Congress Eyes Arbitration Clauses in Employment Contracts – WWD

As Democrats in Congress craft an agenda in line with President Joe Biden’s stated focus on worker issues, they’re resurfacing long-standing efforts to address arbitration clauses in the employment context. 

Controversial arbitration clauses in employment contracts are those that generally require those who sign them to agree not to pursue workplace disputes through lawsuits in court, and to instead pursue any claims through an arbitration process. By 2024, such agreements would apply to roughly 80 percent of private-sector employees not in a union, according to an estimate in May 2019 by the nonpartisan research nonprofit the Economic Policy Institute and the pro-worker social justice advocacy group The Center for Popular Democracy. 

On Thursday, House Judiciary Committee Chair Jerrold Nadler, D-N.Y., introduced a measure to stop arbitration clauses in employment contracts, called the “Restoring Justice for Workers Act.” The same day, Rep. Hank Johnson, D-Ga., who chairs the House Judiciary Subcommittee on Courts, Intellectual Property and the internet, reintroduced “The Forced Arbitration Injustice Repeal Act,” which also addresses such clauses in consumer contracts.  

These types of measures, which have been introduced for years, are generally expected to have support in the House, though still likely to face the filibuster in the Democrat-controlled Senate. But they reflect a growing appetite among Democratic lawmakers to highlight an issue that advocacy groups are mobilizing around, experts said. 

“I assume it will be much more likely to pass in the House than it will be in the Senate, but I definitely think it’s not something that momentum is going to stop on,” said Ariana Levinson, professor at the University of Louisville Brandeis School of Law. “People have been advocating for it for years at this point, and it is a needed reform.” 

Labor law scholars have generally argued that employees’ ability to join together to file lawsuits, which are public proceedings that allow transparency into arguments, court filings and outcomes, are key in addressing labor law and civil rights violations. 

Employees would generally be able to pursue claims with the U.S. Equal Employment Opportunity Commission and then federal courts over violations of Title VII of the Civil Rights Act, which protects employees from discrimination over race, gender and other traits. Courts are also important venues in adjudicating other labor law issues, including wage and hour violations, and meal breaks, experts said. 

But an arbitration process, especially one that doesn’t allow employees to join their claims together collectively, can prevent workers from transparently addressing systemic issues, said Barry Winograd, a lecturer at Berkeley Law on labor and employment arbitration, who also has had a dispute resolution practice and worked as a professional arbitrator for over three decades. 

“It may sound funny or odd that someone who’s been a professional arbitrator would be critical of the arbitration process,” Winograd said. “Nevertheless, fundamentally, I think that the phrase ‘mandatory arbitration,’ is what I call an oxymoron, because arbitration should, if we had the proper system, I think arbitration would be only voluntary.” 

Companies generally take the view that arbitration is already voluntary, and they tend not to favor the “mandatory arbitration” framing of legislators. But Levinson of the University of Louisville Brandeis School of Law said arbitration clauses can in effect become mandatory when they are presented in the “take it or leave it” terms of employment contracts. 

“You generally have parties with unequal bargaining power, such as a large retail clothing outlet and a salesperson,” she said.

“The worker has to either sign the contract or find another job,” she added. “The reality is that a job is generally difficult to find, and many other employers will offer the same choice — sign the arbitration agreement or have no job. This is why post-dispute arbitration agreements are better.”

Companies have generally also argued that arbitrations are more efficient and cost-effective overall for all parties, and that they help preserve relationships between workers and their employers.

“Arbitration is a tool for more swiftly and often more amicably resolving disputes in the employment context,” said David French, the senior vice president of government relations at the National Retail Federation, the retail industry trade group. “Not all retailers use arbitration clauses but some do. We do not support this legislation.

“In the employment context, oftentimes arbitration is a way for both the employee and employer to resolve a dispute without having to go through an often very protracted, very expensive and bitter court case,” he added. “Because it’s in the employee and the employers’ best interest to remain amicable in these disputes.”

The U.S. Chamber Institute for Legal Reform, an affiliate of the United States Chamber of Commerce, issued a report in May 2019 that said arbitration was faster, provided more recoveries and increased the likelihood of victory for employees. The report said that “employees were three times more likely to win in arbitration than in court,” and that they “on average won twice the amount of money,” and that arbitration disputes also were resolved faster than court cases. 

But the EPI and the Center for Democracy wrote in their own report in May 2019 that the effective impact of arbitration clauses was to “suppress legal claims.” 

“With the deck stacked against them and odds of winning so low, an estimated 98 percent of workers who would otherwise bring employment claims in court abandon their effort when the only option is arbitration,” they wrote in their report.