CPR’s Employment Disputes Committee Assesses Federal Arbitration Act Trends and More

The CPR Institute’s Employment Disputes Committee hosted its own co-chairs for a conversation covering hot topics in workplace law earlier this fall.

Christopher C. Murray, a shareholder in the Indianapolis office of Ogletree Deakins and Bridget Lankford, an in-house counsel in Philadelphia at pharmaceutical giant GSK plc joined for The Current State of Employment Arbitration. 

During the Sept. 12 conversation, Murray shared the results of Ogletree’s March 2024 survey on the employers’ use of mandatory arbitration employment agreements.  Lankford added insights into GSK’s arbitration program.

 In addition to the 2024 Ogletree survey, the conversation included the benefits of mandatory employment arbitration agreements from the employer’s perspective; the agreements’ legal requirements, and how the law has been shaped by past and current caselaw.

 The roots of employment arbitration, Murray explained, are anchored in the Federal Arbitration Act of 1925. This statute made arbitration agreements enforceable on the same terms as contracts. In addition, it preempted state and local laws viewed as hostile to arbitration.  Murray highlighted two watershed cases that shaped the original FAA. In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the U.S. Supreme Court held that federal age discrimination cases could be arbitrated under the FAA.  And in Circuit City Stores Inc. v. Adams, 532U.S. 105 (2001), the Court ruled that transportation workers were exempt from arbitration under FAA Section 1. 

Although transportation workers are exempt from the FAA, Murray explained,  the courts are still working on defining exactly what constitutes a transportation worker. Many state courts and federal decisions have examined the definition, creating uncertainty on its breadth.  This becomes extremely critical because of state statutes like California’s AB 51, which prohibits employees or even job applicants from being forced to sign arbitration agreements.  AB 51 also establishes enhanced penalties and the possibility of criminal punishment. The FAA generally preempts such statutes, except with respect to transportation workers.

Generally, the mandatory employment arbitration agreements that most employers adopted were imposed as a condition of employment. They are generally implemented without individual negotiation.  This highlights a major criticism of these agreements, an imbalance of bargaining power, with employees being on the low power side of the equation.  

This imbalance has been highlighted in case law. Murray offered the example of Hooters of America v. Phillips, 173 F.3d 933 (4th Cir. 1999), as an example.  This case found that under the specific agreement at issue, the employer controlled the selection of arbitrators and could appeal awards and change rules, while the employee could not.  Additionally, the agreement placed limits on remedies, overrode fee-shifting statutes, limited discovery, and shortened the statute of limitations. The court found this agreement unenforceable.

 In 1995, a task force from diverse organizations was formed. It established the Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship.  Murray explained that adoption of such protocols by ADR administrators like the International Institute for Conflict Prevention and Resolution—CPR (which publishes this blog), the American Arbitration Association, and JAMS Inc., within their own requirements was an important marker to ensure that these standards would be adopted broadly and that administrators would refuse to administer employment arbitration programs that fail to provide these minimum standards. This protocol was influential with courts as well as administrators.   

A major due process protection provided by the protocol states that employees cannot be required to pay fees or costs that are unique to arbitration. Additionally, these standards give the following extra protections to employees subject to mandatory arbitration: 

• All substantive remedies are available.
• Employee participation in selection of arbitrator.
• The employee can conduct discovery.
• The employee has the right to representation.
• Hearing must be conducted near the employee’s location.
• Written, reasoned awards.

The exception to this protocol is if the arbitration agreement is individually negotiated and not part of a mandatory agreement.   

GSK’s Bridget Lankford said that the company started its mandatory arbitration program in August 2018.  All new hires must agree to the program as a condition of employment.  But those hired prior to the program’s commencement needed to take an affirmative action to opt-out. The program covers 12,000 U.S. employees. Since GSK implemented the program, it has survived challenges in federal court, according to Lankford.

 Courts have also developed unconscionability principles that further address the power imbalances of mandatory arbitration agreements. These principles mostly echo the due process protections standards established in the Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising Out of the Employment Relationship.  (See, e.g., discussion here.)

