Samuel D. Lack
As awareness of the prevalence and pervasiveness of workplace sexual harassment has grown in the United States, so too has the use of mandatory arbitration clauses in employment contracts, shepherding employee claims out of courtrooms and into private arbitration proceedings. Though private arbitration is often touted as cheaper and more efficient than traditional litigation, employees are significantly less likely to win in arbitration and, when they do, their awards are often much less.
Mandatory arbitration clauses have grown with the expansion of the Federal Arbitration Act (FAA), passed in 1926, and now cover over half of non-union workers in the United States. Despite evident inequities, Congress has done little to abate the expansion, and the federal court system has adopted a strong pro-arbitration jurisprudence. In recent years, the Supreme Court has effectively mandated that arbitration be individualized—to the severe detriment of sexual harassment victims amid what can be an already arduous claim process. In response, states and localities have passed laws that forbid or limit the use of mandatory arbitration clauses. These laws, however, are often preempted by the FAA and never take effect. The public has also pushed back against mandatory arbitration and has achieved real success. Many corporations and law firms are stopping the practice amid public pressure, walk-outs, and boycotts.
This Article will detail the prominent inequities present in mandatory arbitration, particularly in cases of sexual harassment and workplace discrimination. Then, it will advocate for: (1) judicial reinterpretation of the FAA and its savings clause to permit states to pass laws that restrict the use of mandatory arbitration, or, in the alternative (2) congressional action, namely the passage of the Ending Forced Arbitration of Sexual Harassment Act, which, combined with strategic public pressure on legislators and businesspeople, would lead to immediate relief for sexual harassment victims and signal larger arbitration reform on the horizon.
Table of Contents
Each day, employees go to work, unaware that their daily routine could be harshly interrupted by a lewd remark, a sexual proposition, or an unwanted touching. The Equal Employment Opportunity Commission heard 12,739 sexual harassment claims in 2019, one of the highest years on record. That amounts to nearly thirty-six instances of sexual harassment per day. Considering that many instances of sexual harassment go unreported and that, by some estimates, 81% of women have experienced some form of sexual harassment at work, the actual amount of daily harassment is likely even greater.
In 2017, in the wake of the high-profile prosecution of movie producer Harvey Weinstein for repeated abuse and harassment of women in the movie industry, victims of this horror began to find their voices. The #MeToo and #TimesUp movements—founded in the mid-2000s but emboldened by the Weinstein scandal—empowered women and men across the world to stand up, speak out, and bring their harassers to justice.
Many victims seeking legal relief were in for a rude awakening. Before they could wade into the complex processes that the Equal Employment Opportunity Commission (EEOC)—the federal agency that administers and enforces civil rights laws such as Title VII sexual harassment claims— mandates before litigation, many victims were precluded from ever reaching a courtroom. Sixty million American workers are covered by a mandatory employment arbitration clause, shepherding their claims out of the court system and into private arbitration.
Though employers regularly tout arbitration’s known benefits—its lower cost, efficiency, and confidentiality—the advantages are rarely realized by employees. While initially less expensive than litigation, average employee win rate and damage awards are significantly less in arbitration. Additionally, the confidential nature of arbitration prevents employees from garnering public support and allows employers to be repeat offenders without public consequences. And because employers regularly appear in arbitration—often appearing in front of the same arbitrator more than once—these problems are only exacerbated and employees’ chances worsened.
Instead of realizing this growing problem and passing legislation to fix it, Congress has allowed the Supreme Court to expand the reach of the Federal Arbitration Act unabated. Since its passage in 1926, the FAA has grown in size and reach substantially, culminating in a pair of decisions that may prove to be the final straw for sexual harassment victims. In Epic Systems Corp. v. Lewis, the Court held that employers could bar employees from group arbitration, instead insisting on individualized proceedings. This policy has a severe dampening effect on employees’ willingness to bring claims, as group arbitration can alleviate many of the hardships of individualized proceedings, such as fear of retaliation and lack of resources. Then, in Lamps Plus v. Varela, the Court expanded this doctrine to effectively create a presumption in favor of individualized proceedings, further exacerbating the harm done by the Epic Systems decision and the hardship placed on workplace sexual harassment victims.
As Congress has been slow to recognize the harms these clauses cause for employees, state legislatures have taken the reins. Many states—including New York, Illinois, Missouri, and Maryland—have passed statutes that forbid mandatory arbitration or limit its use in cases of sexual harassment. Courts routinely find, however, that the FAA preempts these state laws, as federal courts abide by the Supreme Court’s pro-arbitration mandates. Thus, this Article argues that either the federal courts or Congress must intervene to restore victims’ rights and to allow employees to effectively pursue and litigate their sexual harassment claims against employers.
Part I of this Article lays out the enactment and expansion of the Federal Arbitration Act as well as how Title VII sexual harassment claims have grown and evolved in American jurisprudence. Part II discusses the workplace sexual harassment problem and the tensions between the expansive use of mandatory arbitration and victims’ attempts to vindicate their rights. It concludes by using empirical data to illustrate the power imbalance created by mandatory arbitration, unfair arbitrator selection, and individualized proceedings. Part III then summarizes instances of pushback by judges, state legislatures, and the public at large—each with varying levels of effectiveness—against the use of mandatory arbitration, including a recent New York case that demonstrates how Supreme Court jurisprudence can stymie state legislative efforts.
Finally, Part IV of this Article proposes two options to curb the widespread expansion of mandatory arbitration. First, I suggest judicial reinterpretation of the FAA’s savings clause, allowing states to ban or limit the effectiveness and reach of mandatory arbitration clauses. Then, I advocate for the passage of the Ending Forced Arbitration of Sexual Harassment Act, a bill recently introduced in the House, which would give sexual harassment victims the choice of forum to pursue their claims.
The use of mandatory arbitration clauses in employment agreements, including with respect to sexual harassment and workplace discrimination claims, has grown in recent years thanks in large part to Supreme Court FAA jurisprudence that has been overwhelmingly pro-arbitration. This expansion has made an already-arduous sexual harassment claim process even more difficult, as employee-victims see their cases shepherded into mandatory arbitration that tends to be employer-friendly. This Part will discuss the FAA‘s passage into law and subsequent expansion, as well as the creation of the sexual harassment claim under Title VII and the difficulties in pursuing a Title VII claim.
In response to frustrations with confusing and contradictory federal court procedures in the early 1900s, merchants wanted to "take commercial disputes to a system of arbitration" and avoid the "broken court system." To signify its support for this "safety valve" from an overwhelmed court system, Congress passed the Federal Arbitration Act in 1926. The purpose of the FAA was to "reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law" as well as to "place arbitration agreements upon the same footing as other contracts." The FAA established that any written provision which "evidences a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction" or "an agreement in writing to submit to arbitration an existing controversy arising out of such a contract" is presumed valid and enforceable.
Since the passage of the FAA, the federal court system has developed a policy that "strongly favors arbitration." In the name of this policy, federal courts have routinely upheld mandatory arbitration clauses in employment contracts, allowing employers to force employee claims into mandatory arbitration before turning to the courts. The Supreme Court has also expanded the FAA to preempt state and local laws. It held in Moses H. Cone Memorial Hospital v. Mercury Construction Corp. that courts should resolve all doubts in favor of arbitration, "notwithstanding any state substantive or procedural policies to the contrary." A year later, in Southland Corp. v. Keating, the Court held that the FAA governs in state court as well as federal court and that "Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements."
This liberal interpretation drastically expanded the reach of mandatory arbitration, as employers could draft mandatory arbitration clauses without fear that state law would render their contracts unenforceable. A 2018 report by the Economic Policy Institute found that 56.2% of private-sector, nonunion employees are subject to mandatory employment arbitration procedures. This statistic extrapolates to 60.1 million American workers who "no longer have access to the courts to protect their legal employment rights and instead must go to arbitration." Such widespread expansion of mandatory employment arbitration was the product of federal courts enforcing mandatory arbitration clauses with impunity, beginning in the early 1990s, and drastically expanding the reach of the FAA.
