What’s with Mandatory Arbitration Agreements These Days?

What’s with Mandatory Arbitration Agreements These Days?

by Paul H. Derrick

“Journey with me now back to the salad days of mandatory arbitration agreements…” Can’t you almost hear Rod Serling opening an episode of The Outer Limits with that line? Okay, maybe that’s a stretch.

There was a time not all that long ago, however, when many employers saw mandatory arbitration agreements as the greatest thing since right-to-work laws. As long as they met specific basic criteria, the agreements could prevent lawsuits (and the unwanted media attention that often follows), shut down class actions, impose gag orders on the parties, and maybe even get a semi-palatable “split the baby” decision in a case where getting clobbered by a judge or jury was a real possibility. But, as Bob Dylan once noted, the times they are a-changin’.

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 was signed into law on March 3 by President Biden. The law allows victims of sexual assault or sexual harassment to litigate their claims in court, even if they already signed an agreement requiring arbitration of such cases. However, any claims already pending before an arbitrator will not be affected.

But even before this latest development, cracks had begun to appear in the armor of mandatory arbitration agreements. In the last decade alone, the U.S. Supreme Court and a bevy of federal courts, state courts, and administrative agencies have reshaped and, in some cases, gradually eroded how employers can draft and use arbitration agreements. For example, the federal appeals court in New Orleans determined that a whistleblower subject to a mandatory arbitration agreement could be forced to arbitrate his bribery claims against the employer but could not force the government official who allegedly accepted the bribes into arbitration, even though the claims arose from the same transactions.

Other appeals courts also have determined that unless the arbitration agreement’s language “clearly and unmistakably” states that it is up to the arbitrator to decide whether a particular claim can even be arbitrated in the first place, then it is up to a court to make that decision. That case was particularly galling to many employers because the Federal Arbitration Act appears to mandate that any such questions are to be resolved in favor of letting the arbitrator decide the question.

Predictably, decisions such as these have left many employers wondering whether mandatory arbitration agreements are worth having. To further confuse things, the National Labor Relations Board, whose traditional role was to oversee the interplay between employers and unions, has spread its wings into the realm of arbitration agreements. The NLRB recently announced that it is considering adopting a new legal standard for whether gag orders in mandatory arbitration agreements are unlawful because they might interfere with workers’ rights to discuss wages, hours, and other terms and conditions of employment. Also, the Board has asked for public input on whether mandatory arbitration policies should be banned if they limit the right of employees to file unfair labor practice charges with the NLRB or otherwise access the Board’s processes. These initiatives and others could allow the NLRB to least make mandatory arbitration contracts more worker-friendly than some currently are.

So, what do employers need to know about mandatory arbitration agreements in light of this shifting landscape? Well, since you asked, several takeaways stand out:

1. There is no reason to overreact. The sky is not falling, despite some naysayers’ claims to the contrary;
2. Even with the recent enactment of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, arbitration agreements will still work for many other types of employment claims. This includes claims of sex discrimination that don’t involve unwanted sexual advances, physical contact, comments, or quid pro quo They should be revised, however, to remove references to sexual harassment and sexual assault claims;
3. Although President Biden has signaled that his administration will enact even broader forced arbitration legislation to address cases involving wage theft, racial discrimination, and unfair labor practices, that has not yet come to pass. For now, a carefully-drafted arbitration policy should be enforceable as to such claims;
4. Determine whether there are any types of claims you prefer to be heard by a court rather than by an arbitrator. For instance, if you need to seek an immediate injunction against a current or former employee in connection with certain types of disputes, a court may be the better forum in which to handle such claims. Other types of claims also may be better suited for resolution by a court than by an arbitrator; and
5. Regardless of what your mandatory agreement may look like, now is the time to review it to comply with the current state of the law and ensure that it covers all claims you want to be covered. It is essential to ensure that the agreement clearly provides that any disputes about whether a particular claim is arbitrable in the first place are to be decided by the arbitrator rather than by a court.

If you have questions about arbitration agreements or employment law, please contact one of the employment attorneys at Barnwell Whaley.