- In light of a recent U.S. Supreme Court case, the 9th U.S. Circuit Court of Appeals reversed its previous stance and ruled that claims brought under the Employee Retirement Income Security Act (ERISA) can be subject to mandatory arbitration (Dorman v. The Charles Schwab Corporation, No. 18-15281 (9th Cir. Aug. 20, 2019)).
- Michael Dorman, a former Charles Schwab employee, filed a class action alleging that Schwab violated ERISA and breached its fiduciary duties by including Schwab-affiliated funds in its employee 401(k) plan. Schwab argued for mandatory arbitration of the claims, according to the terms of an arbitration provision in the plan.
- Although the 9th Circuit concluded in 1984 that ERISA claims could not be subject to mandatory arbitration, a 2013 U.S. Supreme Court case held that federal statutory claims are generally arbitrable, and that arbitrators can competently interpret and apply federal statutes. The 9th Circuit said that, in light of the Supreme Court's decision, its previous holding "is no longer good law," so it reversed and remanded a district court's order denying Schwab's motion to compel arbitration.
While many courts have concluded that arbitration is a fair, even-handed process, there is still a common perception that it's biased against employees — and that employees should not have to sign away rights to their "day in court." For this reason, the use of mandatory arbitration to settle employment disputes has come under fire lately, particularly when the claims involve discrimination, assault or harassment. Google workers, for example, staged a social media campaign against forced arbitration agreements in January. About a month later, Google eliminated the use of mandatory arbitration agreements for employees.
Mandatory arbitration provisions are not at all unusual, particularly in certain industries. However, sexual misconduct allegations have put pressure on companies to discontinue the practice. Big companies, such as Microsoft and Facebook, also stopped the use of mandatory arbitration for sexual harassment claims.
In February, Democratic lawmakers introduced the Forced Arbitration Injustice Repeal (FAIR) Act, which would nullify forced pre-dispute arbitration agreements. Following that, lawmakers brought the proposed Restoring Justice for Workers Act to the U.S. House of Representatives. That law, according to Rep. Bobby Scott (D-Va.), would overturn a U.S. Supreme Court decision that allows employers to require individual arbitration of disputes and have workers give up their rights to bring class or collective lawsuits.