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Will the House Pass SB 645 and Allow Localities to Ask if Contractors Hide Discrimination and Sexual Abuse of Employees with Secret Forced Arbitration?

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by Leonard A. Bennett, Consumer Litigation Associates, P.C., Newport News; Member of the Boards of Public Justice; Hampton Roads Refugee Relief; Virginia Poverty Law Center; Partners Council of National Consumer Law Center

“Forced arbitration” is a corporate weapon used to compel secrecy, prevent a public trial and allow offenders that discriminate and predators who sexually abuse to remain undiscovered.  The employer or business typically includes a contract term that employees must sign or consumers must click through waiving their right to ever go to court.  Forced arbitration contracts limit a victim of sexual harassment or other workplace discrimination to a shadow system where she must make her case in secret to a private arbitrator hired by the company, under rules the company chooses. And once behind the secret veil of arbitration, she is often prevented by arbitration confidentiality requirements from talking about her claim to anyone, blunting the power that a public accusation might have to galvanize other women to come forward and expose a pattern of abuse within a workplace. Forced arbitration is an anti -#MeToo clause.

It is widely understood that “[t]he practice is particularly harmful to women and black employees”, as they are more likely to be subjected to arbitration agreements. Studies have established that employees are less likely to pursue discrimination cases in arbitration, and that when they do, they are less likely to win and their monetary awards far lower than they would be in court.” One report showed that in 30 years, only 17 women on Wall Street had won sexual harassment claims in industry arbitration. Forced arbitration “is one major reason that many valid sexual harassment cases, and other discrimination cases, never see the light of day — and repeat offenders are not held to account.”

Progressives oppose such shadow justice. Democratic presidential candidates, Biden, Sanders and Elizabeth Warren have all spoken loudly on this issue. And in last night’s CNN Town Hall, Bloomberg stated his opposition and offered that none of his companies are allowed to use such dangerous terms. Just this September, the House of Representatives passed the FAIR Act prohibiting forced arbitration, a Bill sponsored by all Seven of Virginia’s Democratic Representatives, and now frozen in the U.S. Senate. The Congressional Black Caucus has led the fight to ban forced arbitration. And the effort to ban forced arbitration is joined by the AFL-CIO, AFSCME, CWA, and other labor organizations.

It is against that backdrop that Virginia Senate Bill 645 was offered in Richmond by Senator Surovell. The bill does not ban forced arbitration. And it does not even condemn it. In a world of incremental changes, SB 645 merely attempts a modest course of allowing (not mandating) Virginia localities to ask their prospective contractors and vendors whether that business uses these secret forced arbitration contracts.

When deciding with whom one wants to do business, more information is better. “Is a prospective contractor an honest, reliable company? Does it have major problems with its work force?” “Has it been the subject of charges of racial discrimination, or sexual abuse?”  These and many other questions go to the heart of the selection decision.

But when a potential contracting partner uses forced arbitration, those questions are hard to answer, because disputes about racial or gender discrimination, wage theft, and workplace abuse are shunted into a closed-door system where the employer-selected arbitrator provides no written explanation for his decision, and (as with the now infamous “NDA”) is barred from ever revealing the secret arbitration.  As a result of this culture of secrecy, localities looking for contractors are left in the dark.  If a business is beset with hidden discrimination problems, for example, it would operate to the detriment of governments contracting with it. (There’s a wealth of evidence that businesses with widespread race and gender discrimination are not only treating their workers unfairly, but they’re also less efficient and effective as businesses.).

SB 645 would allow (but not require) Virginia localities to pull back the curtain and let in the light before signing on with a new contracting partner. The bill permits (but does not require) localities to seek disclosure by potential vendors of whether the vendor imposes forced arbitration on its  customers  or  employees, and to find out information like what the company’s arbitration clause covers and how often it recently has been invoked.

SB 645 passed the Senate on February 4, 2020. In the House the bill cleared Subcommittee 7-1 and was favorably reported by General Laws, 15-6, both on a bipartisan basis. Employee rights and consumer protection groups supported the bill.  The Virginia Association  of Counties    spoke in  support.  And the bill was read on the floor twice – one more before a final vote.

Now, this simple bill has caught someone’s attention.  Who favors such secrecy and opposes the right of localities to simply ask – do you use force arbitration to hide claims of discrimination, allegations of fraud or sexual abuse?  Change in Virginia can be slow.   Other states have imposed much more extensive requirements.   Even the Federal Government now obtains such information from defense contractors (and cannot hire them if they use such weapons), after a government contractor used forced arbitration to hide an employee’s rape.  So who is opposed to this reporting option?  Why keep such secrecy secret?[1]

SB 645 does not affect the use or enforcement of any arbitration clause. Companies can go on forcing their workers or customers out of courts and into arbitration—they just might have to disclose this practice if they want to win a Virginia local contract, just as they already must disclose other relevant aspects of their business operations. And SB 645 addresses what Virginia localities can do when they are acting as participants in the market—not as regulators. When acting as market participants, states and localities can do things that they might not be able to do when acting as regulators.[2]

SB 645 is an important step towards protecting Virginia local governments from the problems that the abuse of forced arbitration has created. Hopefully the House of Delegates – a body that this year has acted to protect racial and gender equality and employee rights, does not vote against these interests now.

[1] Some lobbyists have suggested that the SB 645 would somehow violate the Federal Arbitration Act.  If a lobbyist makes such claim to a legislator, that person should never be believed again.   The FAA simply tracks Virginia’s own arbitration statute and states that a forced arbitration clause may be enforced by the employer.  Nothing in this bill has anything to do with the FAA.   SB 645 does not affect the use or enforcement of any arbitration clause.

[2] See Hughes v. Alexandria Scrap Corp., 426 U.S. 794 (1976); Reeves, Inc. v. Stake, 447 U.S. 429 (1980); Building & Constr. Trades Council v. Associated Builders & Contractors, 507 U.S. 218, 226–27 (1993); Sprint Spectrum L.P. v. Mills, 283 F.3d 404, 417 (2d Cir.2002)