Hacker News Reader

Comment by Afton | Hacker News Reader

There was a real suggestion buried in this piece. Ban mandatory arbitration. I'm most interested in knowing what HN thinks about that piece, since I have no informed opinion of working conditions on Wall Street.

Mandatory arbitration seems like a generally bad idea that employees should be protected from. Does anyone have a good argument counter?

View on HN

Mandatory arbitration reduces the cost of resolving disputes (i.e. lawyer's fees). There are many arbitrators available who are comparable to the courts in outcome, but much speedier, more predictable, and cheaper. In cases where the parties are interested in good low cost dispute resolution, they may be willing to choose one of these arbitrators to reduce uncertainty and transaction costs. In other cases, one party may pay the other extra to 'buy' biased arbitration, or a specific arbitrator (or set of rules) may be selected as a way of shifting risk from one party to another, much like buying insurance; I do not see why this should be disallowed.

There is also a signalling aspect to this, which we usually do not account for. By allowing the other party to select the arbitrator, you may be showing that you trust them; refusing their pick may be a sign of deeper issues.

The thing is, insurance is almost always meant to spread around risk from random events, such as a car accident, unexpected disease, act of nature, or in the most extreme case, an engineering or manufacturing mistake that causes a rocket to blow up. Except in cases of fraud, these situations arise randomly or due to systemic problems that can be quantified within the context of the insured parties. With arbitration, especially when mandated by an employer, the process is easily used to make possible behavior that the legal system would otherwise never allow, by people who fully intend to do so, just like when someone buys insurance with the intent of burning their own house down for the cash payout. Unlike the insurance company, however, the employee has no remaining legal recourse outside of a predetermined (and possibly biased) arbitration process just because it is in the contract.

If an employer is explicitly trying to minimize their risk and costs by mandating arbitration how can you ever trust them to pick an unbiased arbiter? If an agent is trying to maximize their outcomes by forcing arbitration, why would they then chose any arbiter that isn't more likely to side with them?

You can argue that allowing arbitration is a trust signal, but at the same time it can send a signal that the employer is planning on, or at least thinks it a possibility, that they will violate some terms of the contract, whether those terms are explicit or implicit (i.e. due to legislation or court precedent). The problem is that the information assymetry between an employer and employee is so vast such that arbitration is a tool easily used to further exploit workers.

>"The thing is, insurance is almost always meant to spread around risk from random events..."

Health 'insurance' covers many predictable issues, such as eye glasses and continuing care issues, but I will grant you that insurance is generally best used to hedge against risk. A number of national US insurance providers offer policies which cover employee suits, so it must be a large, insurable market.[1]

>"If an employer is explicitly trying to minimize their risk and costs by mandating arbitration how can you ever trust them to pick an unbiased arbiter? If an agent is trying to maximize their outcomes by forcing arbitration, why would they then chose any arbiter that isn't more likely to side with them?"

There are many kinds of risk which one might try to minimize; one of these risks might be that of a long, drawn-out civil jury trial which can take a long time to be seen, and have a completely unpredictable outcome. Having an arbitrator decide against you for a reasonable sum might be preferable to devoting time and resources to a trial and investor relations disaster over many years (even if the verdict is in your favor). In addition, having a defined process from the outset may help the damaged party get their issue resolved quickly and easily; as a long civil suit can be ruinous to an individual (even if they win). In short, real people are not risk-tolerant robots.

[1] https://www.nationwide.com/employment-practices-liability-in...

Ah, perhaps I should have been more specific.

Having mandatory arbitration be a part of an employment contract seems like it is something that should be disallowed as part of employee protections. Or perhaps disallowing the choice of arbitrator by the employer would be sufficient.

I don't care (I don't think) if two companies agree to mandatory arbitration as part of their business dealings, in part because it seems more like a meeting of equals. But for vastly unequal negotiations (renters would also be a likely culprit) it seems like a 'works in theory, but not in practice'.

I know that in Canada, mandatory arbitration for consumers was disallowed recently in BC. Note that I'm not a lawyer or in the know, this is just a google search result: http://www.duhaimelaw.com/2011/03/18/supreme-court-of-canada...

By disallowing mandatory arbitration, you are essentially putting a substantial risk premium on the deal (and undiversified entities will probably have to buy insurance for it). This extra cost is likely to be reflected in reduced demand (i.e. less hiring) or reduced price (or salary); I am not sure this is a desirable policy.

