Over 60 million Americans have signed contracts with mandatory arbitration clauses, which prevent them from suing their employers over illegal treatment—many without realizing.
Photo by Aila Images via Stocksy
Last year, former Uber engineer Susan Fowler exposed the tech giant’s institutional cover-up of systemic sexual harassment and sexism in an essay that “brought Uber to its knees,” in the words of Recode. Her account—of being propositioned by a boss, then openly retaliated against—catalyzed a chain of events that would eventually result in the departure of Uber’s then-CEO, Travis Kalanick, as well as the firing of around 20 other employees who’d been accused of harassment.
But despite this, Fowler will never be able to take Uber to court for ignoring her reports of sexual harassment. Fowler is one of more than 60 million American workers shut out of court by a little-known legal loophole written into the fine print of her contract: a mandatory arbitration clause.
When Fowler was hired at Uber, she signed a stack of HR paperwork. Buried in the legal fine print of her employment contract lurked a “forced arbitration agreement,” a clause waiving employees’ constitutional right to sue their employers if they experience illegal treatment, like sexual harassment, at work. Instead, workers subject to forced arbitration agreements are legally obligated to settle cases with a third-party private arbitrator, in a shadowy process designed by employers and stacked against victims.
By routinely ignoring reports of sexual harassment, Uber clearly flouted federal civil rights law—but, because the company made all their employees sign forced arbitration agreements, none of the victims can take them to court. Many mandatory arbitration agreements, including Uber’s, also require employees to waive their right to participate in a class-action lawsuit.
Forced arbitration is on the rise. Today, more than half of nonunion private-sector workers are subject to a mandatory arbitration clause as a condition of their employment. And many employees might not even realize they’ve signed away their day in court. As Fowler told TechCrunch, “The language used in forced arbitration agreements is thick with legalese so heavy you need a law degree to understand what it all means.” Besides, workers hardly have a choice: A retail or restaurant worker who refuses to sign on the dotted line and waive their right to a trial might just lose their job instead.
Secretive arbitration proceedings and coercive NDAs literally prevent workers from saying #MeToo.
Private arbitration is usually a secretive process with extremely limited public oversight: Arbitration awards are virtually unreviewable by courts, and decisions are almost never published. Because companies choose which arbitrator hears the dispute, arbitrators have a powerful financial incentive to keep companies happy and keep the paychecks flowing—often at the expense of a worker denied overtime or harassed on the job.
Arbitration can work well for parties on an equal playing field. But the relationship between a worker and the multinational conglomerate they work for is far from equal. For instance, when Annette Phillips, a former waitress, sued the restaurant chain Hooters for ignoring her reports of sexual harassment, she argued that she was blindsided by the “wholly one-sided” process, in which the chain had almost total control over the members of an arbitration panel.
Making matters worse, employers get what economists call a “repeat-player advantage.” A big company—especially one with a systemic discrimination problem—is going to arbitrate a lot of cases, and their lawyers quickly learn how to make the system work for them. When those companies go up against an employee who’s probably never seen the inside of an arbitrator’s office before, they have a distinct advantage: Data shows that companies that go back to the same arbitrator are more likely to win.
Unsurprisingly, because mandatory arbitration is a process often designed by companies themselves, it puts workers at a massive disadvantage. A comprehensive study found by the Economic Policy Institute found that, on average, employees are less likely to win in arbitration than in court—and even when they do, the typical worker gets a mere 21 percent of the the damages they’d receive in federal court. For a worker who’s fired after reporting sexual harassment, that money could be the difference between keeping her home and being unable to make rent.
Worst of all, many companies—Uber included—require employees to sign non-disclosure agreements that serve as gag orders, silencing survivors with the threat of a lawsuit. The average worker simply can’t afford to take the risk of being sued by their employer if they speak out. Instead, they’re forced into silence about the handsy boss. That means that companies can secretly arbitrate dozens of allegations of misconduct, but victims of illegal treatment are forced into silence—so they, and the public, may never learn how systemic the problem is. Secretive arbitration proceedings and coercive NDAs literally prevent workers from saying #MeToo.
This week, under pressure from customers and employees alike, Uber announced that the company will no longer require riders or employees (including drivers) to arbitrate claims of sexual harassment. It’s progress, but it’s not enough: Mandatory arbitration covers up a host of workplace abuses beyond harassment.
Arbitration clauses can keep workers from bringing virtually any kind of legal claim, including those based on Title VII of the Civil Rights Act (which prohibits workplace discrimination, including sexual harassment), the Americans with Disabilities Act, and the Fair Labor Standards Act. Say a restaurant is paying servers less than minimum wage: A mandatory arbitration would bar them from going to court. Say you were demoted after taking maternity leave. That’s prohibited by the federal Family and Medical Leave Act — but if you’re subject to forced arbitration, you may be out of luck.
Last year, the Economic Policy Institute reported that mandatory arbitration is now so widespread, workers’ rights are more likely to be adjudicated in a black-box arbitration than in open court. Mandatory arbitration is officially an epidemic, enabling companies that underpay, exploit, and discriminate against workers to do so with relative impunity, and letting them legally sweep it under the rug. It’s the loophole most people have never heard of — but check your employment contract, because odds are it’s one that might affect you.