When a disgruntled employee files a lawsuit that goes to court his employer must pay tens or hundreds of thousands of dollars in legal fees. Even if the courts reject the allegation as frivolous employers must still pay the lawyers. That allows unscrupulous employees to use threat of going to court to win large settlements from their bosses for baseless claims. Guilty or not guilty, the employer loses money that could have been used to expand operations and hire more workers.
Consequently many employers are turning to alternative dispute resolution methods that cost far less. Many contracts require employers and employees to take legal disputes to arbitration. There an outside arbitrator evaluates the claims and imposes remedies. Arbitrators award employees fair damages in cases of actual injustice while quickly dispensing with merit-less nuisance suits. Instead of legal bills running into the hundreds of thousands of dollars, however, arbitration usually costs only a few thousand dollars. That saves employers the money they need to create jobs while giving rogue employees no leverage to win undeserved settlements. Arbitration protects employees’ legal rights while keeping the economy moving. Everybody wins. Except the trial lawyers.
They like high legal bills. So they hate arbitration. It takes away their customers. The trial lawyer bar has long lobbied Congress to ban arbitration. They want to guarantee that employers accused of wrongdoing must always settle (with the help of attorneys) or go to court and really rack up their legal costs. Banning arbitration protects trial lawyers six-and-seven-figure lifestyles, but it sucks money out of businesses that would otherwise create jobs.
Last Tuesday the Senate gave the trial lawyers an enormous win. It passed an amendment offered by Al Franken (D-MN) that bars any contractor with the Department of Defense from using arbitration.
The putative justification for this is a horrific case in which Jamie Jones, a Halliburton employee in Iraq, who alleges that she was gang-raped in her bedroom by her co-workers. She claims that when she reported the attack to her supervisors, they placed her in a container under armed guard and did not let her leave or call her family for several days. Halliburton HR officials allegedly told her to “get over it” or lose her job, and she asserts that Halliburton attempted to short circuit her lawsuit by sending the case to arbitration.
Given that Franken chose to highlight her case, you might assume that the courts ruled in Haliburton’s favor, and that she was not able to bring her claims in court instead of to an arbitrator. But then you would be wrong. The courts ruled that Halliburton could not arbitrate her claims of assault and battery, intentional infliction of emotional distress, negligent hiring, retention and supervision of employees involved in the assault, and false imprisonment.
So why did Franken offer his amendment to ban arbitration? And why an amendment that applies to every company with contracts with the DOD, not just Halliburton? Because it has little to do with ensuring that Jamie Jones gets justice. The courts have already allowed Jones’ lawsuit to go forward. This amendment is a move towards the plaintiff bar’s longstanding goal of banning dispute arbitration. But the allegations in this case are so egregious that it makes it difficult for Members of Congress to stand up for the rights of law-abiding employers.
Making it easier for lawyers to take their cut appeals to lawyers. But it comes at the expense of job creation. The money lawyers take undercuts healthy businesses and discourages new entrepreneurs from starting their own small businesses. Why would anyone start a business if they expected to spend most of the money they earn on legal bills? Why take that risk? Congress should not let the trial bar pre-judge America’s job creators guilty as charged.
