WASHINGTON (Legal Newsline) – State attorneys general are united in championing a new cause – abolishing clauses that require sexual harassment claims to be heard in arbitration. But would it set a bad precedent for changing federal law while scoring political points for its supporters?

On Feb. 12, the National Association of Attorneys General asked Congress to outlaw mandatory arbitration clauses in workplace sexual harassment claims, allowing, the AGs say, victims to seek justice in open court instead of closed-door proceedings. A letter sent to House and Senate leadership bemoaned these “fine print” clauses that are included in some employment agreements.

NAAG president Derek Schmidt
NAAG president Derek Schmidt

Alan Kaplinsky, an attorney at Ballard Spahr, finds value in the arbitration process, though, and has defended its use – especially during a recent, failed attempt by the Consumer Financial Protection Bureau to strike these clauses from certain consumer contracts.

Opponents of that proposal, like Kaplinsky, called it a gift for trial lawyers who could recover more in lawsuits than in arbitration.

"(T)his could start a proverbial 'slippery slope' to trying to amend the Federal Arbitration Act whenever a social or political issue becomes inflamed," says Kaplinsky, whose bio says he pioneered the use of pre-dispute arbitrations.

"Right now, the issue is politically charged. It is politically correct to say you support an FAA amendment because if you oppose it, people say you’re supporting the harassers.

“That is not a principled basis for amending a federal statute that has stood the test of time for almost a century.”

Any resulting legislation needs to include an arbitration option, at least, for alleged victims who do not want to see their names in headlines while they pursue justice, he says. Excluding arbitration as a possibility could be a deterrent in those instances.

“While no one is denying the legitimacy of the ‘Me Too’ movement, employees are often given a contractual right to opt out of the arbitration clause within a certain time frame, and that is a better way to accommodate an individual’s desire to go or not go to court if a particular dispute arises, rather than piecemeal chipping away at the FAA itself,” Kaplinsky said.

The letter from the AGs of 50 states and six territories, including Washington, D.C., says there are no benefits to arbitration clauses for sexual harassment claimants. The “veil of secrecy” keeps other possible victims from pursuing relief, they say.

Last year, the Economic Policy Institute reported that more than 55 percent of workers are subject to mandatory arbitration, with large employers more likely to use these clauses. The letter from the AGs says Microsoft has decided to stop using mandatory arbitration clauses for sexual harassment claims.

“Arbitration” has been a hot topic in D.C. recently. When Congress and President Trump killed the CFPB’s effort to outlaw arbitration clauses and allow consumers to bring class action lawsuits against financial services companies, Democrats turned to the sexual harassment issue.

During a hearing on proposed legal reform, former Sen. Al Franken, prior to allegations of his own sexual misconduct, took a combative approach to questioning a member of the National Federation of Independent Business.

“Do you think that clause prevents victims from speaking out, and, in your view, is that a problem?” he asked Elizabeth Milito, senior executive counsel for the NFIB’s Small Business Legal Center.

Milito responded that she could not speak to forced employment contracts because she did not know how widespread they are among the small businesses represented by NFIB.

“I didn't ask you how widespread they were. I just want a ‘yes’ or ‘no’ to my question,” a clearly irritated Franken said. “Do you think those clauses -- that mandate secrecy and prevent victims from speaking out -- in your view, is that a problem?"

Milito said she thinks businesses should have the freedom to contract with their employees, or with their banks.

Her answer didn’t satisfy Franken, who asked the question again after referencing allegations at Fox News.

“The employee has the right to take it to his or her attorney... so I don't think they're necessarily a problem,” Milito said.

Franken seemed taken aback by her answer. “Really?” he responded.

The AGs, in their letter, say they support pending legislation that would allow victims to “have a right to their day in court.”

Attorneys general usually don’t reach a consensus like this when it comes to federal legislation. In fact, some of the same AGs who signed onto this letter also recently put their names on others addressing the CFPB's arbitration rule.

It was a group of Republican AGs that challenged the CFPB's stance that arbitration hurt consumers.

A letter from six months ago says the CFPB's proposed ban on mandatory arbitration was "likely to result in a de facto ban on an efficient and simple dispute resolution process for consumers, and fails to recognize that arbitration helps to prevent or reduce backlogs in state and federal court dockets."

The AGs signing onto that sentiment but also on the anti-arbitration-clause letter are West Virginia's Patrick Morrisey, South Carolina's Alan Wilson, Alabama's Steve Marshall, Michigan's Bill Schuette, Arkansas' Leslie Rutledge, Missouri's Josh Hawley, Georgia's Chris Carr, Montana's Tim Fox, Indiana's Curtis Hill, Nevada's Adam Laxalt, Kansas' Derek Schmidt, Oklahoma's Mike Hunter, Louisiana's Jeff Landry, Texas' Ken Paxton, Utah's Sean Reyes and Wisconsin's Brad Schimel.

Kaplinsky fears this latest move by AGs could start a trend in which the FAA is changed whenever a social or political issue gains steam.

“States have tried to carve out certain types of emotionally charged disputes from arbitration (e.g. nursing home disputes), but the U.S. Supreme Court has held they lack the authority to do that,” he said.

“While Congress, which enacted the FAA, does have the power to amend the statute, it should do so sparingly and only after it has had sufficient time to deliberate and debate the issue fully, since carving out a specific type of dispute from arbitration has the potential to harm many people and derogate the FAA itself.

“There is no carve-out for other torts or for racial harassment – where would you stop?”

From Legal Newsline: Reach editor John O’Brien at john.obrien@therecordinc.com.

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Consumer Financial Protection Bureau Microsoft Corporation National Federation of Independent Business

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