The Supreme Court’s 1991 decision in Gilmer v. Interstate/Johnson Lane Corporation set a lofty standard for employees to overcome in order to render a mandatory arbitration clause unenforceable. Holding that an employee’s claim under the Age Discrimination in Employment Act (ADEA) was subject to mandatory arbitration because of a clause contained in a securities application, the Court made clear its support of such clauses and their enforceability. "Statutory claims," such as claims under the ADEA or under Title VII of the Civil Rights Act, "may be the subject of an arbitration agreement, enforceable pursuant to the FAA," the Court held. Further, the Court said, an employee, "having made the bargain to arbitrate . . . should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue." Thus, unless the employee can show Congress explicitly intended to forbid waiving judicial remedies for a specific statutory right, such a right may be subject to compulsory arbitration.
The Court in Gilmer further held that the ADEA, much like Title VII of the Civil Rights Act, was designed "not only to address individual grievances, but also to further important social policies." The Court nevertheless did not "perceive any inherent inconsistency between those policies . . . and enforcing agreements to arbitrate . . . discrimination claims," finding that both arbitration and judicial resolutions inherently "focu[s] on specific disputes between the parties involved," yet can still "further broader social policies."
Lastly, the Gilmer Court held that mandatory arbitration clauses did not undermine the role of the EEOC in enforcing specific statutory rights. Rather, such clauses are consistent with the EEOC’s goals of "informal methods of conciliation, conference, and persuasion," and "serve to advance the objective of allowing [claimants] a broader right to select the forum for resolving disputes, whether it be judicial or otherwise."
Since Gilmer, various federal circuits and district courts have upheld mandatory arbitration clauses over a variety of rights codified in statutes, including the Family and Medical Leave Act, the whistleblower protection provision of the Sarbanes-Oxley Act, the Jury System Improvement Act, and notably for the purposes of this Article, Title VII of the Civil Rights Act.
Recently, Supreme Court decisions have trended even further in favor of employers in the context of class-action and group arbitration. In Epic Systems Corp. v. Lewis, the Court allowed an employer to include clauses in its contracts that legally bar its employees from collective arbitration, holding that provisions barring collective arbitration violated neither the FAA nor the National Labor Relations Act. "Congress," the Court held, "has instructed federal courts to enforce arbitration agreements according to their terms—including terms providing for individualized proceedings" even when "[a]s a matter of policy these questions are surely debatable."
Then, in Lamps Plus, Inc. v. Varela, the Court made it even easier for employers to avoid group arbitration. It held an ambiguous provision in an employment contract cannot "provide the necessary contractual basis for concluding that the parties," namely the employer, "agreed to submit to class arbitration." The Court in Lamps Plus effectively rejected application of the basic contractual principal of contra proferentem, which counsels courts to construe contracts against the drafter—in this case, the employer—and instead found such construction to be "flatly inconsistent with the foundational FAA principle that arbitration is a matter of consent." The principal advantage of arbitration, the Court reasoned, is its informality. Permitting collective arbitration in the face of a contract that is silent or ambiguous on the subject would be "sacrificing the principal advantage" without a "contractual basis for concluding that the party agreed to do so."
The Epic Systems and Lamps Plus decisions represent another blow to workers’ and, specifically, to sexual harassment victims’ abilities to bring—and win—claims against employers. Group arbitration can alleviate some of the hardships of bringing sexual harassment claims such as fear of retaliation, lack of resources, and distrust of the decision-maker. The Court’s decisions in Epic Systems and Lamps Plus will likely "encourage more employers to require individualized arbitration as a condition of employment." Despite the fact that "[e]xpenses entailed in mounting individual claims will often far outweigh potential recoveries," the Court’s decision will now allow employers to "stave off collective employment litigation aimed at obtaining redress" for small and repeat infractions such as sexual harassment or wage and hour claims. As a result, the "enforcement gap is almost certain to widen," to the detriment of employees and victims.
Sexual harassment claims are notoriously difficult to bring, a problem that is exacerbated by mandatory arbitration clauses and their attendant disadvantages to employees. Further, the processes mandated by federal agencies make obtaining relief an even more onerous undertaking. This section first discusses the historical growth and development of the sexual harassment claim. Then, it addresses the inherent difficulties in bringing and proving such a claim against an employer under Title VII.
Sexual harassment was slow to catch on as a tort with resulting emotional harm when it first appeared in American jurisprudence. Initially, tort law provided women no right to recover for sexual harassment. In a 1936 article in the Harvard Law Review, Calvert Magruder detailed the developments of recovering damages for mental and emotional anguish. His article gives insight into the era’s view on women’s claims for damages because of sexual harassment:
Women have occasionally sought damages for mental distress and humiliation on account of being addressed by a proposal of illicit intercourse. This is peculiarly a situation where circumstances alter cases. If there has been no incidental assault or battery, or perhaps trespass to land, recovery is generally denied, the view being, apparently, that there is no harm in asking.
In effect, without a "touching," or accompanying assault or battery, women could not recover for the emotional or mental distress caused by sexual harassment, because it was thought that there was "no harm in asking."
Then, United States law developed a "specialized body of law on sexual touchings" which briefly recognized a woman’s right to recover for "sexual predation" or "seduction." The developments were short-lived though, because by the early twentieth century, many states had legislatively repealed the tort of seduction. Finally, in the 1970s, feminist lawyers and advocates "persuade[d] the American judiciary that sexual harassment is ‘discrimination on the basis of sex,’" and therefore a violation of Title VII of the Civil Rights Act of 1964, which provides, in pertinent part: "[i]t shall be an unlawful employment practice for an employer . . . to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s . . . sex."
The Equal Employment Opportunity Commission (EEOC) broadly defines sexual harassment as
unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when (1) submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employment, (2) submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting such individual, or (3) such conduct has the purpose or effect of unreasonably interfering with an individual’s work performance or creating an intimidating, hostile, or offensive working environment.
The EEOC’s broad definition includes conduct that has the effect of interfering with the victim’s work performance or working environment—whether that was the perpetrator’s intent or not—so long as the conduct was in some way "of a sexual nature."
Courts, however, have not defined sexual harassment under the Civil Rights Act so broadly. In Meritor Savings Bank v. Vinson, the Court held that for sexual harassment to be actionable—that is, for the victim to be entitled to relief—it must be "sufficiently severe and pervasive" to alter the conditions of the victim’s employment. This language created a high bar for sexual harassment claims in federal court and caused judges to dismiss a large percentage of cases, with only an estimated 3 to 6% of cases reaching trial, and 37% of claims dismissed pre-trial.
Today, it is evident that misconceptions about sexual harassment still exist. A common misconception is that workplace sexual harassment victims do not deserve nor need compensation and redress, they "just want to be heard." To combat this, groups like the Time’s Up Legal Defense Fund are ensuring that victims have an affordable path to legal relief, to "seek the justice they deserve," and to hold accountable sexual harassers in the workplace—regardless of "industry, rank, or role."
While past notions about sexual harassment are beginning to change, sexual harassment victims today still have a notoriously difficult time obtaining relief, whether through the court system or in arbitration. The EEOC claims process can be lengthy, many incidents of harassment go unreported, and retaliation by employers is very common. The EEOC, in its 2016 Report of the Select Task Force on the Study of Harassment in the Workplace, cited a 2003 study that found "that 75% of employees who spoke out against workplace mistreatment faced some form of retaliation." In many work environments, sexual harassment reporting is followed by "organizational indifference," "trivialization of the harassment complaint," and "hostility and reprisals against the victim" such that the "most ‘reasonable’ course of action for the victim to take is to avoid reporting the harassment." Then, if the victims do choose to report their harassment and seek legal redress against their employer, they may find that they have "already relinquished their right to a day in court," forced into a private, confidential proceeding with decreased likelihood of relief.
