The Shifting Landscape on Pre-Employment Arbitration Agreements


What Employers Need to Know:

An arbitration clause was, until recently, one of the least-discussed components of an employment-related agreement. Employers included the clauses with the hope that disputes would be resolved in a faster, less expensive and more predictable way than they would be through litigation in court. Employers also valued the confidentiality of arbitration. Lawyers might have debated the strategic importance of arbitration clauses and the finer points of drafting them. Employees might have chafed at the demand that they give up the right to sue in court and to participate in class actions. But employers unquestionably had the power to require employees to agree to arbitration agreements as a condition of employment, and courts enforced them. They were not the subject of public controversy. That dynamic has fundamentally changed.

The reason for the change is arguably #MeToo. At the core of #MeToo is public condemnation of workplace sexual harassment and misconduct. In 2018, workers demanding more corporate accountability for harassment also drew attention to the impact on victims of obligatory pre-employment arbitration agreements.

The arbitration forum, itself, is not the primary source of workers’ objections. Their focus is on the provision commonly included in arbitration agreements that prohibits workers from disclosing anything about a dispute. Thus, the confidentiality required allows companies to avoid public awareness of accusations and wrongdoing, and prevents victims from sharing their experiences outside of a narrow group of confidantes.

Some large corporations responded immediately to #MeToo activism and press coverage. In December 2017, shortly after the #MeToo movement began, Microsoft said it would waive any contractual requirements to arbitrate sexual harassment claims (which applied to only a small number of its employees), and announced its support for a federal law to ban arbitration requirements. In 2018, Uber and Lyft followed suit, abandoning forced arbitration of sexual harassment claims.

Collective action by workers began to have an impact on this issue later in 2018. On November 8, a week after 20,000 employees participated in a walkout to protest Google’s handling of sexual harassment claims, Google announced that it would stop requiring arbitration in sexual harassment and discrimination cases. Between November 9 and November 13, Facebook, Airbnb, eBay, and Square made similar changes. Media coverage continued.

In 2019, legislators felt the heat and took up the banner. In September 2019, the U.S. House of Representatives passed the Forced Arbitration Injustice Repeal Act (the FAIR Act), which would invalidate pre-dispute arbitration agreements and joint-action waivers in the employment context. (H.R. 1423, proposed text of section 402(a)). In October, California enacted AB 51, which takes effect January 1, 2020, to prohibit California employers from requiring employees to waive their rights under California discrimination law as a condition of employment.

The immediate impact of this legislative activity is limited: the Senate has not passed the FAIR Act, and AB 51 is likely to be challenged in court. But it is another indication that the landscape has fundamentally shifted.

What Employers Should Do:

If you are a California employer and your company makes agreement to arbitrate a condition of employment (or continued employment), consult with employment counsel. It’s important that your company is prepared when A.B. 51 takes effect on January 1, 2020.

Now is a good time for all employers to consider whether or not pre-employment arbitration requirements serve the company’s best interests.

  • Is forced arbitration detracting from your recruiting efforts? There is a risk of repelling sought-after job candidates when a company requires workers, in advance, to surrender their right to sue in court, speak about their experience, and join claims with other workers to file class actions. Particularly in the tech industry, where some of the largest companies are moving away from forced arbitration of harassment claims, requiring arbitration may place you at a disadvantage.
  • Is forced arbitration impacting employee morale? Savvy workers experience forced arbitration as inconsistent with an otherwise open, collaborative, transparent company culture.
  • Consider the impact of arbitration and confidentiality requirements on diversity and inclusion. Women and other marginalized populations make up the vast majority of employees victimized by harassment and discrimination. Your company’s particular approach to harassment and discrimination complaints could undermine or enhance your efforts to establish a diverse and inclusive environment.
  • Is your company ready to address sexual harassment? If you don’t have mechanisms in place and a corporate commitment to stop future misconduct, these claims pose a greater risk. Think carefully about which contract provisions will minimize the risk.