Mandatory arbitration clauses have become pervasive and though arbitration, as a process, is derided for its opaqueness and lack of transparency, the use of mandatory arbitration continues to proliferate. According to the Economic Policy Institute’s Study, “The Growing Use of Mandatory Arbitration”, approximately 60 million U.S. employees are subject to mandatory arbitration provisions and more than half, 53.9 percent, of non-union employers have mandatory arbitration procedures.

According to the Employee Rights Advocacy Institute’s study, “The Widespread Use of Workplace Arbitration Among American’s Top 100 Companies”, since 2010, 80 percent of the top Fortune 100 companies used arbitration as a mechanism to resolve workplace-related disputes.

Given its prevalence in the workplace, mandatory arbitration is an issue that is gaining federal legislative scrutiny. Last year, the House passed the Forced Arbitration Injustice Repeal (“FAIR”) Act, H.R. 1423, which prohibits pre-dispute arbitration agreements that force the arbitration of future disputes related to employment, consumer, antitrust, or civil rights matters as well as those that prevent individuals from participating in joint or class actions related to disputes on those same types of matters.  The horizon for final passage is open to debate. However, the fact that there is legislative attention is an indicator that this issue can, and will, no longer be ignored.

Diversity’s Impact on Arbitration

Rarely discussed and often overlooked is the impact of diversity and inclusion on the dialogue regarding arbitration, particularly the impact of #MeToo and the rising call for diverse neutrals.

#MeToo’s Role in the Arbitration Debate

#MeToo created a momentum that is altering the business landscape, from workplace protocols to corporate governance and culture. Though virtually every industry has been impacted to some degree by #MeToo, within the context of arbitration, the technology industry has been at the forefront of addressing the issue.

In 2017, Microsoft led the pack when it announced that sexual harassment claims would be exempt from mandatory arbitration. Subsequently, Uber, in the wake of an Open Letter to the Board of Directors from fourteen (14) women alleging sexual assault and harassment from drivers, adopted a carve-out for sexual assault from arbitration. Lyft and Facebook soon followed, indicating that employees were no longer required to settle sexual harassment claims privately through arbitration. Google, after a mass protest in which employees demanded an end to forced arbitration, ultimately announced that it, too, would end mandatory arbitration for sexual harassment and sexual assault claims. Important to note that those excluded from Google’s new policy are temporary workers, contract employees, and vendors (TCV’s), which combined, comprise approximately 54 percent of Google’s workforce.

Finally, following its predecessors, Airbnb, instituted a similar policy; however, in doing so, Airbnb expanded its reach to include discrimination, in addition to sexual harassment, claims. Similar to Google’s policy, however, it is restricted exclusively to employees, and therefore, in Airbnb’s case, excludes guests and hosts who are still subject to arbitration.

Jay-Z: Elevating the ADR Dialogue

#MeToo was a catalyst for change in mandatory arbitration; Jay-Z, the hip-hop mogul, became an unlikely advocate by bringing the issue of the lack of diverse arbitrators to the forefront. The issue arose in connection with a trademark infringement dispute subsequent to the sale of Jay-Z’s clothing line, Rocawear, to Iconix Brand Group. Jay-Z’s legal team moved to stay the arbitration proceeding, citing a lack of available African-American arbitrators. Specifically, only three African-American arbitrators were presented, one of whom had a conflict. The petition to stay arbitration noted, “The blatant failure of the American Arbitration Association to ensure a diverse slate of arbitrators is particularly shocking given the prevalence of mandatory arbitration provisions in commercial contracts across all industries.”

The timing of the dialogue came on the heels of the American Bar Association’s (ABA) adoption of Resolution 105 in 2018. Designed to increase diversity in dispute resolution, the Resolution “urges providers of domestic and international dispute resolution to expand their rosters with minorities, women, persons with disabilities, and persons of differing sexual orientations and gender identities (diverse neutrals) and to encourage the selection of diverse neutrals.”

Notwithstanding the ABA Resolution, among arbitration service providers, panel diversity continues to lag. Women compose 28 percent of the roster of arbitrators for JAMS and 17 percent for the International Institute for Conflict Prevention and Resolution’s (CPR), while the American Arbitration Association’s (AAA) roster consists of 25 percent women and minorities combined. In addition, being included on the roster does not necessarily guarantee selection as a neutral, an issue with which arbitration service providers continue to grapple.

Arbitration providers, however, are taking steps to address the problem. CPR now includes a diversity and inclusion statement in its neutrals nomination letter that not only urges the parties to consider the benefits of a diverse panel but to consider the potential impact of implicit bias during the selection process. CPR has also launched a National Task Force on Diversity in ADR whose mission is “to devise practical strategies to increase the participation and inclusion of women, minorities and other diverse individuals in mediation, arbitration, and other dispute prevention and resolution processes.” Similarly, JAMS became the first provider to add an inclusion rider as well as appoint a Diversity Program Manager. These steps reflect an acknowledgment that diversity’s role in the arbitration process has been underappreciated and marginalized. Equity, to the parties and the process, as well as sound, thoughtful decision making, however, demand that diversity becomes an integral, rather than collateral, part of the arbitration process.

Reprinted with permission from the January 10, 2020 issue of The Legal Intelligencer. © 2020 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

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