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Campaign against mandatory arbitration of sexual harassment gets pledges from 391 firms

Financial Planning - Tobias Salinger

At least three wealth managers — and 388 other publicly traded companies — have pledged to end an employment practice that critics say is harmful to victims of sexual harassment.

The number has soared from just five firms in September 2019, when Rachel Robasciotti of impact investing manager Adasina Social Capital and two collaborators began asking more than 3,500 public companies whether they require arbitration of employees’ sexual harassment claims. Robasciotti and other advocates argue that arbitration enables companies to conceal the claims from investors and the public while protecting serial harassers.

Employers including at least 15 wealth managers listed in the Force the Issue database usually require arbitration of sexual harassment through provisions of their employment contracts with financial advisors and other staff, experts say. The novel dataset compiled by Robasciotti, consumer activist Shannon Coulter of the Grab Your Wallet Alliance and workplace equity researcher Iris Kuo of Ledbetter provides more metrics for gender-lens investing, as well. If firms didn’t respond to Force the Issue, they’re marked as “probably” requiring forced arbitration.

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By the numbers

The available data about forced arbitration is striking. More than 60 million American workers are subject to forced arbitration, according to a 2018 study by the progressive Economic Policy Institute. Earlier studies have shown that employees are less likely to win in arbitration than in federal and state courts; they also receive lower damages than in court if they do prevail. The mandatory arbitration policies have worked to “the severe detriment of sexual harassment victims” in particular, an August 2020 paper in the Harvard Negotiation Law Review says.

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Arbitration provisions of employment contracts often include waivers of class action rights as well, removing that option for victims, according to advocates. Filing a complaint with the Equal Employment Opportunity Commission represents another potential route; still, 54% of the more than 78,000 sexual harassment cases that reached resolutions in the past 10 years ended with findings of “no reasonable cause,” according to the agency.

For victims often subject to “subtle but destructive” retaliation by firms after reporting sexual harassment, the available statistics on outcomes of cases “clearly show poor odds” for employees in arbitration, according to Jennifer Schwartz, a partner with employment law firm Outten & Golden.

“It deprives employees of power and leverage and reduces their chances of winning at trial,” Schwartz said in an email. “Arbitrators frequently hold in favor of employers, who are the parties often paying the bulk of the fees for arbitration. Moreover, arbitrators are far less likely to award substantial damages for the emotional distress caused victims of sexual harassment.”

Wealth management reckoning?

At least 391 firms with 10.3 million workers told Force the Issue they “definitely” have stopped requiring arbitration or never did so for sexual harassment claims, according to the database. Out of 20 public wealth managers and other listed firms active in the sector, only Wells Fargo, Focus Financial Partners and Principal Financial Group have joined the group, the website states. A fourth firm, Morgan Stanley, enabled employees to opt out of it starting in 2015.

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Force the Issue could prompt such changes in multiple sectors, after bringing together investors with a combined $54 billion in assets in its campaign urging companies to cease the practice. The group of investors that signed its statement includes the AFL-CIO, the Los Angeles City Employee Retirement System, Trillium Asset Management and Walden Asset Management. The investors cite high costs from “absenteeism, low productivity and staff turnover” due to routine mishandling of valid sexual harassment claims and a “culture of acceptance” for harassment.

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Big data

Although her organization seeks to ban mandatory arbitration for all types of claims, Flegel praises Force the Issue as “an interesting and important database” showing the level of secrecy and the importance to investors interested in understanding the potential liability to firms.

The site also fills in “a big piece” of missing data that’s still undisclosed by many public firms, says Marypat Smucker, the principal for research and content of gender-lens investment research firm Parallelle Finance. Pay gap data and supplier diversity figures would help publicly traded gender lens equity funds add two more screens to their models. The funds had more than $2.67 billion in assets under management at the end of 2020, according to Parallelle.

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