Mandatory employment arbitration has grown out of the expansion of the FAA, and has become a pervasive practice in workplaces across the country. While proponents of mandatory employment arbitration claim that it benefits employees—offering them a cheaper, faster, and more efficient way to pursue their claims—empirical data shows that the advantages are mainly captured by employers, and employees have appreciably more success in litigation than in mandatory arbitration. Further, as Supreme Court precedent has made it easier for employers to force individualized proceedings and prevent group arbitration, employees are being stripped of the benefits—both financial and psychological—of collective action. Section A of this Part discusses the detriment caused to employees and their right to pursue group arbitration by the Epic Systems and Lamps Plus decisions. Section B empirically demonstrates that the benefits of arbitration are one-sided, gleaned almost exclusively by employers as they further shift the power balance in their favor. Finally, Section C discusses the problems present when—as is usually the case—employers are in control of the arbitrator-selection process.
The rise of movements like #MeToo and #TimesUp has shown the pervasiveness of sexual harassment in the workplace and the need for systemic change. Such movements demonstrate that "sexual misconduct . . . causes collective, not just individual, harm," because, as race, gender, and law scholar Dorothy Roberts argues, sexual harassment "stems from and helps to perpetuate the inequality of women at work and in the wider society." Law and gender scholar Alexa Richardson writes that "[b]ecause sexual misconduct is rooted in institutional power structures, solutions to ending it require strategies that emphasize structural, systemic changes and collective justice." To that end, class action lawsuits by victims of sexual harassment offer "the potential for systemic change and collective redress for the harms caused." "Strength in numbers," she says, "shifts the power dynamic between survivors and the institutions that perpetrated harm."
But what happens when victims are not allowed to collectively pursue redress? In light of the Supreme Court’s rulings in Epic Systems and Lamps Plus, employers can—and will—bar employees from collectively arbitrating. This section addresses the implications of these decisions on employees and details attempts to circumvent the Court’s rulings.
Law professors Stephanie Greene and Christine Neylon O’Brien lament the Supreme Court’s decision in Epic Systems and describe an "urgent need" for legislation protecting the right of low-income employees and sexual harassment victims to collectively arbitrate. Noting that the Epic Systems decision "made no reference to the inequality of bargaining power between employers and employees and the fact that arbitration clauses are presented to employees as a condition of employment," Greene and O’Brien find fundamental error in the Court’s "assumption that mandatory individual arbitration agreements," which ban collective arbitration, "indicate an employee’s consent."
Following the Epic Systems and Lamps Plus rulings, individual employees seeking to bring sexual harassment or wage and hour claims, but who lack the resources to hire counsel for individual arbitration, are left with little recourse. As an example of the extreme—and impractical—methods to which employees have been forced to turn, nearly 400 individual arbitration claims were brought against Buffalo Wild Wings, almost immediately after the Epic Systems decision, in what Greene and O’Brien call "serial arbitration." Though effective because it required Buffalo Wild Wings to stare down the possibility of 391 individualized arbitration proceedings, the majority for which they likely would foot the bill, "serial arbitration" is hardly a sustainable method for employees to win collective relief or effect systemic change. Particularly in the case of sexual harassment, a deeply personal and intimate offense, it is difficult to imagine coordinating and identifying enough employees—and attorneys—to render mass-arbitration feasible and to pressure employers into early settlements.
Justice Ginsburg in her Epic Systems dissent bemoaned the Court’s "many wrong turns" in its FAA jurisprudence, culminating with the "destructive result" in Epic Systems. She suggested that "fear of retaliation" would "deter potential claimants from seeking redress alone." Employers may now conduct cost-benefit analyses and determine that the savings from failing to adequately train its employees and prevent sexual harassment outweigh the expected cost of adverse judgments in individualized arbitration proceedings. Despite the Court’s previous "recogni[tion of] the centrality of group action to the effective enforcement of antidiscrimination statutes," Epic Systems will prevent the type of concerted legal actions which "have played a critical role in enforcing prohibitions against workplace discrimination based on race, sex, and other protected characteristics," including sexual harassment.
Despite the Epic Systems and Lamps Plus decisions’ likely dampening effect on sexual harassment claims, harassment victims unable—or unwilling—to pursue individualized arbitration actions against employers are left with two other "glimmers of hope." First, Justice Ginsburg specifically noted in her dissent that she does not believe that the Court’s Epic Systems opinion "place[d] in jeopardy discrimination complaints asserting disparate-impact and pattern-or-practice claims that call for proof on a groupwide basis." Such claims are often legally impossible to bring by solo complainants, and Justice Ginsburg noted that reading the FAA to allow class-action waivers to "devastate Title VII . . . and other laws enacted to eliminate, root and branch, class-based employment discrimination," would be "grossly exorbitant" and the Court could "hardly hold otherwise." Thus, pattern-or-practice and disparate-impact claims likely still exist and are still arbitrable in concerted group action, despite the holdings in Epic Systems and Lamps Plus.
Second, the EEOC may elect to pursue class complaint claims against employers, regardless of class-action waivers in mandatory arbitration agreements. The Supreme Court, in General Telephone Company v. EEOC, held that Rule 23 of the Federal Rules of Civil Procedure, governing class actions and class certifications, is not applicable to the EEOC and its enforcement actions. Thus, the EEOC can pursue group remedies even when the employees themselves are precluded from doing so.
Sexual harassment victims’ inability to seek "strength in numbers" because of class-action waivers and the woeful inadequacy of "serial arbitration," combined with common misconceptions of sexual harassment and the inherently personal nature of the claim, make pursuing legal relief even more daunting for already-vulnerable victims.
In addition to the challenges caused by individualized arbitration and the institutional stifling of claims, sexual harassment victims face additional hurdles when they are among the 56.2% of private sector, nonunion employees subject to mandatory binding arbitration. Employee win rate in mandatory arbitration is less than half of what it is in state court. Moreover, damages awards are significantly lower in mandatory employment arbitration than they are in state and federal court. By some calculations, damage awards in arbitration are as low as just 7% of state court awards.
In addition, Alexander J.S. Colvin found in his report in the Journal for Empirical Legal Studies that employee-plaintiff income level has a direct and statistically significant effect on arbitration success and damage amounts. In fact, while arbitration’s proponents claim that arbitration’s relative efficiency and low costs removes barriers to entry for low-income plaintiffs, allowing them to assert their rights and allowing lower-value claims to be brought, the data shows otherwise.
First, Colvin found that "most cases in employment arbitration appear to involve sizeable claim amounts." Three quarters of claims brought in arbitration in Colvin’s study were for an amount above $36,000, and the median claim amount was $106,151. This largely debunks the myth that mandatory arbitration increases accessibility for plaintiffs with lower-value claims.
Second, there is a direct positive correlation between employee win rate, damage awards, and plaintiff salary level. Plaintiffs with an annual income under $100,000 represented 82.4% of employees in the study, and their win rate was 22.7%, with a mean award of $19,069. For annual salary levels between $100,000 and $250,000, employee win rate is 31.4% with a mean award of $64,895. For the highest salary level, annual income over $250,000, win rate nearly doubles from the lowest income level, to 42.9%. And, stunningly, the mean award amount for the highest-income plaintiffs, $165,671, is nearly nine times the amount for low-income plaintiffs.
Despite being touted as an affordable alternative to litigation for low-income employees, mandatory arbitration is often no alternative at all—after all, it’s mandatory—and the same inherent inequities that are present in litigation also rear their heads in arbitration.
In addition to disparities in successful recoveries and damage amounts, mandatory arbitration clauses have a dampening effect on the filing and reporting of sexual harassment and other employment related claims. The Economic Policy Institute found that as the number of employees subject to mandatory arbitration clauses has gone up, there has not been a corresponding increase in employees arbitrating workplace disputes.
The EPI cites research that shows that an average of 940 mandatory employment arbitration cases are filed annually with the American Arbitration Association (AAA), the nation’s largest employment arbitration service provider. Multiplying by two, as the EPI found that about 50% of the nation’s mandatory employment arbitration cases are administered by the AAA, extrapolates to approximately 1,880 mandatory employment arbitration cases filed annually. This means only approximately 1 in 32,000 employees subject to mandatory employment arbitration actually files a claim each year. Given that the EEOC found at least "one in four women (25%) reported experiencing sexual harassment in the workplace," these statistics suggest at least a correlation between the dramatic stifling of the reporting and claims processes for victims and the increased prevalence of mandatory employment arbitration.