In any case, isn't this whole problem caused by an ineffective, slow, costly, and unpredictable legal system? Would it not be better to fix the courts, so that people actually wanted to use them?

http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?ar...

"Estimates of employee win rates and damage award amounts based on the AAA-CC filings data indicate that arbitration outcomes are generally less favorable to employees than those from employment litigation."

"These results suggest that, while a substantial minority of employees use self-representation, in the large majority of instances employees are retaining counsel to represent them in employment arbitration. The cases in which employees do have representation by counsel are on average those in which they have a greater chance of success and recover larger damage awards. Thus employment arbitration appears to be a dispute resolution system predominantly based on employee representation by counsel, as is the case with litigation."

So the takeaways here are the arbitration is worse for employees than litigation, and that employees usually need a lawyer for the arbitration process. The study notes that more research is needed, but it's far from clear than arbitration is a good idea for larger complaints, much less as the only option available.

I would love to see some citation that shows businesses without mandatory arbitration clauses have to buy insurance or otherwise have to offer lower wages. This sounds very similar to other unsubstantiated but oft-repeated arguments about unionization, torts, consumer protection laws, etc.

I don't disagree with you about the legal system, but how exactly will the court system become reformed through disuse?

There are also papers which support the notion that arbitration is more favorable to the complainant.[1] We can all cherry-pick documents that support our prior beliefs, but if neither side can convince the other, as is the case here, I think it is more fair to say that the evidence is unclear.

Nobody has to buy insurance against employee claims, but many of the largest insurers offer it, which suggests that this is a common issue.[2]

[1] http://repository.law.umich.edu/cgi/viewcontent.cgi?article=...

[2] https://www.nationwide.com/employment-practices-liability-in...

The paper that you cited doesn't contradict anything I said or support what you're saying:

"...even the more refined recent studies show that lower-paid employees still had quite respectable success rates in arbitration, ranging from about 21% to almost 40%. That compares very favorably with the 23% win rate of union-represented employees that I found in one of the oldest and most respected labor arbitration systems in the country."

The author is comparing arbitration and arbitration, not arbitration and courts. Is there any place in the article where he addresses the research in the other paper, or is he just saying "it's not that bad."

Also, I'm not sure what the existence of insurance against employee claims has to do with the claim that wages would be lowered? Do you have any evidence for a connection other than inductive reasoning?

>"Experienced plaintiffs' attorneys have estimated that only about 5% of the individuals with an employment claim who seek help from the private bar are able to obtain counsel."

>"One study concluded that litigation is not a plausible option for employees below around the $60,000 income level, but arbitration is a realistic alternative"

>" The American Arbitration Association in one study found a winning rate of 63% for arbitral claimants. 41 In a much-criticized system operated by the securities industry, employees still prevailed 55% of the time, according to the U.S. General Accounting Office." By contrast, plaintiffs' success rates in separate surveys of federal court and EEOC trials were only 14.9% and 16.8%, respectively."

Did you read any of the paper at all?

...uh, still comparing apples to oranges, I see, and the American Arbitration Association hasn't published their full dataset, but according to their internal study that contradicts external studies, it's great? Here's a paper that digs into this a bit more:

http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?ar...

So if people don't have access to legal representation below a certain income level, the solution is not to increase accessibility to courts or to allow them to represent themselves in court, but instead to set up binding arbitration where they also have no representation? Do you feel that in abstraction, a neutral observer would reach that conclusion?

So why should arbitration be mandatory rather than voluntary? If you both want to take arbitration at the time of dispute it can be done. This just sounds like the employer using a time of goodwill where its difficult to argue (signing an employment contract) to get an employee to 'agree' to sign away what should be a fundamental right to a fair hearing

I never said arbitration should be mandatory. I am merely making the case for why it is a useful term of a contract, much like a late fee, performance bonus, or M&M color requirement.[1] You are also assuming that the arbitration will be unfair, which may or may not be the case; I have seen evidence on both sides, and there are many arbitrators who reach decisions more favorable to plaintiffs than the courts do, but at much lower transaction costs. Transaction costs often dominate employer-employee disputes.

