On May 21, 2018, the U.S. Supreme Court handed down a decision in a trio of cases that was largely judged as a blow to employees’ rights. The central issue was if employers could include class-action waivers in arbitration clauses in employment agreements, and whether class action waivers were enforceable under the Federal Arbitration Action and not barred by the National Labor Relations Act. In a 5-4 decision, the Supreme Court said, in a word, “Yes”. For reference, approximately 40 percent of employees in the U.S. are covered by binding arbitration agreements and 80 of the 100 biggest employers in the U.S. require it.
The headlines on May 21 and afterward largely focused on the U.S. Supreme Court decision as a win of employers over employees. However, once you scratch the surface, the outcome is not quite that black and white; it is more nuanced.
What’s the Problem With Binding Arbitration?
In the closing months of 2017, a chorus of women’s voices was raised in the #MeToo movement. Time Magazine’s 2017 Person of the Year was these Silence Breakers. As a breadwinner Mom, I knew that both times I fought to be paid equitably, raising my voice was not without economic risk. Every time I raised my voice, I was weighing the economic cost of what I might see in a performance review after speaking up, or how my pay might be impacted. Research proves that my fears were not unfounded. Women are penalized for speaking up. In the case of the Supreme Court decision, women who experience discrimination would be disincentivized from doing so.
As an example, in one of the May 21 cases, an employee would need to spend $200,000 to recover $1,867.02 of overtime pay. If that employee can’t band together with other employees with similar claims, the cost of speaking up is likely not worth it. Nevermind that the employee would be less likely to win, particularly if their employer had used the arbitrator before. Additionally, cases settled by arbitration are confidential leading to further inconsistent results and, in the eyes of the law, lack of legal precedent. And remember, you don’t have to sign a binding arbitration agreement to be bound by it. It is possible to enter into a binding arbitration agreement without even knowing it.
When Employees Lose, Companies Suffer
Here’s why the decision was not good for companies: Silencing women is not good for business. Women are 46 percent of the labor base and 57 percent of all college graduates. Companies cannot win if they silence half — or even a third — of their talent pools.
When we view binding arbitration through the lens of gender inequity, binding arbitration can be inferred as silencing women’s voices, stifling women’s ambitions and therefore constricting the economy. Gender inequity can be hidden through binding arbitration, and at a time when there are more jobs open than people to fill them and an impending human capital shortage, stifling women’s ambitions is not something companies afford.
Compounding the issue is the migration of women within companies. Many companies are observing the migration of women to more female-dominated roles. It is plausible that women are making the decision to migrate in order to shield themselves from potential workplaces issues, particularly issues that are not easily resolved with the legal restrictions they face in the workplace.
If a workplace legal claim were to arise, employees subjected to binding arbitration agreements may well be choosing between their personal safety and economic security. That choice, or even the possibility of that choice, can hinder worker productivity. Why? Psychological safety. It is key to team efficacy. When employees feel muted and stifled, it is difficult for them to feel secure and their performance is impacted.
Push Congress to Act
When viewed through an economic lens, the decision on May 21 was not a win for employers any more than it was for employees. When the 116th Congress convenes on January 3, 2019, get ready to lobby Congress to end the use of binding arbitration in employment agreements. Let’s push the most diverse Congress in U.S. history to remove the lead from the glass ceiling and open the doors of opportunity for all.
And employers, it’s your turn to step up.
Some have started and there’s more work to do. Between the oral arguments in the Supreme Court case and the decision, Microsoft became the first Fortune 100 company to remove binding arbitration clauses in employment agreements. Less than a year later, Google and Facebook followed suit after the Google Walkout on November 1, 2018.
Bottom line: When businesses protect their employees’ legal rights, they benefit financially (as do employees) positively impacting the economy as a whole.