Empirical data suggests that mandatory employment arbitration clauses also negatively impact employees’ access to justice and adequate legal representation, directly affecting "the ability of individual workers to receive compensation for the injuries they have suffered."
Employees predominantly seek legal counsel when filing discrimination or harassment claims. Of those seeking legal counsel, the EPI found that 92% of employee-plaintiffs were represented under some form of contingency-fee arrangement, where the attorney receives between 30 and 40% of the damages if a claim is successful. This arrangement leads to attorneys "case-shopping," or deciding "whether to accept a case based on their judgment about the likely outcome." Given the huge disparity in damage recoveries between arbitration and the courts, lawyers may hesitate to take cases that are subject to mandatory arbitration. Although arbitration cases are cheaper to bring and often less time-consuming, the financial incentive of a big victory is severely reduced, and plaintiff’s attorneys have taken notice. The EPI found that the average plaintiff’s attorney accepts 15.8% of potential employee cases that could go to litigation. This percentage nearly halves in cases where the employee is subject to a mandatory arbitration clause: attorneys take on just 8.1% of those cases.
If employees cannot get adequate legal representation, their arbitration cases are less likely to be successful and are significantly more likely to be withdrawn. A study in the Journal of Empirical Legal Studies found that employee win rate in arbitration is just 18.3% when self-represented, compared to 22.9% when represented by an attorney, a statistically significant difference. Moreover, employees’ mean award, including instances when the award was $0, is over $16,000 less when they are self-represented in arbitration. Lastly, self-represented employees in arbitration are 39.8% more likely to withdraw their cases than they are if represented by counsel, and they are 35.5% less likely to settle their cases, increasing the time between injury and relief.
Even when adequate legal representation is available to employees, court and arbitration rules often make obtaining relief difficult and expensive. Though often praised for being faster and less expensive than litigation, arbitration is not without its costs. Some federal circuits and arbitration agencies have limits on what employees pay to file and arbitrate a claim in mandatory employment arbitration. Some, however, permit fee-splitting provisions in arbitration clauses. The end result, though, is that employees are often asked to bear some of the costs of arbitration that they were obligated to pursue if they wanted a chance at legal relief.
Further, there is some federal precedent that if an employee subject to a mandatory arbitration clause files a lawsuit in lieu of arbitration—whether to challenge the arbitration agreement or in disregard of the agreement—the employer may be entitled to recover attorney’s fees spent in court. In Aralar v. Scott McRea Automotive Group, the Middle District of Florida upheld an arbitrator’s award of attorney’s fees following an employer’s successful motion to compel arbitration and subsequent victory in arbitration proceedings. The employment agreement in Aralar contained a mandatory arbitration clause that provided for fee-shifting in the event the employee brought a suit in court that was subject to mandatory arbitration. Upholding the award of fees, the court noted that Eleventh Circuit precedent allows for the award of attorney’s fees following arbitration, and that, in the context of fee awards, "federal courts should defer to an arbitrator’s decision whenever possible."
Aralar and accompanying Eleventh Circuit precedent seems to suggest that, at least in the event of permissive fee-award clauses, courts are happy to uphold arbitrators’ awards of attorney’s fees against a plaintiff-employee. Thus, despite the oft-touted benefit that employment arbitration is cheaper for employees, there appears to be little to stop courts or arbitrators from burdening employees with thousands of dollars of attorneys’ fees, "lest the efficiency of the arbitration process be lost."
A significantly lower win rate, decreased damages, difficulty obtaining legal representation, and cost-shifting fee-awards make an already challenging process even more arduous for employees. Then, once their claims have been shepherded out of the courtroom and into arbitration, an employee may be surprised to learn that the employer is all too familiar with the professed "neutral arbitrator."
Once obligated to submit their claims to arbitration, employees and their counsel proceed to the crucial step of selecting the arbitrator, in accordance with the terms of the arbitration agreement. Mandatory arbitration clauses typically specify the arbitration provider from which the arbitrator will be selected, and in front of how many arbitrators the claim will be heard. Employers can choose to adopt the AAA’s—or other provider’s—arbitrator selection policy, or they can draft their own. Courts place minimal constraints on the selection procedures, mainly that neither party can have unilateral control over the pool of potential arbitrators.
Arbitrator selection is important for myriad reasons because the arbitrator is often the only quasi-legal official in front of whom a sexual harassment claimant can tell their story and seek redress. There are two major reasons arbitration selection is crucial for sexual harassment victims seeking to vindicate their rights. First, under recent Supreme Court precedent, the arbitrator himself decides the gateway question of the arbitrability of the employee’s claim. Second, there is a distinct "repeat-player" effect in employment arbitration, wherein an employer who appears in front of the same arbitrator more than once is significantly more likely to win a favorable result. This section addresses each reason in turn.
Courts had, until recently, left open the question of who decides whether a specific claim belongs in arbitration. Now, in the wake of a recent unanimous Supreme Court decision, that question has been decided and the result—unsurprisingly—will likely lead to more arbitration.
In Henry Schein, Inc. v. Archer & White Sales, Inc., Justice Kavanaugh, writing for a unanimous Court, held that "the parties to [a mandatory arbitration clause] may agree to have an arbitrator decide not only the merits of a particular dispute, but also ‘gateway questions of arbitrability.’" In Schein, the Court held that federal courts cannot "short-circuit" arbitration process and decide arbitrability. Thus courts must "enforce arbitration contracts according to their terms," referring "gateway questions of arbitrability," such as "whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy," to the arbitrator(s). "Just as a court may not decide a merits question that the parties have delegated to an arbitrator," the Court held that a court "may not decide an arbitrability question that the parties have delegated to an arbitrator."
The implications of the Schein holding have yet to become evident, but it seems likely that when arbitrators are left with the decision of whether a specific claim is arbitrable, they will err on the side of arbitrability. Months prior to the Schein decision, the Court unanimously determined in New Prime, Inc. v. Oliveira that the question of whether an employee is covered by or exempted from the FAA is one for a judge. Thus, unlike in Schein, the Court held that the arbitrability of the claims brought by the employee was to be decided by a court, not the arbitrator.
Then, the Court’s Schein decision left open a "logically dubious" determination between challenges to the contents and formation of the arbitration contract itself, questions of the merits of the claim, and now, after Schein and New Prime, questions of the delegation of certain claims to arbitration. The first is clearly a question for the court and the second for an arbitrator. But the third now lacks a clear determiner. The Schein decision makes practical sense only "when read from a policy perspective as an effort to move more cases into arbitration." Thus, since the data plainly shows that arbitration favors the employer and hinders an employee’s chance at recovery, the Supreme Court’s new precedent seems designed to lead to more arbitration, which will translate into more losses for employees.
Arbitration selection has a second major implication: repeat player advantages. Employers can derive two distinct repeat player advantages in employment arbitration. The first is that employers generally have more success in employment arbitration when they are repeat players. Second, when employers are paired with the same arbitrator more than once, their win rate is significantly higher the second time—and increases each time thereafter.
Employers are "systematically much more likely to be repeat players in arbitration." By contrast, it is "very rare for an individual employee to participate in employment arbitration more than once." Thus, if there are repeat player advantages to be gained in employment arbitration, employers are much better positioned to capitalize on those advantages than are employees. And the advantages are obvious—and significant.
In his study in the Journal for Empirical Legal Studies, Colvin found that employee win rate when the employer is a "one-shot employer" is nearly double the win rate when the employer is a "repeat player employer." For non-repeat employers in the Colvin and Gough study, employee win rate was 28.8%, a bit over the collective average win rate found in other studies. Arbitration with repeat employers, on the other hand, leaves employees with a mere 14.5% win rate. There is also data to support the proposition that each time an employer appears in arbitration, its odds of winning increase, giving large employers with many employees and more claims to arbitrate distinct advantages in employment arbitration.
