(Bloomberg) -- The MeToo movement has cast a cloud over corporate America’s penchant for secrecy on sexual harassment complaints. Some companies are embracing sunshine as an antidote. Tech titans Microsoft Corp. and Uber Technologies Inc., and white-shoe law firms including Munger, Tolles & Olson and Orrick Herrington & Sutcliffe LLP, have done away with contract clauses that forced employees to air their complaints in closed-door arbitration rather than in public. The changes put the companies a step ahead of state and national lawmakers.
1. Why are companies renouncing arbitration?
Those that have taken the lead say they’re just trying to do the right thing. But they didn’t act until they were in the hot seat. Microsoft announced its new policy in December, days after disclosures from unsealed court files shed light on how the company struggled to handle sexual harassment and gender bias complaints. Munger Tolles & Olson, the venerable Los Angeles firm where Berkshire Hathaway Vice Chairman Charlie Munger is a partner, scrapped its arbitration requirement the same weekend a Harvard Law School lecturer tweeted photos of the contract language to call attention to how it would silence summer interns if they were harassed. Uber revised its terms of service for customers as well as employees in cases of alleged sexual misconduct after 14 women passengers suing the company over driver assaults and harassment sent an open letter to the company’s board saying arbitration “provides a dark alley for Uber to hide from the justice system, the media and public scrutiny.”
2. How does mandatory arbitration work?
It’s a dispute resolution process that over the last decade has been adopted by more than half of U.S. companies to settle worker grievances of all kinds as an alternative to litigating in court. Evidence is presented, and witnesses give their accounts just like in courthouse suits, but cases are decided by privately appointed arbitrators, who act as both judge and jury. Proceedings are conducted out of the public eye, and parties generally are required to keep outcomes secret.
3. What are its pros and cons?
Some studies have concluded that arbitration is speedier and less costly than trials. It also allows victims to maintain their privacy. Women’s rights attorney Gloria Allred, who has represented hundreds of harassment victims in private settlements, has said many of her clients appreciate confidentiality. Critics say that arbitration is stacked against workers. A 2015 study found employees prevail only about a third as often in mandatory arbitration as in federal courts, and when they do win damages, the typical payout is a fifth of what it is in those courts. Some women’s rights advocates contend that arbitration of harassment claims helps companies cover up employee misconduct. They point to a 41 percent drop in official sexual-harassment complaints to state and federal regulators from 1997 to 2017 as evidence that the resolution process has become more private.
4. What sparked the backlash against arbitration?
Allegations of sexual harassment by Hollywood producer Harvey Weinstein cast a spotlight on his use of nondisclosure agreements to buy the silence of some of his accusers. But a 2017 proposal in Congress to bar mandatory arbitration in sexual-harassment complaints was inspired by a case filed against Signet Jewelers alleging systemic abuse of hundreds of women who worked for the company’s retail chains. The complaint against the company was made in 2008, but the disclosure last year of hundreds of related documents ignited a scandal that forced the CEO to step down.
5. Will Wall Street firms also drop arbitration?
Don’t hold your breath. Financial companies were among the earliest to adopt mandatory arbitration. The secrecy of the process, combined with the use of non-disclosure agreements, has kept complaints in the industry largely out of the public eye for decades. No large financial institution has proposed doing away with arbitration.
6. Will arbitration be banned through federal law?
Democrat Kirsten Gillibrand and Republican Lindsay Graham introduced a bill in the Senate in December that would bar its use in sexual-harassment cases. The concept has the support of attorneys general in all 50 states, a rare display of solidarity. But the bill has yet to get a committee hearing. Meanwhile, the state of New York has banned mandatory arbitration and nondisclosure agreements in sexual harassment complaints, Washington state has barred the latter, and a related bill is advancing in the California legislature despite opposition by the Chamber of Commerce and other business groups.
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