Murray also highlighted more recent challenges to employment arbitration. The two main areas of challenges were in sexual harassment and mass arbitration. He cited a 2017 op-ed by Gretchen Carlson on her claim of sexual harassment against Fox News, suggesting that arbitration laws needed to be reformed.  “Gretchen Carlson: How to Encourage More Women to Report Sexual Harassment,” N.Y. Times (Oct. 17, 2017) (available at https://bit.ly/48usJ85).

In the article, Carlson advocated for the Arbitration Fairness Act of 2017 that would have eliminated mandatory arbitration clauses in employment contracts and allow harassed workers to go to court. Some states, including Maryland, New Jersey, New York, Vermont and Washington adopted carve outs for sexual harassment but because the FAA didn’t provide similar carve outs, those state laws were preempted.  Logan v. Lithia Motors, et. al., No. 18-2-19068-1 SEA (Wash. 2019) and Latif v. Morgan Stanley & Co. LLC, No. 18 cv 11528 (2019) (available https://bit.ly/40wDsNc) are examples of the preemption of those state laws. The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, signed into law by President Joe Biden in March 2022, barred mandatory arbitration for workplace harassment claims.

The other area of challenge to employment arbitration law is mass arbitration, which is a response to class action waivers.  The panel discussed mass arbitration, which is a scenario where plaintiffs’ counsel files multiple similar, individual arbitration claims.  Under the various due process protocols, employers are responsible for paying for filing fees. 

In an example that Murray gave highlighting the impact of this, DoorDash Inc. was responsible for paying nearly $10 million in filing fees in one mass arbitration example at the start.  In California, employers are required to pay fees within 30 days, or the arbitration agreement is invalid.

The area of mandatory employment law is still being shaped by active cases.  Since the September program, a Ninth U.S. Circuit of Appeals ruling struck down Live Nation Entertainment’s mass arbitration program in the latest example. See “Live Nation-Ticketmaster’s Online Mass Arbitration Program Is Tossed by the Ninth Circuit,” CPR Speaks (Oct. 30) (available here). The Live Nation case is the subject of a request for an en banc rehearing earlier this week.

In the September program, Ogletree’s Murray offered some guidance on things that mandatory employment arbitration programs should include to be valid: 

• Must comply with due process standards.
• Must comply with state laws governing employment agreements–notice or consent; mutuality; and consideration.
• Cover all claims relating to employment with the company, including application for employment and termination of employment.
• Cover related claims against the parent or subsidiaries of employer.

After discussing the state of the statutory and caselaw on mandatory arbitration agreements, Murray shared the interesting results of Ogletree’s survey of its clients and their use of arbitration programs.  As a benchmark, he said a 2018 survey showed 54% of nonunion private sector employers use arbitration and 65% of companies with 1000+ employees use arbitration.  

In contrast to the benchmark, however, the 2024 Ogletree survey featured responses from 1,304 of its clients’ in-house counsel and senior human resources representatives. The results showed that 65% of those clients with less than 1,000 employees do not have an arbitration program. But 54% of those with more than 20,000 employees have an arbitration program. 

The survey’s finding by category was also interesting. In financial services, 51% had an arbitration program; 59% of hospitality companies had an arbitration program, and, in retail, 60% had an arbitration program. 

Ogletree’s 2024 survey supports the findings that employment arbitration programs are more common where companies have higher numbers of employees and in industries with higher turnover rates. Those companies and industries are most likely to see the benefits of arbitration compared to litigation. They are, according to Murray:

• Quicker and sometimes cheaper resolution of claims;
• Less stringent procedural rules;
• More flexibility in deadlines;
• No risk of unpredictable jury decision, and
• class action waivers.

Still, there are negatives associated.  Some of those are:

• No right of appeal.
• Possible increase of expense to employers (See Due Process Protocol discussed above).
• Few summary judgments to dismiss claims early on, more hearings.

GSK, since executing its arbitration program in 2018, has seen more benefits overall.  Bridget Lankford said that overall costs seem to go down with a multistep ADR program that includes mediation options prior to arbitration.  She attributes earlier resolution of some claims and lower values of settlement awards to those multi-step options.

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The author, a CPR 2024 Fall intern, is a candidate for a Master of Science degree in conflict management at Atlanta’s Kennesaw State University, School of Humanities.

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