Employees are at an even steeper disadvantage when their employers are paired with specific individual arbitrators in front of whom they have previously arbitrated a case. In Colvin’s empirical study, he found that 15.9% of cases involved repeat employer-arbitrator pairings. The dangers of repeat pairings are clear: arbitrators may tend to "favor employers in . . . arbitration in hopes of securing future business from these repeat players." This bias "may be heightened by the employer typically paying the entire arbitrator fee." Further, as Colvin warns, "[r]epeat employers may develop expertise in identifying, and then selecting, employment arbitrators who tend to favor employers in their decision-making. Lacking equivalent repeat player experience, employees will likely be less able to identify and then reject the pro-employer arbitrators." If present, these pro-employer biases carry the potential to "undermine the legitimacy of this forum for resolving statutory employment rights."
The data bears out that these concerns are well-founded. Colvin and Gough found that "on average, each previous interaction between a given employer and an arbitrator decreases the odds of an employee’s winning by 6.2%." Repeat pairings led to a similar decrease in damage awards. Colvin and Gough found an astounding effect: "for each additional case involving the same employer and arbitrator pairing—the expected damages awarded in a case decline by 16.6%. The predicted award amount is $20,903 for a case involving a first-time pairing, $10,100 on the fifth employer-arbitrator pairing, and only $107 on the 30th pairing." All the differences were statistically significant and point to what Colvin calls a "smaller, but signiﬁcant, repeat-employer–arbitrator pairing effect" with "[great] concerns from a policy standpoint," most notably that "the employment arbitration system is being slanted against employees in these cases."
The data makes clear that employers have a systematic advantage over employees in mandatory arbitration for myriad reasons: the likelihood that employees are self-represented, the employer’s likelihood to be a repeat player, employers’ familiarity with arbitrators and arbitrator-selection processes, and the possibility that the employer-defendant will have previously appeared in front of the arbitrator.
Parts I and II of this Article show that mandatory employment arbitration, through its steady expansion, has caused a shift in power balance that has made an already arduous claims process even more daunting, leading to unfair procedures, fewer employee wins, and decreased payouts. Part III details efforts by courts, the public, and state legislatures to push back against the widespread expansion of mandatory arbitration of workplace sexual harassment claims. It then provides a quintessential example of how the federal courts handcuff state legislatures and restrict arbitration reform. Section A discusses the three varieties of pushback: judicial, public, and legislative. Section B details the case of Latif v. Morgan Stanley, in which a New York Federal Court struck down a state statute that would have curbed the use of mandatory arbitration over sexual harassment claims.
As is evident, mandatory employment arbitration, especially of Title VII claims, is not without its flaws and inequities. For these reasons, there has been sizeable legislative and judicial pushback towards the expansive use of these clauses in employment contracts. Circuit courts have split on the uniform arbitrability of sexual harassment claims, though similar splits have in the past been resolved by the Supreme Court in favor of mandating arbitration. In recent years, the public has become increasingly aware of the ill effects of mandatory arbitration of Title VII claims and has begun to speak out against these troublesome clauses. This has caused major companies and industries as a whole to abandon the custom of including compulsory arbitration clauses in their employment contracts. Finally, several states have passed legislation that limits the use of mandatory arbitration clauses over sexual harassment and other Title VII claims. This section will address judicial pushback, public backlash, and state legislative action in turn.
While several courts have attempted to limit the expansion of compulsory employment arbitration, California state courts and the Ninth Circuit Court of Appeals have been the most adamant against mandatory arbitration. Prior to 2001, the Ninth Circuit often declined to enforce mandatory arbitration clauses that sought to compel arbitration of Title VII claims. Its reasoning was two-fold. First, the Ninth Circuit held in Prudential Insurance Company of America v. Lai that Title VII plaintiffs may be forced to forego litigation of statutory claims and submit to arbitration of those claims only when such procedure was "knowingly accepted." Congress, it reasoned, only intended arbitration "where appropriate," and "where the parties knowingly and voluntarily elect to use these methods." Second, the Ninth Circuit reasoned in Duffield v. Robertson Stephens & Co. that Congress actually intended to preclude compulsory arbitration of Title VII claims. Citing specific legislative history, the court found that Congress intended arbitration to "supplement, not supplant, the remedies provided by Title VII." Further, it found that, by Congress’ own words, lawmakers believed "the use of compulsory arbitration provisions would . . . force[ ] American workers to choose between their jobs and their civil rights." To force such a choice, the court held, was "certainly not the purpose or intent of Congress."
The Ninth Circuit took a surprising next step in 1998 in its anti-arbitration jurisprudence in Craft v. Campbell Soup Co. when it ruled that the FAA did not apply to employment contracts and thus the court entirely lacked jurisdiction to consider the party’s appeal. Finding that Congress enacted the FAA "as part of an effort to gain uniformity in the application of agreements to arbitrate sales and commercial disputes," the court held simply that "Congress never intended for the FAA to apply to employment contracts of any sort."
The drastic step taken in Craft was unsurprisingly overruled by the Supreme Court in 2001 in Circuit City Stores v. Adams, where the Court held that the FAA’s Section 1 exemption is confined to transportation workers and that the "statutory text forecloses the construction that Section 1 [of the FAA] excludes all employment contracts." Despite previously "steadfastly adhering" to its jurisprudence against mandatory employment arbitration, the Ninth Circuit has been forced to look outside the FAA when refusing to uphold mandatory arbitration clauses.
In 2009, the Ninth Circuit attempted to use a finding of "unconscionability" to strike down a mandatory arbitration clause. The Supreme Court foreclosed this approach in AT&T Mobility LLC v. Concepcion, reversing the Ninth Circuit,  and held the Ninth Circuit’s rule was preempted by the FAA. The Ninth Circuit’s ruling in AT&T was based on Section 2 of the FAA which allowed revocation of a contract where there were "grounds that exist at law or in equity." The Ninth Circuit held that, under its prior precedent, arbitration agreements like the one included in AT&T were unconscionable. Thus, a "ground in law" would exist to revoke the specific contract at issue. Instead, the Supreme Court held that "when state law prohibits outright the arbitration of a particular type of claim, the FAA displaces the conflicting rule." Because the Ninth Circuit’s rule "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" in passing the FAA, the Court held that the rule is preempted by the FAA. Thus, despite the fact that California’s common law rule "applie[d] the same legal principles to address the unconscionability of . . . arbitration [agreements] as it [did] to address the unconscionability of any other contractual provision," the Court held that the FAA "generally requires courts to enforce arbitration agreements as written" and that such a mandate was impeded by the Ninth Circuit’s ruling.
Despite being overruled by the Supreme Court, the Ninth Circuit has been undeterred in its mission to hold mandatory arbitration clauses unconscionable when they are included in an employment contract as a prerequisite to employment. The Ninth Circuit has regularly held that, when the drafter’s use of arbitration agreements in contracts involves "both oppression and surprise, the agreement is procedurally unconscionable."
While appellate courts have been constrained by the Supreme Court and its pro-arbitration stance, the public has begun to take notice of the inequities in bargaining power between employers and employees, particularly when sexual harassment claims arise.
In November 2018, thousands of Google employees walked out of offices from San Francisco to Singapore to protest a "lax approach to sexual misconduct complaints" and to push for the end of forced arbitration of workplace discrimination claims. The walkout was sparked by a New York Times article that "revealed Google had given a senior executive, Andy Rubin, a $90 million exit package even after it found he had been credibly accused of sexual harassment." The walkout’s organizers later started a social media campaign called "End Forced Arbitration," with a Twitter account designed to draw attention to the bargaining inequities in mandatory arbitration.
In the wake of the walkouts, Google changed its sexual harassment policies the very same month. A few months later, going beyond just sexual harassment claims, Google announced "it would no longer force employees to settle disputes with the company in private arbitration, expanding on [its] earlier pledge."
