INSIGHT: Corporations, Congress Must Examine Arbitration and Racism

We are living in an electrifying time when many people throughout American society are calling for fundamental social changes in light of the horrific deaths of George Floyd, Ahmaud Arbery, Breonna Taylor, and others, tragedies which have shocked the national conscience.

Corporate America has rightfully joined the groundswell of public support for much-needed changes and justice. For example, Elon Musk, the CEO of Tesla, has tweeted his support, along with the hashtag #JusticeForGeorge. Well-known organizations like the NFL, Starbucks, Amazon, and many others, have also publicly condemned these recent deaths and vowed to address racial inequality. Legislators are considering new laws aimed at combating police violence, and we all need to address systemic racism in every aspect of American society.

Unfortunately, corporate America has to do more in examining its own practices. Although many companies have publicly condemned the killings of George Floyd and others and vow to do more, many companies are stubbornly clinging to a corporate practice that has helped conceal acts of discrimination for decades: forced arbitration.

Tesla, for example, uses an arbitration agreement for its workforce, whereby Tesla workers are not allowed to bring civil rights or discrimination claims (or any other claims) in our court system. Instead, Tesla workers must bring claims of discrimination to private arbitration, where workers have fewer procedural protections compared to public court proceedings.

More Difficult to Prove One’s Case in Arbitration

For example, in connection with lawsuits filed in court, workers suing for discrimination have broad discovery rights to interview managers or coworkers and demand files, emails, and other documents to help collect evidence. In stark contrast to court proceedings, workers forced to arbitrate often have very limited to no discovery rights to collect such evidence.

As a result, it can become harder to prove one’s case in arbitration without the availability of broad discovery and the collection of evidence.

Also, because employers draft arbitration clauses, employers sometimes include one-sided terms that tend to benefit the employer, like terms shortening the time frame for workers to file claims. Workers can also be asked to pay thousands in fees for the arbitrators and arbitration institutions that administer such proceedings, fees that do not exist for court proceedings.

In court, workers can band together to bring a class action challenging discriminatory policies of an employer. There is strength in numbers with a class action, and the costs of bringing such claims can be spread out over the class. However, in arbitration, a worker must bring an individual proceeding because class proceedings are generally not allowed.

Furthermore, the public does not have the right to access arbitration hearings; arbitration hearings are typically confidential. However, in court, filings and proceedings are open to the public. This public nature of court proceedings helps society and legislators become aware of acts of racism and other wrongdoing in the workplace so that further remedial, punitive, and preventive action can be taken. Compared to the use of judicial proceedings, arbitration likely helped cover up the true extent of discrimination in America’s workplaces.

80% of U.S. Largest Companies Use Arbitration for Workplace Disputes

A study I conducted found that 80% of America’s largest companies use arbitration for workplace disputes. The Supreme Court’s many pro-arbitration decisions have contributed to this expansive use of arbitration, and the court’s arbitration decisions in the employment context are deeply flawed.

The drafters of America’s arbitration law never intended for the law to be applied in the employment context, where there are disparities in bargaining power. Unfortunately, the court has grossly misconstrued and expanded America’s arbitration law, and the resulting widespread use of arbitration has helped conceal discrimination in America’s workplaces for decades.

Despite recent public statements from much of corporate America condemning racial injustice, many companies such as Starbucks, Amazon, many NFL teams, and several other organizations continue to require their workers to arbitrate claims of racial discrimination.

A recent shareholder proposal asks Tesla’s board of directors to evaluate the company’s continued use of arbitration. However, Tesla’s board opposes this modest proposal, claiming that such an evaluation is not necessary or worth the effort or resources. If America’s companies truly want to help address racial injustice, they should not prevent their own workers from bringing their claims of racism in our open court system, with its broad procedural and constitutional protections.

The U.S. is the only country in the world that allows for the broad use of arbitration clauses for virtually all types of claims. Congress also needs to examine how our civil justice system has contributed to past racial injustice, and Congress should ban pre-dispute arbitration agreements in the workplace.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Imre Szalai, a leading expert on arbitration, is the Judge John D. Wessel Distinguished Professor of Social Justice at Loyola University New Orleans. He participated as an amicus curiae in a discrimination case against Tesla where a worker was unjustly bound to arbitrate his claims.