Obama Administration Deals Blow to Mandatory Arbitration

Arbitration, an out-of-court form of dispute resolution, has rapidly become the go-to tool for employers attempting to avoid litigation for workplace legal disputes. Arbitration forces employees to waive their rights to bring legal action against their employers, and agree to be bound by the decision of, typically, a single arbitrator. These agreements are often presented to employees as a condition precedent for continued employment, leaving employees with no real bargaining power as to the terms of the agreement.

The rise of this form of dispute resolution has gone unfettered by both state and federal courts, despite the fact that the arbitration process is inherently favorable to employers. In fact, most courts express a favorable view of arbitration over the litigation process, extolling the “virtues” of resolving legal matters outside of the courtroom, while ignoring the plight of employees who have effectively been coerced into signing away their legal rights.

Things might be changing, however.

The Obama administration recently announced that the President is preparing to sign an executive order which would prohibit certain government contractors from requiring mandatory arbitration agreements with their employees. From the AP:

In a bid to allow potential victims to have their day in court, the president’s order will also prohibit companies pursuing government contracts from requiring their workers to agree upfront to mandatory arbitration, in which an intermediary hears both sides and then makes a binding decision. That provision, which applies to new contracts exceeding $1 million, will affect disputes brought under the anti-discrimination section of the Civil Rights Act or to accusations of sexual assault or harassment.

The Federal government currently contracts with over 24,000 private companies, who in turn employ over 28 million workers. That’s close to 20% of the American workforce. While the E.O. only applies to new contracts exceeding $1 million, the effect of President Obama’s mandate could be considerable, should it continue in force through subsequent presidencies.

This development represents a huge victory for American workers. Although the President’s order only currently affects government contractors, this could present a change in the tide about how the U.S. views arbitration agreements, and may invoke in some courts a desire to rethink their current opinion on the effects of arbitration for employees.

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