Google employees’ efforts had an impact beyond Silicon Valley. Following the Google walkout, several large tech companies and law firms ended the practice of mandating arbitration for sexual harassment and other workplace discrimination claims. In 2019, according to a report by the Yale Law Women, 30.2% of law firms required equity partners to sign mandatory arbitration clauses. Of these firms, over two-thirds require sexual harassment and discrimination claims to be arbitrated. And law firm use of mandatory arbitration is not limited to equity partners. In 2018, Harvard Law students announced a boycott of one of the country’s highest-grossing law firms, Kirkland & Ellis, due to the firm’s policy of including mandatory arbitration clauses in contracts with associates. In response to the boycott, Kirkland & Ellis announced that it was ending the policy. Law firm summer associates have also spoken out against mandatory arbitration clauses in their short-term contracts, which was the catalyst for multiple law firms choosing to end the practice.
Federal courts and the general public are not the only groups to push back against the Supreme Court’s rigid pro-arbitration jurisprudence, and against the extreme proliferation of mandatory employment arbitration. As the #MeToo and #TimesUp movements have brought to light the pervasive and widespread nature of workplace sexual harassment, state lawmakers have fought to make it easier for employee-victims to obtain legal relief.
Various states have passed laws or introduced bills that limit an employer’s ability to compel arbitration of sexual harassment and other Title VII workplace discrimination claims in their employment contracts. These states include Missouri, Maryland, Illinois, Washington, California, and New York. This subsection examines several of these states’ laws in turn. The laws are generally similar in scope and reach, although some state legislatures pay particular mind to avoiding preemption by the FAA, and other states disregard eventual judicial consequences of their far-reaching statutes.
Maryland’s Disclosing Sexual Harassment in the Workplace Act of 2018 (DSHWA) renders invalid any agreement or contract provision that prevents sexual harassment or retaliation victims from asserting a right in a court of law, which would include mandatory arbitration agreements. Importantly, as courts will often enforce arbitration agreements contained in employee handbooks, Maryland’s law likewise deems unenforceable any "policy," like that contained in an employee handbook, which waives a right to a legal remedy for a sexual harassment or retaliation claim.
Like the New York law discussed below, the Maryland House Bill of the DSHWA originally provided for a ban on mandatory arbitration of any claims of workplace discrimination, not just sexual harassment. This wide-ranging ban, however, was edited in committee, and the law was restricted to covering arbitration of sexual harassment claims. Depending on the appellate court’s eventual reading of the Latif case, discussed in detail in Section B below, this committee change may prove sagacious. Notably, Maryland’s law provided the caveat "except as prohibited by federal law," which raises questions of its effectiveness in light of the Supreme Court’s consistent decisions to uphold the FAA in the face of state laws to the contrary.
On August 9, 2019, Illinois Governor J.B. Pritzker enacted the Workplace Transparency Act (WTA), a wide-ranging, pro-employee law that is broader in scope than the Maryland law, with a few important exceptions. The WTA provides that employment contracts entered on or after January 1, 2020 may not "prevent an employee, prospective employee, or former employee from making truthful statements or disclosures regarding unlawful employment practices" or "have the effect of discouraging the employee from reporting unlawful employment practices." The WTA forbids any agreement that requires an employee, or prospective employee, to waive a state or federal statutory claim including workplace discrimination and sexual harassment under Title VII.
In a nod to Supreme Court precedent, however, the WTA provides a notable exception to its bar on mandatory arbitration. Section 1-20(c) of the WTA law provides that an agreement which would otherwise be void against public policy under the earlier sections is valid if it is a "mutual condition of employment"; is in writing; demonstrates "actual, knowing, and bargained-for consideration from both parties"; and does not infringe upon the right of an employee to report unlawful employment practices, participate in government agency proceedings enforcing discrimination laws, make truthful statements or disclosures as required by law, or request or receive legal advice.
On October 10, 2019, California’s governor signed into law a bill that forbids companies from requiring employees to sign an agreement forcing harassment, discrimination, and wage claims into arbitration as a condition of employment. California’s law, seeking to avoid preemption by federal law and under Supreme Court precedent, only applies to new employment contracts or when signing a mandatory arbitration agreement is a condition of continued employment. The bill was passed over "intense lobbying" from the California Chamber of Commerce, who argued it would "subject companies to criminal charges, increase costs, and delay justice in overburdened courts."
New York’s state legislature amended the New York Human Rights Law in 2018 to forbid employers from compelling arbitration of sexual harassment claims and to render such clauses null and void as a matter of the law. Then, in June 2019, it went a step further, passing a law that prohibited employment contracts from containing "any clause or provision in any contract which requires as a condition of the enforcement of the contract or obtaining remedies under the contract that the parties submit to mandatory arbitration to resolve any allegation or claim of discrimination." Thus, employers could not compel arbitration for any discrimination claims pursuant to Title VII or other "laws prohibiting discrimination," a broad expansion beyond just excluding sexual harassment claims from mandatory arbitration.
New York’s far-reaching amendments to its Human Rights Law and its expansion of arbitration protections to all discrimination claims set the stage for almost immediate litigation. While pro-employee advocacy groups hailed the law for its "strengthening of protections for employees who have been harassed," employers and their representatives feared that the measure would impose greater obligations on the employers and subject them to greater legal liability. Litigation was inevitable, and the Southern District of New York was to be the arena for the legal fight for the future of the law and its pro-employee policies. The court’s decision would either reaffirm New York’s pro-employee policies and open the door for other states to take similar steps, or it would plainly show that state protection of employees’ rights might simply be insufficient in the face of the Supreme Court’s pro-arbitration jurisprudence.
When Mahmoud Latif signed an offer of employment with Morgan Stanley in 2017, the letter incorporated by reference an arbitration agreement which provided for mandatory, binding arbitration of any "covered claim" which included "statutory discrimination, harassment and retaliation claims." This mandatory arbitration agreement was plainly violative of New York’s Human Rights Law and its new ban against compulsory arbitration for sexual harassment or discrimination claims. Shortly after beginning employment, Latif alleged that he "became the target of . . . inappropriate comments regarding his sexual orientation, inappropriate touching, sexual advances, and offensive comments about his religion. He also alleged that, around February 2018, a female supervisor sexually assaulted him." Soon thereafter, he reported these incidents to Morgan Stanley’s human resources department. In August of 2018, just over a year since he had signed the employment agreement, and after "months of email exchanges and meetings between Latif and the human resources department," Latif’s employment was terminated.
In December 2018, Latif filed a lawsuit in the Southern District of New York "alleging discrimination, a hostile work environment, and retaliation in violation of Title VII of the Civil Rights Act of 1964 . . . as well as assault and battery, aggravated sexual abuse, violation of [New York’s] Gender Motivated Violence Protection Act . . . and intentional and negligent infliction of emotional distress." Defendant Morgan Stanley filed a motion to compel arbitration and stay the proceedings in accordance with Latif’s signed arbitration agreement.
In Latif, the district judge noted that "[t]he Supreme Court has repeatedly instructed that the FAA reflects both a liberal federal policy favoring arbitration and the fundamental principle that arbitration is a matter of contract." Latif argued that, despite Supreme Court jurisprudence which may render the newly passed New York Human Rights Law (N.Y. C.P.L.R. § 7515) unenforceable, the arbitration agreement contained in his employment agreement was plainly violative of Section 7515. The FAA, he argued, contains a "savings clause" that renders unenforceable any arbitration agreement if "grounds . . . exist at law or in equity for the revocation of any contract." Thus, New York’s Section 7515 would provide a "ground at law" for finding Latif’s arbitration agreement unenforceable.
However, the court held, "while arbitration agreements may be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability, . . . defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue will not invalidate such an agreement." Thus when a defense to an arbitration agreement is simply that arbitration agreements are per se unenforceable—under a state law or otherwise—courts will not recognize that defense.
The district court, foreshadowing its eventual decision, noted that the "FAA’s policy favoring the enforcement of arbitration agreements is not easily displaced by state law," and "when state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: the conflicting rule is displaced by the FAA."
