Bill aims to rein in the dark side of forced arbitration

The practice of forced arbitration has taken root in this country. Since April 27, 2011, the day AT&T v. Concepcion was decided, arbitration agreements in employment and consumer contracts have become commonplace. The ability to quell class actions or keep sexual harassment allegations secret was too strong a motivator for many businesses to pass up. When it comes to rights verses dollars, the greenback always wins.

The landscape may be changing. There were rumblings in the past, but now the full force of the U.S. House of Representatives is coming for forced arbitration in the aptly named FAIR Act (Forced Arbitration Injustice Repeal Act, introduced by Rep. Hank Johnson (D-Ga.) and Sen. Richard Blumenthal ( D-Conn.)). Senate Majority Leader Mitch McConnell or President Donald Trump may never take up this cause, but the FAIR Act and other recent developments are changing the debate in interesting ways.

Shame is a powerful motivator. Social media can shine a spotlight on issues some people care deeply about. According to the American Association for Justice, More than 70 percent of consumers aren't aware of restrictions to their ability to file claims in court where forced arbitration appears in the fine print in standardized contracts. Close to 60 percent of likely voters oppose the use of forced arbitration.

Recently, activists have been using their voices to change behavior company by company. Over 20,000 Google employees walked off the job to end the practice of forced arbitration, and Google pulled its arbitration agreements in response.

According to Above the Law, several groups of law students at different schools protested the use of arbitration agreements at the white shoe law firms trying to court them. Munger Tolles & Olson LLP, Orrick, Herrington & Sutcliffe LLP and Skadden, Arps, Slate, Meagher & Flom LLP all caved to the students' demands and scuttled their arbitration agreements. Latham & Watkins LLP and Quinn Emanuel Urquhart & Sullivan, LLP, to their credit, have never required arbitration of their associates. Many second-tier firms and some first-tier firms still require arbitration, but the tide could be turning. If more and more budding lawyers are willing to stand together against arbitration, the practice will shrivel and die.

In fact, recently Law360 reported that employers are debating the wisdom of forced arbitration. Many of the defense lawyers interviewed seemed to indicate that the defense bar is finally acknowledging the serious cons to forced arbitration.

As a plaintiff's lawyer, I will admit that forced arbitration can have serious negative effects on a case, especially if the arbitration agreement is well-written and includes a class action waiver. However, that doesn't end the inquiry. In the employment space, where I practice, mass actions of small-dollar wage-and-hour claims may become the new normal. While the class action may not be viable in some cases, Private Attorneys General Act actions are, and individual arbitrations can be filed en masse.

With the cost of arbitration rising and the costs of legal services rising, the delta on the expenses of a class action and mass action presents an interesting dilemma for the defense. If one considers that an arbitration can run $50,000 plus legal fees for both sides if there is a fee mechanism, each forced arbitration can come with a significant expense for the defendant. If even 10 or more individual arbitrations are taken to an award, an employer could be looking at seven figures plus exposure just in administrative expenses, not considering potential damage awards. If there is a large workforce and many employees join up, the costs of arbitration to an employer can vastly outweigh the savings of a class action waiver, especially where the underlying liability is relatively modest.

Lastly, there is the #MeToo problem for arbitration. It is outrageous that a corporation can employ bad actors who commit heinous acts and then use a dispute resolution mechanism conducted behind closed doors under a veil of confidentiality. Courts are necessary to change society and hold corporations accountable. As such, consumers are driving changes by demanding that employees are not subject to this practice. Some companies like Facebook and Microsoft have carved sexual harassment claims out of their arbitral agreements.

Overall, the cost savings of forced arbitration are questionable depending on workforce and industry. With the proliferation of PAGA actions in California that are not subject to arbitration, employers have to ask themselves if there is a tangible benefit to using an arbitration agreement. Moreover, the public's perception of arbitration is unfavorable and awareness of the dark sides of arbitration is increasing. In 2021, if the Democrats' stars align, we could see FAIR becoming law, ending an almost 10-year black mark on the American justice system. Long live the 7th Amendment.