[1] http://www.snopes.com/music/artists/vanhalen.asp

While reducing costs is a valid concern for both parties, particularly the employer, I wonder if there is a better approach than binding arbitration with the arbiter selected by the employer, which has serious conflict-of-interest concerns?

I would suggest fixing the legal system, so that dispute resolution through the courts was timely, lower-cost, and more predictable. Trial lawyers will probably oppose any changes to their rent-gathering system, but this seems to be the first-best choice.

That's not going to happen. The trend has been towards increased enforceability of arbitration in employment contracts.

I don't think people should be allowed to waive their rights to civil claims when there's a public policy implication to the claims (discrimination of all sorts, where the suit serves not just to remedy a specific harm but to deter it in the future, would be a canonical example) --- but SCOTUS has decided that people can.

I came here to say this. Never touch a job, contract, anything that takes away your right to avail yourself of the legal system. There are quite a few "Christian" organizations (in particular, rehabs) that require "biblical" arbitration. While the discussion around this is usually limited to "lol conservatives are scared of sharia law and then this???", the real issue is that arbitration clauses, whether they're founded in corporate culture or bibilical law, always hurt the person who gave up their legal rights.

Perhaps the corporate U4 agreements are more honest, as their purpose is simply to save the employer the cost of arbitration, but they're every bit as scary.

Don't sign away your rights!

They always hurt the person who gave up their rights?

I'd argue that 99.9% of the time, they don't. How often do people want to sue their employer, anyway?

I've worked at two big-name companies, and I think they both had arbitration classes. I don't remember for sure. Never mattered.

It is always either neutral or negative is probably what OP meant here. I.e. it is never in your interests to have such a clause.

In theory, you could use that clause as leverage for a better salary or benefits or other positive outcomes, but in practice I doubt that there are any cases of employment contracts where you give up this right for anything other than 'the right to sign the employment contract'.

It's often very positive because by signing the contract, you get a potentially desirable job.

I agree that these sorts of clauses should be banned, but "never sign a mandatory arbitration clause" is overly simplistic advice.

I feel as though being a stickler for your contract rights places you in a bit stronger negotiating position, if only on a purely psychological level.

Rights still matter even if you don't exercise them. The presence of those rights can make your employer act better than they would have just because of the increased chance of being sued by some employee. Even if you would have tolerated larger violations of your rights than your fellow coworkers, the least tolerant coworkers protect the rest because they will take action against smaller violations.

Unless one thinks small violations of workers' rights can make themself worse off than larger violations, they benefit from protecting their class rights for the collective effect.

I don't think you understood my point. I don't think mandatory arbitration clauses are ideal, and I wish they were banned. That's what you're arguing here and I agree with you

The point is that it's overly simplistic advice to say never to sign such a thing, when there are potentially huge upsides (getting a high-paying job that treats nearly all employees well).

This is like asking "Why do the police matter? I've never been the victim of a crime!".

The police are protecting you because they offer a deterrent to crime, and the civil law protects by providing a deterrent to your employer fucking you over. Signing away your right to sue your employer when they give you the shaft is just as stupid as signing away your right to call the police when someone steals your car.

Aren't you always able to sue? Even if you sign a contract saying that you consent to internal arbitration? You can always sue.

No, you can't. That's what the "mandatory int "mandatory arbitration" means. Those contracts are binding, even in discrimination claims.

You can always attempt to sue. As in, there is nothing stopping you from serving the papers to a court to initiate the process. However, it would be a pretty clear-cut dismissal motion if a mandatory arbitration clause in in place. And you'd probably piss off the judge for wasting their time to boot.

Nope. Not if you sign one of these.

You have to be a bit careful with things like this. There is an implicit assumption that this is a pure one way play. In other words that there is no recompense for waiving the right to court arbitration.

Now, I don't happen to know the ins and outs of the pre-crash Bear contracts for traders, but from my experience of similar contracts in similar institutions, I tended to get amply compensated for the various things I waived my rights to.

There are cases, mine included, where both parties signed a contract with full knowledge and were able to walk away if they were unhappy. I'm going to guess that, as much as we all regularly feel sorry for the plight of investment bankers, this was likely true in this case too.

That's not to say I have any issue with employee protection in general. It's hugely important. But there are most definitely cases where the relationship is not necessarily one sided.

Reply on news.ycombinator.com