agreements by employers has, unfortunately, increased substantially, as have the court decisions enforcing such agreements against employees.

It is important to bear in mind that your state’s contract law governs whether an arbitration agreement is enforceable. So while they may now be generally good to go, a state’s specific contract law may make a particular arbitration agreement unenforceable depending on the facts of that case or contract. One example of how this works is on the issue of adequate consideration necessary for a contract to be valid and enforceable.

In order for contract to be enforceable, each party must get something of value in exchange for something else of value. One party can’t make out like a bandit. In the context of arbitration, the employee gives the employer a benefit by agreeing to arbitrate any future claims, and so you should receive something of value in return, right? If an arbitration agreement is signed as part of the initial employment offer letter or contract, your employment can be the valid consideration, get it? You give up your right to potentially take legal action in the court system in exchange for a job, and although this varies from state to state, generally speaking if you want the job and that job requires you to agree to arbitrate any disputes arising out of your employment with the company, that’s considered a valid and enforceable arbitration agreement, even though you were “forced” to accept the agreement, if you wanted or needed the job. One-sided, to be sure.

What are the Legal Limits of Forced Arbitration for Employees?

There are basically two ways to challenge a forced arbitration agreement, based on two categories, and they’re a mouthful. The categories are substantive unconscionability and procedural unconscionability, and it is unlikely that an agreement will be struck down unless a court determines that it is both substantively and procedurally unconscionable.

For one extreme example, in Arnold v. Burger King, an employee alleged she was raped by a supervisor while at work. The Ohio state court struck down the forced arbitration agreement signed by the employee, holding that the arbitration agreement was procedurally unconscionable, because the disparity in bargaining power between the parties. And it was substantively unconscionable as it sought to include a claim of rape within its overly broad scope. Thus, the combination of procedural and substantive unconscionability made the agreement unenforceable. Unconscionable means, excessively unreasonable.

What is Procedural Unconscionability?

Procedural unconscionability deals with how the arbitration agreement was formed. What was the bargaining power of the parties? There are limits that courts have imposed on the manner in which the employee is made to “agree” to arbitration. Factors which courts have considered in determining whether an arbitration agreement is procedurally unconscionable include the following:

Whether the employee was given enough time to review and consider the agreement,
and whether an employee was permitted to speak to a lawyer about the rights that he or she was giving up by agreeing to such a provision;
whether the employer threatened the employee with the loss of his or her job or another important employment benefit if he or she did not accept the arbitration provision;
and whether an employee was told that the agreement was termed ‘just a form,’ or ‘not important,’
and/or that it was not necessary to read the agreement before signing it.
And finally, whether the agreement was snuck in as “fine print” inconspicuously secreted at the bottom or the backside of the document, etc.

What is Substantive Unconscionability?

Substantive unconscionability looks at the fairness of the process under the agreement versus what an employee would otherwise get if she pursued her claim in the public court system. Does the arbitration provision eliminate some claims that could have been made in a court? Or does the arbitration provision eliminate remedies that might otherwise have been available? These and other similar issues are a limitation on the employee’s absolute rights, so the agreement may be found to be substantively unconscionable.

Factors that courts often look to in determining whether an agreement is substantively unconscionable include:

  • the cost of arbitration to the employee (a big one);
  • limitations on the relief the employee can get in arbitration versus in a public court;
  • mutuality, for example, whether the employer and employee are both equally bound to arbitrate their claims;
  • and limits on methods used to get evidence which would otherwise be available in a public court to the employee, and
  • overall imbalance in the obligations imposed.

As most labor and employment discrimination cases eventually settle—and this includes celebrity employment discrimination cases such as the Gretchen Carlson vs. Roger Ailes case.

It’s often not the end of the world if you find yourself in a forced arbitration situation. Many of those compulsory pre-employment arbitration agreements require the parties to voluntarily mediate the claim first, which is a wonderful opportunity to settle your grievance before spending years in the pitched battle of arbitration or litigation.

Whether you’re a highly paid employee with an employment contract and mandatory arbitration agreement, or a salaried employee facing illegal workplace conduct, contact a qualified employment lawyer in your area as soon as the employment challenges arises.