Companies giving up mandatory arbitration in sex cases a business move, attorneys say

A decision by multiple Silicon Valley companies to give up mandatory arbitration in cases involving sexual harassment is a perception- and business-related move that could cause logistical headaches, some attorneys say.

In recent weeks, companies including Google LLC, Lyft Inc., and Facebook Inc. announced they will make arbitration optional when sexual harassment is involved. At a glance, the decision to surrender a tool at the height of its legal power might seem odd.

The Supreme Court under Chief Justice John Roberts upheld class action waivers earlier this year, and in October heard arguments in three more cases that experts expect will further gird the Federal Arbitration Act.

While attorneys' perception of the policy changes and their effects vary, both sides of the bar agree on motivation: business and public relations in the #MeToo era.

"Companies that have progressive approaches to not wanting to kibosh sexual harassment [cases], and ensure people aren't harassed, are on the forefront of doing away with these clauses or doing away with arbitrating them," said Robert F. Millman of Littler Mendelson PC.

"The #MeToo movement has forced a number of companies to back away from forced arbitration of sexual harassment claims, said James M. Finberg of Altshuler Berzon LLP. "This is a step in the right direction, since confidential forced arbitration gave cover to harassers and often resulted in them staying in the company and harassing others."

Michael Arias of Arias Sanguinetti Wang & Torrijos LLP

"If these claims are handled in public court proceedings, future victims might be saved," he added.

"I think anytime a company decides to use arbitration agreements, it's a business decision," commented Megan E. Walker of Fisher & Phillips LLP. "So, if they are carving out this one claim but otherwise keeping arbitration, they're not just looking at the desirability of the forum for them; they're looking at the bigger holistic decision of what is a good business decision for them."

Attorneys on both sides of labor and employment litigation also agree that, in practice, the policy change might present logistical challenges, such as what to do when a sexual harassment claim is paired with another complaint that is arbitrable. From there, opinions diverge: some believe a case by case approach can work, while others say it makes the gesture ineffective in practice.

"Unfortunately, it doesn't go far enough. Sexual harassment claims are frequently paired with gender discrimination claims, which these companies are not carving out," said Finberg.

"A company that objectifies women and treats them as sex objects instead of equals likely has pay equity issues..., but these companies are still requiring pay equity issues to be resolved in individual confidential arbitrations, which prevents employees from joining together and obtaining system change," Finberg added.

Emnily Burkhardt Vicente of Hunton Andrews Kurth

"If someone brings sexual harassment and discrimination charges, how do we handle it? Do we bifurcate those? Do we do one in the courts?" mused Sheeva J. Ghassemi-Vanni of Fenwick & West LLP. "It's going to get more murky and complicated from an administrative standpoint."

Ghassemi-Vanni said she has fielded concerns from clients about whether they should use arbitration at all, given the friction between public controversy over it and its benefits as a legal tool. She also raised the issue of arbitration agreements eroding over the bifurcation issue if companies take arbitrable claims to court just to keep everything in one forum.

However difficult it may be, Walker said that employers might want to look at bifurcation to maintain the integrity of their arbitration deals.

To Mike Arias of Arias Sanguinetti Wang & Torrijos LLP, those logistical difficulties just make the gesture emptier.

"These companies are trying to gain favor by looking like they are 'good companies' who understand the traumatic impact of sexual harassment," he said, "when in fact they are just taking advantage of the timeliness and public outrage sweeping the country. This is simply a marketing ploy purely done for business purposes."

Arias is also the president-elect of the Consumer Attorneys of California, which sponsored a bill that would have outlawed mandatory arbitration in claims under the Fair Employment and Housing Act, AB 3080.

Gov. Jerry Brown vetoed the bill, saying, "The direction from the Supreme Court since my earlier veto [in 2015] has been clear -- states must follow the Federal Arbitration Act and the Supreme Court's interpretation of the act."

A similar bill was introduced in Congress on Oct. 30, called the Restoring Justice for Workers Act.

According to Arias, the consumer attorneys group plans to reintroduce the state bill, which he said would codify the only real solution to this issue. Under incoming Gov. Gavin Newsom and a democratic supermajority, Arias is optimistic it will become law on the next go-round.

Robert F. Millman of Littler Mendelson PC

"While we applaud these companies' decision to save sexual harassment claims from the secret black hole of forced arbitration, we also recognize that the right to be free from sexual harassment is one of many important labor protections that California employees deserve," he said.

According to Emily Burkhardt Vicente of Hunton Andrews Kurth LLP, there is no one-size-fits-all approach for companies when deciding to apply arbitration, and bills like AB 3080 are not the solution.

If enacted, she said it would force companies to give up arbitration or face criminal charges until the law was challenged as preempted by federal law.

"Gov. Brown's recent vetoes of these legislative attempts to outlaw arbitration agreements rightly recognized that the laws would not be enforceable," she said. "But, with California ushering in a new governor shortly, it remains to be seen whether he will take as practical an approach, or whether the Legislature will be able to enact coercive prohibitions on arbitration agreements even if they ultimately have little hope of being upheld in the courts."

Regardless of the practice's future, the attorneys agreed the voluntary ending of mandatory arbitration is unlikely to spread beyond Silicon Valley for now.

"Many of the companies we have seen eliminate mandatory arbitration clauses recently are in the technology industry where claims of gender discrimination and harassment have been getting significant attention in the press," said Vicente. "Companies in other industries are watching the trend closely, but not rushing to make changes to their own policies or practices just yet."