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Arbitration clauses in employment contracts can hurt whistleblowers, others

A series of New York Times articles earlier this month brought increased public attention to a phenomenon that class action lawyers have been observing closely for many years and that is a concern for many whistleblowers: what has become known as forced arbitration.

Companies have inserted clauses in all manner of contracts — employment contracts, cell phone purchase agreements and credit card applications, to name just a few — that require consumers and employees to bring any disputes they may experience in the future before a private arbitrator instead of in court.

These clauses often prohibit consumers and employees from banding together as classes and instead force them to bring individual claims – an unlikely proposition in many contexts where an individual’s damages are quite small but where the company has profited from broad-based illegal conduct.

As the New York Times articles point out, courts across the country have been enforcing mandatory arbitration provisions, citing a liberal federal policy favoring arbitration. This has been true in some job retaliation cases that whistleblowers have brought.

Because many whistleblowers learn about fraud on the job, arbitration clauses written into their employment contracts may preclude them from pursuing employment claims in court. In fact, courts have kicked out several job retaliation cases brought by whistleblowers who were fired after they reported that their employers were engaged in what they believed were fraudulent practices. The whistleblowers were forced to arbitrate their retaliation claims. See, e.g., Morgan v. Sci. Applications Int’l Corp., 612 F. Supp. 2d 81 (D.D.C. 2009).

Many consumer and workers’ rights advocates believe this private system of justice is stacked against individual complainants. For one thing, companies, unlike individuals, are repeat players in arbitration, which causes concern that arbitrators are biased in the companies’ favor. Arbitration also often limits discovery of evidence, and offers limited to no appeals. Additionally, arbitration proceedings are not a matter of public record. This lack of transparency insulates companies from the negative publicity that lawsuits can generate, and undermines deterrence.

Given the important public interests at stake, whistleblowers who are fired for reporting fraud should be able to vindicate their rights in court, not before a private, unaccountable arbitrator.

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