The US Supreme Court ruling on Monday upholding employers’ right to include arbitration agreements and class action waivers in employees’ work contracts is being celebrated by business associations and employer-side attorneys as a major victory, mitigating the risk of expensive litigation over labor disputes that may arise from honest mistakes rather than deliberate malfeasance. Advocates of arbitration say it is faster and cheaper than a courtroom trial and that the confidentiality of arbitration is a benefit to both employees and employers (though critics, of course, disagree on all of these points).
What individual arbitration does not protect organizations from, however, is reputational risk. We’ve seen this in the public blowback against companies whose arbitration policies are interpreted as them trying to hide ongoing discriminatory behavior. Within the past six months, companies like Microsoft, Uber, and Lyft have abandoned forced arbitration of harassment cases to guard against this risk. The public relations downside to handling these matters quietly may be growing to outweigh the upside in terms of cost and legal risk.
Additionally, leveraging individual arbitration may not prevent employees from taking matters into their own hands and bringing patterns of bad behavior to light in forums that are beyond the organization’s control. For example, just look at the recent Vox-ProPublica article on allegations of age discrimination at IBM, or Wells Fargo’s fake-accounts scandal in 2016, or Fox News’ sexual harassment scandal late last year. Employees have found ways of reporting their collective experiences, even when individually bound by arbitration and non-disclosure agreements and class-action waivers.
This is particularly true of employees who have left the organization, like former Uber engineer Susan Fowler, who helped launch the #MeToo movement with a blog post about her experience there last year. Employees are also taking charge of unearthing unethical behavior while still working at the organization, however, as Nike found out recently when female employees conducted and released the findings of a harassment survey, surprising executive leadership with the results.
In weighing what Monday’s ruling means for them, therefore, organizations should consider not only how they will manage future contract disputes (in collaboration with their legal teams), but also how to proactively manage these risks. Employers that rely on individual arbitration and class-action waivers must consider what impact these choices will have on their reputations, both publicly and within their talent community. Just because employees are constrained from filing class-action lawsuits doesn’t mean they have no means of exposing bad behavior among their leaders—and the impact on the organization of that kind of exposure can be just as bad as a lawsuit, if not even worse.