Why Companies Now Want Harassment Out in the Light

(Bloomberg) -- The #MeToo movement 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, Google, Facebook and Uber and some large law firms moved as early as 2018 to do away with contract clauses that forced employees to air their complaints in closed-door arbitration rather than in public. Movement in the financial sector has been slower, but Wells Fargo revised its policy in 2020 and Goldman Sachs grabbed Wall Street’s attention in June by agreeing to an investor’s proposal to look into how mandatory arbitration affects staff and the workplace. The changes have put the companies a step ahead of federal lawmakers.

1. Why are companies renouncing arbitration?

In many cases, it’s a response to being in the hot seat. Microsoft Corp. announced its new policy days after unsealed court files shed light on how it had 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, saying it would silence summer interns if they were harassed. Uber Technologies Inc. acted after 14 women passengers suing the company over driver assaults and harassment sent an open letter saying arbitration “provides a dark alley for Uber to hide from the justice system, the media and public scrutiny.” Google jumped on the bandwagon days after employees staged a 20,000-person walkout over allegations of sexual misconduct in the Alphabet Inc. unit’s upper echelons. Facebook Inc., EBay Inc. and Airbnb Inc. all quickly followed suit.

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 the outcome secret.

3. What are its pros and cons?

Some studies have concluded that arbitration is speedier and less costly than a trial. 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% 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 in 2017 of hundreds of related documents ignited a scandal that forced the CEO to step down.

5. Will the new company policies send employees racing to court?

Up to a point. The fine print in Uber’s policy permits workers to pursue individual lawsuits but excludes class actions on behalf of a larger group of employees. That limits the liability exposure the company faces. It also makes cases less attractive to plaintiff lawyers. For its part, Microsoft is allowing workers to file class-action suits for sexual harassment.

6. Will Wall Street firms also drop arbitration?

Until recently, the answer was: 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. Then in February 2020, Wells Fargo became the first of the largest U.S. banks to announce an end to the practice after it was targeted in a shareholder proposal drafted by a social justice activist group. Similar pressure led Goldman Sachs to budge. A proposal filed by the Nathan Cummings Foundation was narrowly defeated at the investment bank’s annual meeting in April -- despite being backed by former Fox News anchor Gretchen Carlson, an early figure in the #MeToo movement after her lawsuit against longtime Fox News chief Roger Ailes led to his ouster. But following the slim margin, executives at Goldman Sachs agreed in June to study the impact of mandatory arbitration on the workplace.

7. Will arbitration be banned through federal law?

Three Democrat-led states, New York, New Jersey and California, blazed an early path to restrict arbitration, but legal experts say those measures probably will succumb to ongoing court challenges by business groups because the Federal Arbitration Act preempts state laws. Federal statutes don’t face the same procedural hurdle; the bigger issue is whether a divided Congress has the political will to overhaul the employment grievance process. A 2017 bill to bar the use of arbitration in sexual-harassment cases failed to pass, despite being jointly sponsored by liberal Democrat Senator Kirsten Gillibrand and conservative Republican Lindsey Graham and having conceptual support from attorneys general in all 50 states. Attention is now focused on the Forced Arbitration Injustice Repeal Act, which would restore private enforcement of antitrust, civil rights, consumer and employment laws that a series of Supreme Court decisions has scaled back. While FAIR has bipartisan support, passage is far from assured because the measure is seen as vulnerable to a Senate filibuster.

The Reference Shelf

• A Bloomberg Businessweek guide, “How to Break an NDA, Confront a Colleague, and Other Office Tips.”
• The American Arbitration Association’s rules and procedures.
• A QuickTake on understanding what is and isn’t sexual harassment.
• How activists loosened Wall Street’s grip on forced arbitration.

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