Though the court, after summarizing Section 7515, alluded to Justice Ginsburg’s dissent in Lamps Plus, citing Section 7515 as an example of state action that could "safeguard employees’ opportunities to bring sexual harassment suits in court" and would "ameliorate some of the harm occasioned by recent Supreme Court employment arbitration decisions," it found that no other court had cited or applied Section 7515.
The court thus held that applying Section 7515 to invalidate Latif’s arbitration agreement was inconsistent with the FAA. It further held that the FAA’s strong presumption in favor of enforcing arbitration agreements was not "displaced" by Section 7515. Following its "straightforward analysis," Section 7515 as applied was preempted by the FAA. The "savings clause" of the FAA was insufficient to save Section 7515, as the court found that Section 7515 was not a "ground as exists at law or in equity for the revocation of any contract," but rather a "state law prohibit[ing] outright the arbitration of a particular type of claim," which the Supreme Court found was "displaced by the FAA."
Latif advanced two other arguments against enforcing the arbitration agreement and in favor of upholding Section 7515, which the court quickly addressed and dismissed. Latif first argued that the savings clause should in fact apply, because Section 7515 did not reflect "a specific intent to single out arbitration clauses for singular treatment" but instead should be read "in conjunction with the bundle of sexual harassment provisions passed in the same bill," thus reflecting "a general intent to protect victims of sexual harassment." Calling the argument "unavailing," the court held that Section 7515 being enacted alongside other sexual harassment laws did not alter its plain language and that its purpose was clearly not to create a new, generally applicable contract defense as would satisfy the savings clause of the FAA.
Finally, Latif argued that Section 7515 is a ground "in equity for the revocation of the contract" because mandatory arbitration clauses, generally, "interfere with New York’s substantial state interest in transparently addressing workplace sexual harassment." Thus, he argued, Section 7515 should not be preempted by the FAA. In response, the court again reiterated that any "ground providing an exception to arbitration, whether in law or in equity" must be a generally applicable contract defense and not specifically target arbitration, as Section 7515 clearly does. The court granted Morgan Stanley’s motion to compel arbitration and stayed the suit pending the result of the arbitration, holding simply that Section 7515 "cannot overcome the FAA’s command that the parties’ Arbitration Agreement be enforced."
Latif is the paradigmatic example of how Supreme Court precedent has rendered circuit courts and state legislatures almost completely unable to effect arbitration reform through legal change. Thus, the onus falls on Congress—or the Supreme Court itself—to fix the power imbalance created by mandatory employment arbitration. Though many federal legislative efforts have been stymied, Congress must take up the fight for employees’ rights and push back against the Supreme Court’s rigid jurisprudence.
The public has taken notice of the inequities of mandatory employment arbitration, and their misgivings, to some extent, have been the catalyst for substantive change. The public’s success in forcing corporations like Google, eBay, and Airbnb to end their practice of mandating arbitration for sexual harassment claims has created a rubric for societal pushback with the potential for material positive changes. But the public cannot overhaul the policies of entire industries without the support of lawmakers and the judiciary. As state laws are increasingly being preempted by the FAA, employees are left with limited options. For significant change to transpire, one of two things must occur: federal courts must begin to interpret the Federal Arbitration Act differently—a seemingly unlikely result in light of federal courts’ commitment to stare decisis and longstanding acceptance of Gilmer—or Congress must pass a law that amends or supersedes the FAA, either federally outlawing mandatory employment arbitration in cases of sexual harassment or permitting the states to pass laws to the same effect.
The Federal Arbitration Act contains a "savings clause" that says agreements to arbitrate are enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." This clause has been part of the grounds for striking down state laws that forbid mandatory arbitration clauses or in some way limit their effectiveness. Courts have reasoned that any law that is pointedly banning mandatory arbitration is not a "generally applicable" contract defense, whereas defenses like unconscionability and duress still apply. The Supreme Court held in Epic Systems that "[t]he saving clause does not save defenses that target arbitration either by name or by more subtle methods."
Thus, for state laws such as New York’s or Missouri’s to effect real change, the federal judiciary must alter its interpretation of the clause. The plaintiff in Latif advanced non-frivolous arguments regarding how the courts should interpret the clause in light of state bills banning mandatory arbitration. Latif argued that when passed among a "bundle" of laws targeting sexual harassment, the law does not "single out" arbitration clauses. Further, the statute "affects a number of different types of contracts and contract provisions" in attempting to crack down on workplace discrimination and sexual harassment. Therefore, Latif argued, the New York statute effectively created a new "generally applicable" contract defense, and the law should not "run afoul" of the FAA. While the court in Latif took the opposite stance, the Supreme Court should, if given the chance, interpret the savings clause to permit new "generally applicable" contract defenses that would have the effect of limiting arbitration. Alternatively, they should adopt the view of the Ninth Circuit in AT&T, holding that arbitration agreements are "unconscionable" as a matter of law, in turn complying with the FAA’s "generally applicable" standard.
There is also a strong federalism argument that favors reinterpretation of the FAA. Regulation "in the employment field" has been held to be a "traditional area of state concern" such that there would be a "presumption against preemption," and "[c]ontract and consumer protection laws have traditionally been in state law enforcement hands." Thus, a Supreme Court with a conservative majority and a Republican legislature, which has historically advocated for the prioritization of state’s rights as opposed to an intrusive federal regime, would presumably be in favor of state laws regulating employment and opposed to repeated preemption by federal law. Until the courts begin to reinterpret the FAA’s savings clause and permit states or localities to craft new generally applicable contract defenses, the FAA will continue to preempt state efforts to curb mandatory arbitration of sexual harassment claims, leaving employees and victims dependent on corporate beneficence, public pressure, or congressional action.
Recently, as public awareness of the workplace sexual harassment problem has grown, so has momentum in Congress to curtail the expansion of mandatory employment arbitration. This section discusses the most recent and promising efforts to enact legislation to solve the arbitration epidemic, the culmination of a decade-long push for reform. It then argues for the passage of the Ending Forced Arbitration of Sexual Harassment Act, a law that would provide immediate relief to sexual harassment victims and signal larger change on the horizon.
In 2009, years before the #MeToo and #TimesUp movements attracted national attention, ten senators, led by Minnesota Democrat Al Franken, proposed an amendment to a Defense Appropriations Bill that would be one of the few effective legislative efforts to curb the use of mandatory employment arbitration for sexual harassment claims. Referred to as the "Franken Amendment," the bill would prohibit the use of funds for any federal contract if the contractor—or any of its subcontractors—required that employees sign mandatory arbitration clauses regarding certain claims. The amendment passed 68-30, with all but two Democrats voting in favor and ten Republican women voting yea as well. Though the Franken Amendment has lost much of its effectiveness in light of federal courts limiting its applicability, it exemplified a potential path forward for federal action in the employment arbitration arena—a path Franken would unsuccessfully attempt to travel down several times over the next eight years. Two similar attempts to limit mandatory employment arbitration, one in 2017 and one in 2018, met similar fates: both died in the Senate Judiciary Committee.
In 2018, after Democrats regained control of the House, the possibility of amending the FAA or passing a new law that limited mandatory arbitration of sexual harassment claims became real once again. More targeted than its unsuccessful predecessors, the Ending Forced Arbitration of Sexual Harassment Act (EFASHA) specifically rendered unenforceable those arbitration clauses that required arbitration of sexual harassment claims. The bill, sponsored by Cheri Bustos, a Democrat from Illinois’ 17th Congressional District, was referred to the House Judiciary Committee, was subsequently referred to the Subcommittee on Antitrust, Commercial, and Administrative Law, and was never heard from again.
The EFASHA may have been waylaid in the House because House Democrats had broader change in mind. Finally armed with a Democratic majority in the House and a handful of Republicans who were willing to listen, Representative Johnson and Senator Blumenthal introduced the Forced Arbitration Injustice Repeal Act (FAIR Act), a near-exact replica of the failed Arbitration Fairness Act, but with signs of life that once seemed inconceivable. Referred to the same House Judiciary subcommittee that proved the final resting place for the EFASHA, the FAIR Act survived committee largely unscathed, was passed out of committee by a 22–14 vote, and proceeded to a roll-call vote in the House, where it passed 225–186, garnering two Republican votes.
