Don’t overreach with arbitration agreements

We’ve already seen Disney’s mistake when it tried to muscle a grieving family into arbitration. Disney backed down. Uber—which, like a lot of companies these days, requires service providers to sign arbitration agreements—did not and was slapped back by a federal trial court.

Uber doesn’t get a lift

The facts aren’t difficult to follow:

• In 2018, Uber discovered one of its drivers had a 16-year-old criminal conviction and revoked his permission to work as driver. The background check for Uber drivers, however, required a clean record for seven years.
• The driver filed a discrimination charge based on age and sex against Uber with the Pennsylvania Human Relations Commission.
• In March 2022, the PHRC found no probable cause and closed the case.
• In January 2023, the PHRC reopened the case.
• In March 2023, the driver filed an amended charge with the PHRC, asserting Uber’s background-check policy had a disparate impact on Black and Hispanic men. Uber protested the reopening of the case, but the PHRC rejected Uber’s arguments and proceeded to investigate.

When the deadline arrived for Uber to provide information to the PHRC, it sued the driver instead, seeking to compel arbitration. Uber’s real intent, which was barely disguised, was to foreclose the PHRC from further investigating the driver’s allegations. Working against Uber: A provision in the arbitration agreement stating it didn’t bar government agencies from investigating any report, claim or charge otherwise covered by the agreement.

The PHRC sought to be included as a defendant, and then it and the driver asked the court to dismiss Uber’s complaint. A federal court granted PHRC’s motion to intervene and the motion to dismiss.

Court: The driver’s charge of employment discrimination with the PHRC isn’t subject to compulsory arbitration. The PHRC has jurisdiction to investigate and rule on complaints charging an unlawful discriminatory act. Uber’s requested relief would prevent the PHRC from even investigating the driver’s amended charge, the court concluded.

The case is Uber Technologies, Inc. v. Boddie.

Bottom line

Arbitration isn’t a get-of-jail-free card for employers. It doesn’t, for example, apply to federal or state antidiscrimination agencies, which have independent jurisdiction to investigate and pursue allegations of discrimination.

The remedies available to the EEOC or a state counterpart are also different from arbitration, which binds only the parties. An agency may sue for compensatory damages or reinstatement for the employee, but the scope of a settlement or judgment can often impact an employer’s entire employment process on an ongoing basis.

Finally, you can either invoke arbitration or defend an employee’s lawsuit, but not both. You can’t, for example, invoke arbitration only after you determine your legal defenses won’t convince a jury. A couple of years ago, the Supreme Court ruled that an employee doesn’t need to show they were harmed when asserting that their employer’s actions amounted to a waiver of its right to arbitrate.