Should Harassment Claims Be Subject to Arbitration?

As employers add more arbitration programs in response to the Supreme Court's decision approving arbitration agreements that waive employees' right to join a class action, they face the question of whether arbitration of harassment claims is the best choice. Yes, say some employment law attorneys, who note that arbitration can be a good forum for harassment claims. But Noah Finkel, an attorney wtih Seyfarth Shaw and co-counsel for victorious Epic Systems in the Supreme Court decision, says no.

The Society for Human Resource Management (SHRM) supports alternative dispute resolution to resolve employment discrimination claims. As noted in the friend-of-the-court brief before the Supreme Court in New Prime Inc. v. Oliviera, many of SHRM members regularly rely on arbitration agreements in their contractual relationships. Arbitration allows them to resolve disputes promptly and efficiently while avoiding the costs associated with litigation.

Arbitration is speedy, fair, inexpensive and less adversarial than litigation in court, the brief observed. As such, numerous companies "have structured millions of contractual relationships--including large numbers of agreements with independent contractors--around the use of arbitration to resolve disputes." The brief called on the reversal of an appeals court decision announcing that the Federal Arbitration Act (FAA) does not apply to independent contractors in the transportation industry. This decision "cannot be squared with either the text or historical context of the FAA, and undermines an entire industry's reliance on the national policy favoring arbitration," it stated.

Arbitration's Advantages

Chris Scheithauer, an attorney with McDermott Will & Emery in Los Angeles and Orange County, Calif., recommended that employers write arbitration agreements as broadly as the law allows, and require the arbitration of sexual harassment and discrimination claims because of arbitration's advantages to employers and employees.

Arbitration costs less and is quicker than litigation, he said. Scheithauer has participated in some court cases that dragged on for months. With arbitration, decisions might be issued in weeks—a process that is "immensely sped up, which can benefit everybody."

The fact that the filings and testimony are not in the public record usually helps the employer lessen the public-relations impact of cases. But he said the lack of a public record also benefits the employee, who can keep claims private in arbitration.

Samia Kirmani, an attorney with Jackson Lewis in Boston, noted that employers pay arbitrators' fees in their entirety and sometimes pay employees' legal fees. She said there is a "fundamental misunderstanding about arbitration as a process." Unless an arbitrator expressly provides for complete confidentiality, the process is not more confidential than court proceedings. Litigants in arbitration otherwise are free to talk about the case.

That said, statements by employers and employees in court documents are protected speech; they can't be sued for defamation based on what they say in court, Scheithauer noted. Statements made to newspapers about arbitration are not similarly protected.

Sometimes employees ignore mandatory arbitration provisions and bring lawsuits in court. Even if they have mandatory arbitration across the board, employers sometimes may opt to defend themselves in court rather than move for the harassment claim to be arbitrated if employers want their defenses to be a part of the public record, he said.

Reasons for Exempting Harassment Claims from Arbitration

However, Finkel favors litigation of harassment claims. Arbitration can shield employers from class actions, but employees rarely band together as a large group to bring harassment claims, he observed. Plus, courts are more receptive than arbitrators to employers' defenses in harassment claims, and not requiring harassment claims to be settled through arbitration avoids #MeToo objections to arbitration programs, he noted.

Arbitrators often choose to ignore legal defenses that judges must consider in harassment claims, Finkel said. For example, an employer is generally liable for sexual harassment only if the company was negligent in dealing with the complaint or if the employee never complained to the employer, provided the employer had anti-harassment policies. In addition, to sustain a sexual harassment claim, the employee must show that the disputed action was because of sex. But an arbitrator may just look at whether the action is fair, Finkel noted.

Employers don't face juries except in a small percentage of sexual harassment claims but have full-blown factual hearings before arbitrators, he added. 

[SHRM members-only toolkit: Managing Equal Employment Opportunity]

Some companies, to promote their anti-harassment policies and demonstrate a commitment to be transparent about claims, don't require harassment claims to be brought through their arbitration programs, said Esra Hudson, an attorney with Manatt in Los Angeles.

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Quiz: Is It Sexual Harassment?

There is a common view that arbitration is a confidential process, and that harassment should be subject to public scrutiny so a victims' ability to work collectively to combat sexual harassment is not undermined, Hudson noted.

As many people prefer the privacy of arbitration, those individuals can always volunteer to handle their claim that way, she observed. Making arbitration of harassment claims voluntary rather than mandatory can avoid protecting repeat offenders, she noted.

Arbitration can make it much easier for employees to bring claims, since it's so much less expensive than litigation, noted Anthony Haller, an attorney with Blank Rome in Philadelphia.

Employers might make arbitration mandatory only for wage and hour claims in order to shield themselves from class actions, according to Finkel. Last year there were 20 times as many wage and hour collective actions in federal court as there were discrimination class actions, he noted. Some employers are excluding any form of discrimination claim, not just harassment claims, from mandatory arbitration programs, he observed.

"By far the main source of class actions is wage and hour claims," Finkel said.

Some employers, such as Uber, opted to exempt harassment claims from their mandatory arbitration programs even before the Supreme Court's decision.

In addition, a few states, such as New York, restrict the use of mandatory arbitration for sexual harassment claims, Kirmani noted. But the FAA probably pre-empts such state laws, she said.