Meanwhile, in the Senate, Senator Blumenthal’s companion bill was referred to the Judiciary committee in February 2019. Though Republicans had traditionally either stayed silent or spoken out against arbitration reform, the Judiciary Committee held hearings on the FAIR Act, a sign of potential progress and willingness to enact bipartisan reform. Senator Lindsey Graham, the Republican chairman of the Judiciary Committee, stated in the hearings that he, and other Republican senators, want to "look long and hard on how the system works," looking for "any changes [they] can make." Despite only receiving two Republican votes in the House, and having yet to be called for a roll-call vote in the Senate, the FAIR Act exemplifies the possibility of a rare bipartisan effort to achieve arbitration reform.
Traditionally belonging to the "pro-business" party and rarely opposing "anything that the U.S. Chamber of Commerce supports," Republicans have "shown little interest in overhauling the arbitration system." Large businesses are clearly concerned about their ability to force employees into mandatory employment arbitration. Alan Kaplinksy, a consumer financial services attorney and witness in the Senate hearings, claimed that it would cost companies up to $5 billion every five years if they have to litigate disputes and cannot use private arbitration. "Somebody ends up having to bear that cost," he said. "You don’t get a free lunch."
However, even Senator Graham, a traditional conservative who has been closely allied with President Trump during his administration, acknowledged that "everything that is good for business may not be the best answer for society" and that he was determined to "find a solution." This is the first time since 2013 that the Senate Judiciary Committee has discussed legislation to limit arbitration, which is a good omen for a possible bipartisan result, if not one as sweeping as the FAIR Act.
Though the FAIR Act’s lofty goals are commendable, and though they seem to have a modicum of momentum in Congress, it is perhaps the modest proposed changes of the Ending Forced Arbitration of Sexual Harassment Act that would provide the most immediate and meaningful relief for employees nationwide. The Act, which would render unenforceable any pre-dispute arbitration agreements that require arbitrating sexual harassment claims, would have the immediate effect of allowing sexual harassment victims to pursue their claims in a public forum. Rather than being shepherded into private, confidential arbitration, often without the benefit of an attorney, victims could air their grievances in a court of law, gain public support, and win significant awards.
By extracting Title VII claims, and their state counterparts, from the FAA’s rigid grip, the EFASHA would serve several important purposes. First, it would signal to employees and victims that their plights have not gone unnoticed. Second, it would allow employees a public forum to confront their perpetrators. While sexual harassment regularly goes unreported, the opening of the court system to victims would go a long way towards bringing offenders to justice. Lastly, the EFASHA could garner bipartisan support as a small—but meaningful—step towards addressing the problems uncovered by the #MeToo movement, without overreaching.
The frequency with which sexual harassment claims go unreported, combined with the private and confidential nature of employment arbitration, means that repeat offenders often have their conduct go unchecked. Passing the EFASHA would allow Title VII victims to turn to a public forum to seek relief from their transgressors. Further, it would draw attention to repeat offenders. While an employer can arbitrate hundreds of sexual harassment claims without public backlash because of the secrecy shrouding the arbitration process, an employer who has been sued numerous times in federal court for the same offenses will undoubtedly face public repercussions and allegations of a toxic culture and workplace. If such backlash leads to decreased revenue or lowered profits, employers may find it more financially savvy to clean up their workplace and rid it of the scourge of sexual harassment.
In an era where bipartisan politics are increasingly rare, most on the political spectrum can agree that sexual harassment is an increasing concern that must be dealt with promptly. Though all previous iterations of the FAIR Act and the Franken Amendment have toiled and perished in House committee after House committee, the EFASHA represents a pointed step towards reform without the overreach of its predecessors. Encouraging a Republican legislature to overhaul the entire private arbitration system in one fell swoop—to the displeasure of the Chamber of Commerce, no less—seems an impossible task. Directly combating the problems uncovered by the #MeToo and #TimesUp movements by protecting the rights of sexual harassment victims and bringing sexual harassers to justice might be an easier sell. The EFASHA does all three and would do so without dramatically impacting businesses, which is often a concern cited by Republican congresspeople in opposition to arbitration reform. In fact, the EFASHA should represent an easy binary for employers: rid your workplace of sexual harassment and you will not see increased litigation or costs. Fail to do so and you may find yourself with repetitive lawsuits and decreased revenue.
Though detractors may claim that the EFASHA does not go far enough and will not effect real change because it will still allow for the arbitration of many employee claims, the EFASHA represents a small but mighty step towards greater arbitration reform. In a labor market where sixty million Americans are covered by mandatory arbitration clauses that force sexual harassment victims into secretive proceedings with dampened chances of relief, the EFASHA would signal to these victims that they have not been forgotten and that their stories are important. It is imperative that Congress, even by piecemeal, begins to claw back from the unwavering pro-arbitration precedent set by the Supreme Court, and begins to restore the rights of employees and victims long oppressed by and excluded from the court system.
Arbitration undoubtedly provides some advantages over litigation. It can be faster, cheaper, and more confidential. The problem in cases of mandatory employment arbitration, however, is that these benefits are recouped almost exclusively by the employers. And the issues present in mandatory employment arbitration—the stifling nature of its confidentiality, the cost-shifting, and the inherent repeat-player advantages—are exacerbated in arbitration of sexual harassment claims.
Since its passage in 1926, the Federal Arbitration Act has been routinely expanded by the Supreme Court’s pro-arbitration jurisprudence, with almost no congressional legislation to curb the expansion. Employers force employees into arbitration over all types of claims, and they can do so as a precondition to employment. Recently, the Court has stretched the language of the FAA even further, permitting employers to prevent group arbitration and force individualized proceedings. These interpretations have had a profound negative effect on sexual harassment victims, whose chances of meaningful relief in arbitration are already slim.
Such sweeping expansions have garnered the attention of the public and of sympathetic state legislatures. The public has begun to push back against the widespread use of mandatory employment arbitration, and has led companies like Google, eBay, and Lyft to cease use of the controversial clauses. States like New York and Illinois have crafted legislation designed to curb the use of mandatory arbitration, particularly of sexual harassment claims and as conditions of employment.
These laws, however well meaning, have been routinely preempted by the FAA in federal court as contradictory to the FAA’s rigid pro-arbitration mandate. With public action alone of limited effectiveness, and state legislatures hamstrung by a federal court system that frequently pays no heed to the traditional statutory construction presumption against preemption, employees are left hoping that Congress will provide a legislative solution to the arbitration epidemic.
Though commendable for its lofty goals, the Arbitration Fairness Act and its successor, the FAIR Act, have represented a difficult sell to a Republican-controlled Senate, often determined to oppose anything that seems anti-business. While the FAIR Act found some bipartisan momentum, its broad reach will likely never satisfy conservative lawmakers. Instead, the Ending Forced Arbitration of Sexual Harassment Act represents an important middle-ground. It would immediately restore the rights of sexual harassment victims and allow them to vindicate their rights in the court system from which they have been excluded for so long. It would also allow increased public pressure on employers and repeat-offenders whose previously unknown conduct will come to light. Finally, it will signal to employees and victims that their plight has not gone unnoticed in an era where #MeToo and #TimesUp have brought to light the pervasiveness of the sexual harassment epidemic.
Hope remains for a workplace where employees can successfully vindicate their rights and are not forced into secretive, biased procedures, and where a bipartisan Congress can take meaningful action to find a solution that benefits and protects its vulnerable constituents, eliminating the power imbalance between employees and employers.
 See infra Part II.B.
 See, e.g., Stephen J. Ware, The Effects of Gilmer: Empirical and Other Approaches to the Study of Employment Arbitration, 16 Ohio St. J. Disp. Resol. 735, 749 (2001) ("employer’s low process costs benefit some or all parties"); Peter Feuille, Selected Benefits and Costs of Compulsory Arbitration, 33 Indus. & Lab. Rel. Rev. 64 (1979).